Category Archives: Technology

Finance Needs Spend Analysis and e-Procurement, Part II

In our last post, we noted that Basware recently released its annual “Cost of Control” study for 2010 and pointed out that Finance’s top 10 challenges could be easily solved with good, modern, spend analysis and e-Procurement solutions. The study also outlined the top 10 strategic finance priorities for 2010 … which can also be addressed by the adoption of good spend analysis and e-Procurement systems. For example:

Spend Analysis would address:

  • Increasing Profits and Top Line PerformanceProfit = Cash In - Cash Out

    Spend analysis reduced cash out.

    Therefore, spend analysis improves profit margins.

  • Maintaining or Improving Profit MarginsSpend analysis allows you to consolidate spend among fewer suppliers and fewer SKUs. This reduces overhead and increases profit margin.
  • Planning, Budgeting, and Revenue ForecastingOnce you know your actual year-over-year spend, volume trends, and market trends, your forecasts and budgets improve greatly.
  • Risk AnalysisAugment the data with (financial) risk information and quality/performance metrics, and you can quickly see which suppliers likely pose the greatest risk to your operations.
  • Regulatory ComplianceYou know what suppliers you’re spending on and how much is going to socially responsible suppliers and how much isn’t. Augment the product data with carbon emissions spending and you know if you’re within limits or not. Etc.

E-Procurement would address:

  • Reduce Overall PurchasingA modern e-Procurement system with approvals, checks, and balances would insure nothing is bought that isn’t approved, on-contract, and within-budget without managerial exception.
  • Cash Flow and Working Capital ManagementYou can see how many purchase orders are outstanding, how many invoices are upaid, what discounts are available to you if you pay early, how much cash is actually free, and even take advantage of receivables financing.
  • Improving Short and Long Term Operational EfficiencyYou can cut DPO and DSO in half, eliminate paper processing, and make your team 80% more efficient. Over the long term, you can reduce the headcount devoted to tactical “paper pushing” and increase the headcount dedicated to strategic spend analysis and sourcing, which increases organizational savings per employee.
  • Environmental PracticesNo paper. Spending to environmentally irresponsible suppliers can be denied. Etc.
  • Accessing CreditIf you know what you have, and you can demonstrate the reliable payment history, even if the banks turn you down, you can get receivables financing.

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Trade Extensions Trades Up its UI … Again

Last fall, I provided you with an update on Trade Extensions and how they traded up their UI across their sourcing suite, making it easier to use while making it easier on the eyes. Well, barraged by constant feedback from users who wanted it to be easier still for the creation of “simple” optimization models, as they transitioned from a “full-service” to a “supported” to a “self-service” model, Trade Extensions decided to trade up its optimization UI again, especially around rule generation and scenario creation.

The Trade Extensions UI and platform was impressive because it’s constraints, or “rules”, are template-based, which permit them to be saved, copied, and applied to any relevant scenario and because it’s filters, which can be used restrict application of the rules, can be defined on bidders, lots, bids, plants, lot fields, and any other defined dimension in the system. Unlike many platforms where the buyer is limited to fixed constraint templates, the Trade Extensions UI allowed the buyer to build her own. However, defining a complex constraint and adding it to the scenario could be a complex multi-step process. For example, if you wanted to restrict allocation to European suppliers to 40% of the total award in Europe and Asia, the buyer would have to:

  1. go to the filters screen
  2. add a new filter that defined the European suppliers
  3. add a new filter that defined the European and Asian locations
  4. go the rules screen
  5. create a new allocation rule that restricted total supply by volume to Europe and Asia by European suppliers to 40% by selecting the rule type, defining the limit, and selecting the filters
  6. go to the scenario screen
  7. add the newly created allocation rule

While certainly doable, the process was cumbersome for simple constraints like “limit the award to The Wonderful World of Widgets to 40%” or “spilt the award between 3 suppliers such that no supplier gets less than 20%”.

