Category Archives: Spend Analysis

UNSuitable Procurement Spend Classification!

Brian Seipel of Source One Management Services recently shared his Pros and Cons of using UNSPSC for spend classification, indicating that the best taxonomy for you, including UNSPSC, was determined by your primary goal.

According to Brian, if your goal was to hit the ground running fast and base analysis on a tried-and-true standard, then UNSPSC was a great start because, as a standard, it is:

  • pre-developed and ready-to-use,
  • capable of expressing a good degree of granularity, and
  • widely available from vendors and a significant number of data enrichment options exist.

And this sounds great, but, any services vendor with a spend analysis offering (Insight Sourcing Group – SpendHQ, Spendency, Sievo, etc.)

  • has one more standard taxonomies designed for Procurement that it has been using for years and years (that has been refined across dozens, if not hundreds, of clients) and that it regularly achieves great results with
  • and these taxonomies are highly granular, usually to at least four levels of detail, and sometimes more and
  • can be enriched from dozens of sources using pre-defined mappings that the expert spend services group has ready-to-go

And when you look at it this way, there are really no benefits. (Well, there is one benefit to UNSPSC, and that is easy H(T)S code mapping, but that’s a Finance/AP benefit, not a Procurement one!)

However, the benefits of a custom Procurement taxonomy:

  • alignment to organizational Procurement/Sourcing needs
  • flexibility and capability to be re-organized on the fly
  • ability to support different levels of granularity in different categories (so that drill down is only available where it makes sense)

can not be found in UNSPSC. It’s one rigid unaligned structure. It can’t be remapped and re-organized as needed to support changing spend responsibility (such as department-specific IT services being taken out of IT spending and mapped to the appropriate departments). And the granularity cannot be altered. Allowing spend to be analyzed in some cases down to nonsensical levels.

So while it may be standard and universally supported (and even useful from a Finance/AP point of view), it really is an UNSuitable Procurement Spend Classification. So, when it comes time to do spend analysis, do NOT use it. (Select a system that supports multi-classification and finance can have their UNSPSC pound-cake and you can have your feathery souffle.) Are we clear?

(And yes, if asked, even consultants who do not like UNSPSC will say it’s a reasonable option because they are told to never directly contradict a client who signs the cheque, and if the CFO who signed the PO wants it, for whatever half-baked reason, guess what is all of a sudden a viable option … )

AnyData: Another Analytics Arriviste from Across the Atlantic

Maybe some good is coming of all the gross incompetence in public sector spending, unreasonably long payment terms, and multi-nationalization of contemporary British companies … the last few years have seen more Analytics companies start in the UK than in the rest of the English speaking world. Anydata, founded in May, 2013, is one in the long list of UK-based spend analysis providers that have been receiving coverage here on SI and over on SM over the past year or so.

It’s one of the more unique offerings as, in some ways, it has more in common with Agiloft, a BPM (Business Process Management) vendor which recently forayed into Contract Management, building its first application in a matter of days using its visual development environment.

Like Agiloft, and unlike many other vendors in analytics, Anydata started out by building a visual development framework upon which it built its spend analysis offering. This gives it a number of advantages which include, but are not limited to, rapid configuration, rapid report and dashboard construction, rapid visualizations (that is on par or faster than Tableau, QlikView, PowerPivot, Birst, and other platforms they are typically compared against), and rapid development of workflows to support additional data collection.

The analysis platform is centered around powerful dashboard-driven analytics that can be customized by client from dozens of dashboard templates that include historic, strategic, geographic, vendor, company, office, cost-center, and chart-of-account overviews as well as savings opportunities, invoice opportunities, and category opportunities.

The categorization is quite powerful, and currently second only to Sievo in functionality currently on the market. Sievo’s unique multi-pivot drill-down approach allows users to classify data in chunks in any way they want to define those chunks in any order in a very collaborative fashion, which is currently unique on the market today. And while the AnyData approach is not as collaborative, it is as powerful as you can define chunks not on pivots and values, but on queries which can then be replayed, in the order of your choosing, as data is reloaded. So instead of having to define a three level breakdown to select a specific group of transactions for a category, it’s a simple query — which allows for much faster categorization if you are a power user good at creating SQL queries. Much faster.

And, rather uniquely, it has a very powerful data intelligence feature that allows an analyst to query and inspect the data and meta-data on a recently imported data source for the purposes of validating the accuracy and completeness — an activity that should go well beyond just validating the basic check-sums (against the annual financial reports). With AnyData’s platform, you can quickly identify sums, trends, and outliers for any time period of interest, use sliders to zone-in and zone-out on potentially anomalous data, use filters to restrict to dimensions (and even facts) of interest, and understand the characterization of the data you are importing. Not only does this help immensely in cleansing, but helps you pinpoint errors that standard techniques miss in cleansing and classification.

