Source-to-Pay+ Is Extensive (P11) … What Do You Need For (A) Spend Analysis (Baseline), Installment 2

In our last post (Part 10), after reviewing the spend analysis process which, in short is:

  • Extract the relevant data
  • Load the data into the solution (mapping it to a starting taxonomy)
  • Structure for the types of analyses you need to perform
  • Analyze the data and get useful insights to
  • Act on the insights you get

We identified that the core requirements a spend analysis system needs to support are those that enable:

  • Load
  • Structure
  • Analyze

with a focus on

  • Efficiency

Let’s take these requirements one by one.

Load: The first step is to get the data in. It needs to be easy to ingest large data files and map the data to a starting taxonomy that can be manipulated for the purposes of analysis. Particularly, those data files in classic csv, row, or column formats that are universal. The ingestion needs to be fast and intelligent and learn from everything the user does so that the next time the application sees a similar record, it knows what to do with that record. This allows us to identify our first two core requirements:

  • rules: the application needs to support rules that allow for deterministic based (re)mappings when certain data values (within a tolerance) are identified (and these rules need to be easily editable over time as needed)
  • hybrid AI: that can analyze the data and suggest the rules for the user to select to speed up rule definition and mapping during load

Structure: The next step is to structure the data for analysis. In spend analysis, the core structure is a

  • Cube: the application must be able to build a custom cube for each type of analyses required; one size, and thus one cube, does NOT fit all; the cubes must also support derived dimensions using measures and summaries

Sometimes the cube needs to be explored, which means that the application also needs to support

  • Drill Down: to the data of interest
  • Filters: to define the relevant data subset
  • Views: that can be configured and customized using measures, drill downs, and filters for easy exploration and easy revisiting

Also, while the theory is that you have one record in your ERP, AP, etc. for a supplier, product, and other real-world entity, the reality is that you have multiple (multiple [multiple]) entries, so the application has to also support

  • Familying of like entites: suppliers, products, and even locations
  • Mapping of children organizations to their parent when you can cut master contracts / agreements (such as with hotel chains)

At this point, we’ve built a cube, and we’re ready for:

Analysis: where we analyze our slices of the data to get insight that we can eventually act on; this requires:

  • Measures: that can summarize the data in a meaningful way
  • Benchmarks: that can be compared against
  • Reports: which can be bookmarked views that show the right summary (and can be saved or printed)
  • Data Science Hooks: to external algorithms and libraries for forecast generation, trend analysis, etc.

And at this point, while we don’t necessarily have everything the doctor would want in a modern spend analysis system, we almost have everything that is needed to meet the baseline, with one exception, and that’s the functionality needed to enable

Efficiency which, in spend analysis, equates to the technical requirements that eliminate the need to “reinvent the wheel” every time the analysis effort needs to be repeated. The problem with traditional spend analysis systems is that any time the data changes, all of the work has to be repeated. A good system will remember everything that was done, preserve it, just identify the data changes and new data, and pull them in. Some systems do this okay, but if the underlying data source changes, they fall apart.

However, when there’s more than one user, which is the case in most organizations, the implementation creates a central, “master”, cube and everyone has to work off of that. Usually this involves creating a copy of that cube, and then working off of that central cube. And then, when that cube is updated, create a copy of that cube and start all over.

Better systems will allow the user to pull in “just the new data” if the structure of the core cube hasn’t changed and the data can be mapped by the existing rules. But any time the base cube undergoes even a minor structural change, all of the analysts have to start again, from scratch. But this is mitigated if the system supports

  • Inheritance: which creates every user’s cube as a sub-cube of another system cube or the master cube and, when any parent cube changes, use the relationship to automatically propagate any changes without any effort required on the part of the user

There are, of course, other features and functions that can be added to increase efficiency even more, but this one capability makes a spend analysis system exponentially more efficient than any system that came before.

We should note that, as of today, only one spend analysis system supports full inheritance, but a couple support partial inheritance and are attempting to improve their offering. So keep this in mind when you are comparing solutions, as not all will be equal.

Continue to Part 12.