In the new UI, which is based on a lot of ingenuity and even more AJAX, you can define the constraint and add it to the scenario from the scenario screen, which lists all the currently associated rules, which can each be enabled or disabled with a single checkbox. Clicking the “New Rule” button brings up a new Rule Creation screen for the scenario which allows you to define a constraint by:

  1. selecting a constraint template from the drop down, which organizes constraints by category
  2. specifying the bounds
  3. adding or defining any required filters on the fly
  4. selecting any required modifiers by way of a drop down

So, in our example above, to define the constraint you’d:

  1. click the “New Rule” button
  2. select the “Allocation (%) to Specified Suppliers is at most X
  3. select the “European Suppliers Filter”
  4. fill-in-the-bound with 40(%)
  5. add the “Restrict To Lot” modifier
  6. select the “European and Asian” lots Filter
  7. save the constraint

Then you’re returned to the scenario screen, with the new rule at the bottom of the list, where you can edit the parameter and filter selections on-screen, as well as turning the rule on-and-off. It makes the creation of even moderately complex rules quick and painless. And if your constraint is complex, or not accounted for in one of the dozens and dozens of pre-defined templates, you still have the classic method where the complexity of the constraint is limited only to the confines of your consciousness.

They’ve also traded up their reporting as well. In last fall‘s post, I told you how they had just released the ability to view scenario results in their new OLAP engine, which is the basis of their spend analysis offering. In the current release, the entire reporting framework has been shifted over to the OLAP engine which not only allows the buyers to slice and dice the award scenarios any way they like, but, with the new report builder, build pretty much any cross-tab, pivot-table, or roll-up report they like on both award dimensions and derived dimensions (which can also be exported to Excel if the buyer so desires).

The UI for defining a new report, which is also based on AJAX, is as simple, and powerful, as the new rule creation UI. To create a new report, the user:

  1. gives the report a name
  2. specifies the bidders, lots, and bids to use, possibly by way of filters (from existing rules) (which can be inverted)
  3. selects the associated dimensions (which can include any associated dimension from the RFX, Auction, etc. such as brand name, division, and historical spend for the lot; name, location, and number of allocated bids for bidders; base currency, date, and bid number for bid)
  4. defines the facts (derived dimensions), such as total spend by supplier; year-over-year savings by category; etc.
  5. selects the scenarios and/or phases to include (which can range from 1 to n), depending on the type of (comparison) report

Plus, the user can also create reports by joining one or more report definitions. If the user wanted to see payment and savings by allocated bidder and the user had a Payment and Savings report and a Allocation per Bidder report, the user can simply run both reports at the same time. The system will calculate the appropriate union of bidders, lots, bids, dimensions, and facts and create the appropriate report.

Finally, they are converting all of the standard reports to templates that can not only be used to run the standard canned reports, but copied and modified to serve your buyers’ needs. It’s an impressive improvement in usability such a short time-frame.

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Finance Needs Spend Analysis and e-Procurement

Basware recently released its annual “Cost of Control” study for 2010, which contained, among dozens of other statistics and tables, the top 10 challenges for Finance over the past year. Reviewing them, it immediately struck me how most of them would be addressed with the adoption of good, modern, spend analysis and e-Procurement solutions. For example:

Spend Analysis would solve:

  • Spend VisibilityYou’d instantly see what you are spending, with who, for what, and by whom
  • Difficulties in Realizing Cost Saving OpportunitiesA good spend analysis system instantly presents you with the low-hanging fruit and gives you the power to easily explore over twenty different types of savings opportunities, as discussed in the recent Illumination on Strategic Spend Visibility.
  • More Visibility into Contract ManagementIt’s easy to integrate contract management into a modern spend analysis solution, even if you don’t have a contract management solution! Just create a contract dimension, as per this post on integrating contract management and spend analysis, and you’ll see not only what you are spending on contract, but what’s not being spent on contract. This visibility into contract and non-contract spend gives you an instant read on contract management, and what you need to do to fix it.
  • Difficulties in Realizing Cost Savings Across the BusinessBy integrating AP, Invoice, and Contract data, you can see not only what spending is on contract, but what spending is at contract rates, or, in the case of best-price contracts, where pricing isn’t trending down where it should be. This allows you to go after overpayments to realize the negotiated savings. Also, you can see when you are hitting discount or rebate thresholds, and aggressively go after those as well.
  • Need to Squeeze Suppliers on Payment TermsWhen you are realizing your negotiated savings, there will be less of a need to squeeze suppliers on payment terms. Plus, improved visibility into spend puts you in a better position to take advantage of early payment discounts, which will help you save even more!
  • Increased Supplier RiskMany modern spend analysis systems integrate, or allow for the integration of, third party data feeds from the credit agencies that track financial risk. This will give you a quick insight into the majority of suppliers who are most likely to go bankrupt. While it won’t be perfect, it’s much better than nothing.
  • Environmental Regulations / Compliance Integrate ERP data, and you can calculate carbon output, energy usage, water usage, etc. and automate production of your social responsibility and carbon footprint reports!