It has additional strengths, and, of course, weaknesses compared to other tools on the market — which can be explored in depth in the Spend Matters Pro series co-authored by the doctor and the prophet [membership required] (Part I) — but this should give you a good introduction to, and flavour for, what Anydata is.

PRGX: Optics on Optix

In our last post, we noted that, as written by the doctor and the prophet over on Spend Matters Pro (membership required) in the PRGX Intro, PRGX is one of a select number of dominant services provider in the niche market for recovery audit services — a market that unlike other procurement services faces tremendous price pressure for its core recovery, statement and related auditing and profit recovery services but also a vendor that has started to remake itself quietly from within.

As a result, as indicated in our last post, PRGX has built the most complete, and in many ways the most advanced, analytics and recovery solution for the retail sector and, in doing so, has built one of the most complete and advanced analytics and recovery solutions for just about any sector that buys and relies on goods. It does this via two platforms, Optix, which has deep Payment, Spend, and Product analytics, and Lavante, which has deep SIM and automated recovery prevention analytics. (We expect they will eventually be merged, but, for now, they are separate.)

As we have covered Lavante multiple times in the past, we’re going to focus on introducing the features of Optix.

Spend Optix

Spend Optix is designed to help an organization get deep insight into their category spend like a typical spend analysis platform for Sourcing and Procurement. Reporting revolves around categories and suppliers. It is also the only PRGX product that today has a built-in report builder, which can build spend reports across pre-defined dimensions and fields. The product is designed to help you understand spend category performance, spend under contract, invoice-vs-supplier insights, item price variance, and commodity cost indices.

This product can also be configured to track all contracts, all meta data of interest, and relate the contracts to the relevant categories and products. This allows a user to drill into a contract from a category, a category from a contract, and create accurate “address spend” reports, as will be described below. The ease of use is not at the level of Lavante SIM, but we expect that will change over time.

Payment Optix

Payment Optix is designed to help an organization get deep insight into their payments and related metrics and, in particular, DPO (days payable outstanding), PO (purchase order) vs. Non-PO spend, deep AP analytics, and risk insights.

The home screen, as with the other OPTIX products, is a dashboard with key metrics and graphs, such as invoices processed by month, DPO, Benford’s law (by invoice amount or value), and related metrics that an organization wants to see on a daily basis. The platform is drill-down report oriented, and the reports are segmented into Invoice Processing, DPO, and Risk Management.

Product Optix

Product Optix is designed to help an organization get deep insight into their product pool, including net margin, equivalent products, and best supplier funding opportunities. Reporting revolves around categories, suppliers, and deals.

The best part is the product detail report which brings up not only detailed product information, but the most complete product margin breakdown report you ever did see. With their extremely strong background in retail, PRGX understands true lifecycle margin calculations as good as anyone and it shines through in their report.

This is just a brief overview of what PRGX can do. For a much deeper dive, see the Pro series (Part I, Part II, and Part III) by the doctor and the prophet over on Spend Matters Pro (membership required) that also dives into strengths and weaknesses and a very detailed SWOT analysis to help you understand where they fit.

Is UNSPSC Really the Best Route? 3 Reasons … ‘Against’

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

In Part I, we discussed three reasons for the standardized taxonomy of UNSPSC. But it’s not always all sunshine and roses. Today we will discuss three reasons against.

The Downsides of a Standardizes Taxonomy

Recall I mentioned that standard taxonomies are a great start. However, we will want to move beyond the confines of these models to compensate for a few critical problems you’re likely to face.

  • Alignment to organizational needs and strategic sourcing goals may be lacking
  • Structural rigidity may not align with organizational profile
  • Contain a good degree of built-in granularity (yes, this is both a strength and a weakness)

All three problems above come down to a lack of proper fit – both in terms of organizational usage and an action-oriented focus.

First, let’s return to our overarching goal: to make sense of spend and identify areas of focus for future savings initiatives. Looking at UNSPSC through this lens, you may find that it difficult to source strictly according to this taxonomy. I’ll give an easy example – when organizations bring in commercial printers for promotional materials, they tend to also buy branded tchotchkes from these same vendors. It makes sense; both items are planned for and purchased at the same time to be used at the same events. Suppliers often work in both of these spaces for this reason, but you wouldn’t know it following UNSPSC strictly. We’re in two separate areas of the code. As a harder example, think about your trusted, value-added IT vendor. This supplier may provide hardware and software across a range of departments, integration and engineering support, and handle your maintenance contract after installation. Draft up a list of products and services, and pull a UNSPSC code to cover all aspects of this supplier relationship – go ahead, I’ll wait. If I had to guess, you likely quit halfway through writing up a pretty long list.

Second, these are rigid structures are inherently one-size-fits-most in nature. UNSPSC can be great for some industries, but may not align well to others. I mention earlier that UNSPSC did tend to get detailed in a number of areas and, if you’re primary focus leans toward the machinery or MRO side of procurement, you may never need to venture beyond UNSPSC. However, any company with a more specialty focus may not get the coverage they need. The purchase of specialty chemicals may have a head start by using UNSPSC as a baseline, but the taxonomy won’t have the granularity to truly understand purchases as-is. One way to solve this issue is to blend additional supplementary detail where needed to make up the difference.