Source-to-Pay+ Is Extensive (P10) … What Do You Need For (A) Spend Analysis (Baseline), Installment 1

In Part 8 we briefly reviewed the major modules in Source-to-Pay in an attempt to identify which module to work on after e-Procurement, and concluded that you select Spend Analysis, and start using it (even without integration) as soon as possible because. Spend Analysis not only helps your organization identify its best opportunities, but also what module should come next (in terms of implementation and integration).

Then, in Part 9 we elaborated on our comment that spend analysis can help you identify the most important Source-to-Pay modules for your organization based upon the types of opportunities that are identified. We identified situations in which Supplier Management, Contract Management, Risk Management, Source-to-Pay, and even I2P is relevant to capture opportunities. We did this to illustrate the criticality of getting going on spend analysis as soon as possible.

The next step is to identify what you need in a spend analysis solution. But before we can do that, we need to review the basic spend analysis process:

Extract
you need to extract the relevant data from the relevant applications
Load
you need to load the data into the spend analysis solution (and map it a starting taxonomy)
Structure
you need to structure the data for the various types of analyses you want to perform
Analyse
you need to perform the analyses and get insight
Act
you need to take action, which involves initiating processes, tracking progress, and getting results

Looking at this process, you need whatever functionality is required to

  • Load,
  • Structure and
  • Analyze the data

Most older platforms don’t support modern API hooks or data transfer standards, so the reality is that you will need to export the data from those platforms, and there will be limited “extraction” in the spend analysis platform beyond support for requesting data through an API in the standard format the spend analysis tool supports and the API calls the spend analysis tool supports. As a result, the “extraction” part of the process is mostly outside the scope of the spend analysis tool.

Similarly, most organizations will have, or want, to use other tools to create projects, assign actions, track progress, and so on. As a result, the “act”ion part of the process is often mostly outside the spend analysis tool with, of course, the ability to push the results out in a standard format through a supported API.

Thus, in order to define a solid spend analysis baseline, we need to define all of the functionality to

  • Load,
  • Structure and
  • Analyze the data

and, most importantly, do it in a manner that

  • supports efficiency.

In other words, the last thing you want to do is have to repeat the entire process every time data is updated or re-classified in the source system. In our next installment, Part 11, we will review the core functionality required for each of these four core requirements.

Services Struggles? Get Zivio. It’s Apropos!

In Friday’s post we told you not to use a sub-standard sourcing solution for services sourcing because, in the end, you won’t realize the value you expect or collect the data you need to make better awards in the process. And we know that left you with questions because all the big platforms you know don’t do services, or at least do not do services well.

So, today, we provide one answer to that problem — Zivio, a relatively new player that specializes in complex services sourcing, that is Best of Breed, and that meets the requirement of being able to integrate into an existing platform or ecosystem that contains open APIs and that can accept all of the data it can capture, generate, and exchange, with its complete, open, APIs.

Zivio was designed to manage the entire process from initial project creation through supplier onboarding, selection, and approval to milestone tracking and management to close-out, final bill-out and reporting. Each step of the process is designed to be easy to use and efficient and makes use of any existing templates and knowledge in the tool, using AI where (and only where) appropriate.

Their new project definition wizard, called ScopeIQ, is designed for quick Statement of Work (SoW) creation and all a requisitioner has to do is enter a few short sentences with the most relevant keywords and the solution will suggest a title based upon similar projects in the past, which the user can accept or edit, and then, using past project descriptions (from the company and publicly available datasets), it will use AI to assemble a project description and statement of work that the user can then review and edit. If the organization does a number of similar projects, it works exceptionally well and the starting statements of work and project descriptions are quite good and often need little editing (comparatively speaking).

Once the user has accepted the SoW, they can complete the project definition by defining the appropriate metadata (category, subcategory, budget, milestones, project release date, bid closing date, award criteria, etc.) and send the project out for bid. The system can automatically identify the best suppliers based on project categorization, milestones, and past performance on similar project and the user can select these suppliers and invite them to bid with just one click.

When the bids are submitted, the users can see an overarching summary and select a sub-set for side-by-side comparison. At any time before award, the buyer can easily modify the project description and add or modify milestones. Milestones can also be added and modified after award with the right approvals and agreement from both parties.