E-Procurement would solve:

  • Need to Improve Invoicing and Payment ProcessingE-Invoicing allows for automatic receipt, matching, and, if it meets the defined payment rules, automatic queueing for payment and e-payment systems allow payments to be queued and made automatically.
  • Need to Automate Financial Processes More QuicklyNot only does e-Procurement allow every step of the procurement process to be automated, but it allows your procurement professionals to process POs, invoices, payments, etc. on an exception basis only — which means they only have to get involved when there’s a problem.
  • System Integration / Technology ChallengesMost modern e-Procurement platform providers already integrate into most of the major ERP and relational database systems on the market, and there are scores of specialist shops that can assist with custom integrations.

In other words, if Finance wants to solve it’s greatest challenges, spend analysis and e-Procurement solutions are the answer.

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The Dumbest Conversation I’ve Ever Had

When SI reviews a product, SI insists on a demo. It’s very simple. If you can’t show me a demo, then I have nothing to say. I’m not interested in your PowerPoints or your opinions about the marketplace or your scuttlebutt about your competitors. I have one question, and one question only: Where’s the Beef?

Two days ago, one of the largest independent vendors in our space offered to provide a demo so that SI could cover them. Then, yesterday, they insisted on an NDA. This is the second time I’ve had this conversation in a month. And I’m as dumbfounded now as I was last month.

As per the FAQ, SI will not cover any company that insists on an NDA. Please don’t tell us any corporate secrets, we don’t want to know them. What good are corporate secrets if they are revealed under an NDA and they cannot be written about? Furthermore, SI has no interest in them. SI is not a gossip column that hints around at this or that. That’s why SI can’t be manipulated by marketing people. We don’t care what you have coming next month or next year, unless it can be written about. We’re not going to “hint around” that we “know something important” about your product line or your future plans. That’s not what we do here. You can go to dozens of other sites for that.

At SI we are into reality, not fantasy. And in the real world a company’s released products are not corporate secrets.They are in the public domain. Everyone sees them. Everyone uses them. I am no different than anyone else who has seen the product. How on earth am I supposed to write about your product if you tie me up with an NDA? It would be the dumbest conversation ever, and the most worthless article ever published on SI. Not that worthless articles aren’t published daily on dozens and dozens of other sites, but as I said, you can go to those other sites if you like worthless articles.

Forgive me, but I am deeply suspicious of any company that won’t demo their product to me. (And I’m glad to say that there aren’t many that have officially refused. In fact, to date, only four companies have officially refused. However, the four that have refused are four of the eight biggest companies in the space. And that is worrisome.) SI is not in the business of product bashing — and if you look at my past reviews of dozens upon dozens of solutions, if nothing else, this one fact should be abundantly clear. I have great respect for anyone or any company that brings a product to market. Having done it myself a few times (as I am not your average liberal-arts blogger with no other marketable skill, but a CS PhD who has designed, architected, implemented, and brought a number of e-Commerce and e-Sourcing platforms to market), I know for a fact that it is not easy to do that. No matter what you might hear, it never is.

Take me up on my challenge! Every review SI has ever done is archived on the blog. The majority are indexed in this post (which is updated a few times a year). If the product solves a problem in our space, it will be written that it solves a problem in our space. Any product that has made it to market that actually works and actually provides value is a product that somebody somewhere can use. It’s SI’s job to let that somebody know about it. That’s what we do here.

I can’t figure it out. What are these vendors afraid of?

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