I will close this section with a word of caution. Twice now I’ve talked about the power of granularity, either already found in UNSPSC or added as a supplement afterwards. As such, it may seem odd that I’m considering categorical granularity as both a strength and a weakness – which case ends up being true for you will largely depend on what you’re doing with this level of detail. If you can use this granularity for better isolating and targeting savings opportunities, then throw this under the strength column. However, “paralysis by analysis” is a very real threat to a timely spend analysis project. Consider office supply purchases. One could easily adopt a taxonomy to drill down to a very granular level, separating black ink, felt tip pens from blue ink, ball points – but, would you ever really want to? Always ask yourself, “is more granularity truly necessary to get at the heart of this spend? Will this place of lesser detail hinder this project?” If you don’t need more detail, don’t invest the time. In this case, both pens would be purchased by the same internal groups and from the same suppliers. Spending time classifying to this level, or holding meetings on the best way to characterize paperclip groupings, is a waste.

Never Forget your Ultimate Purpose

It can be tempting to opt for a standard taxonomy, as is offered by UNSPSC. The value they provide is especially obvious early in the process when faced with dirty data, particularly if this is your organization’s first foray into spend analysis.

This temptation, however, will always be short-sighted. It is critical to wrangle spend and develop a clear picture of where your organization’s cash is going, true, but doing so without a clear path forward (one that leads to cost savings) is only going to stagnate strategic sourcing initiatives, leading to lost opportunity costs.

Always stay focused on answering this key question, “what is my best path forward to identifying savings opportunities?” and develop a taxonomy that will lead you there. Starting with UNSPSC can be a great foundation, but always consider where the taxonomy falls short for achieving your goals, and fold in more customized categories of spend where appropriate.

Thanks, Brian!

Is UNSPSC Really the Best Route? 3 Reasons ‘For’ …

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

A common question many organizations have when delving into a spend analysis project is, “which classification taxonomy should I be using?” There are plenty of options on the generic end of the spectrum, UNSPSC being a popular choice. These standards certainly have their advantages, but choosing whether to use one of these standards or something entirely different is ultimately a matter of what will work best for the task at hand.

So, the real question is – What is your primary goal, and which taxonomy will best help you reach it?

Defining Goals

Before we begin, it is important to define what, exactly, our goals are for our spend analysis project. In this case, the spend analysis will be directly supporting the identification of strategic sourcing projects.
Certainly, we want to view our organization-wide supplier base and spend profiles using a commonly understood model so all stakeholders, departments, and C-suite executives are on the same page. One problem many organizations face is that different departments or offices speak different languages when it comes to defining supplier relationships. Add a merger or acquisition to the mix, and chaos can easily ensue.

But this isn’t our end goal – this is just a single, albeit crucial, step in the process. Our true end goal is to provide the ammunition needed to best identify opportunities for cost saving initiatives. No taxonomy, no matter how thoughtful or detailed, can be considered valuable if it can’t help promote change. As such, we should select a taxonomy based on two key parameters:

  1. The taxonomy must be universally applicable to all company spend.
  2. The taxonomy must aid in developing actionable information for future cost saving initiatives.

The Benefits of a Standardized Taxonomy

First, let’s discuss the key reasons to choose a standard model, such as UNSPSC. There are a few great aspects to these model that make them a good starting place for your taxonomy development:

  • Standards are pre-developed and ready-to-use
  • Contain a *good* degree of built-in granularity
  • Wide availability of data enrichment options exist

Right off the bat, one of the largest draws of using a standard taxonomy is that the structure is already in place, ready-to-use. UNSPSC has you covered for any spend your organization is likely to see, from office supplies (commodity code “4412″) to graphic design (“8214″) and beyond. Additionally, there is already a level of granularity at your fingertips: The telecommunications media services includes 10 immediate sublevels with greater detail, from local and long distance service, to mobile communications, and more.

You’ll note my asterisks here; while this granularity is great in many cases, it isn’t always up-to-task across the purchasing spectrum – more on that later. In any case, if you’ve been tasked with the herculean job of collecting, cleansing, and ordering a vast set of spend data covering your entire organization, being able to pick up and implement a taxonomy immediately is one less task on your plate to worry about.

What’s more, this hierarchy is both well-known and heavily utilized. There are plenty of organizations you can turn to that, for a fee, can append your spend data with appropriate categorizations. The appeal here is obvious – one of the more time intensive elements of performing a spend analysis is either developing and validating a rules-based system for categorization or slogging through the process manually.

Jump in feet first, hit the ground running … Pick your action-packed metaphor; a standard taxonomy gets your project started faster – and that’s huge.

But is it all sunshine and roses? Stay tuned for Part II!