The product has good supplier management, performance management, and approval management, especially around supplier onboarding, milestone approvals, and payment approvals. By default, the platform tracks on time performance, operational best practice, and on budget metrics by supplier, but can be configured on implementation to track more. It also computes an overall score for easy ranking purposes (which can also be customized on implementation). When it comes to reports, there are a large number of project, milestone, supplier, and financial reports out-of-the-box, and more can be easily configured on implementation. Plus, as the platform was built to integrate with your existing S2P/ERP platform / ecosystem, it can push all of the data out to an external tool where you can do additional reporting and analysis.

But the best part about the tool is the ability to define complex services projects to any level of detail needed, with as many milestones, tasks, and approvals as required, customized for the project, with breakdown costing and interim payments as needed. And then to log into the system at any time, see where a project is, see where all projects are with a supplier or where all suppliers are with a set of related projects. And the ability to quickly bring up summary reports of relevance to the appropriate level of detail at any time. It’s project based sourcing and it works great, especially when you’ve defined your first few projects and the system can use (and learn) from those templates and suggest SoWs, suppliers, and steps for you. It’s what general services sourcing should be.

Now, before we sign off, we should make it clear that we are not saying that Zivio is the only solution (especially as we’re sure we will see more in the months and years ahead as more people realize how critical proper services sourcing is), or the solution for every business (as there are custom solutions for Legal, Marketing, and SaaS, that we will be covering in our Source-to-Pay is Extensive series), but that Zivio is a solid general purpose solution for an organization with a wide array of services needs that should be considered if the organization does not have a services sourcing solution. It could be the right solution for your organization and, if it is, given the typical overspend in services categories, that means you should have been using it yesterday!

Don’t Use a Sub-Standard Sourcing Solution for Services!

If you know the Source-to-Pay software market, you know that most of the solutions out there were originally designed for indirect, commodity/finished good purchases, and most of the solutions are still targetted at those types of product-base acquisition today. (When we get to the list of sourcing vendors in our ongoing Source-to-Pay is Extensive series, you will see that this is the case.)

The reasons for this are multifold, but the main reasons [which often aren’t valid] for building, and maintaining, an indirect-focussed sourcing solution usually fall into one or more of the following:

  • for many non-manufacturing organizations and organizations that don’t require highly customized goods, indirect is the greatest percentage of external spend
    [often true, but not always the greatest savings potential]
  • it’s easier to do apples-to-apples with commodities and, thus, find the greatest savings
    [easy to do the comparison, but savings depends on the market and where the organization is overspending the most
  • services are the domain of CWM, right, so those platforms are likely covering it
    [they’re not, they’re focussed on workforce management, not project management, and that’s critical]
  • every organization has different services needs, and sourcing processes, so it would be hard to build a solution that wasn’t extremely specific to an industry and, hence, build a successful business
    [when you get specific, yes, but most organizations go outside for the same services: legal support, marketing support, tech support, facilities support, etc. and the types of work, and thus sourcing processes, are similar, its just the specific needs that differ (leasing vs. insurance vs. IP law, traditional media vs. web media, on-site vs cloud services and specific systems, etc.)]
  • it’s just too complicated and is best done manual
    [it’s certainly more work to design a solution, requires a different workflow, and most certainly the solution will requires customization on a client level, and does take more upfront build time, but services sourcing is not best done manual]

However, it’s likely that you were sold such a solution, and told that you can easily fit services into it with a bit of work, especially if the vendor also adapted it to support (limited) bills of material (BoMs) and direct (which they claimed was harder). The rigging to make it work would either be to create statements of work up front [which you should do] and getting all-in bids [which you probably should not do], or breaking the project done into phases and getting staged bids [which is good, if your stages are appropriate the time cost dwarfs the material cost], or offering it up as a time and materials and getting separate bids where you could optimize the material cost using third party market costs (and contract on behalf of the supplier) and the time cost by optimizing the resource rates against the expected hours/days, and then selecting the combined lowest cost [which isn’t bad, but extremely complicated and still leaves you with apples-to-orange comparisons later if sometimes the supplier did the material procurement and sometimes you did*]. And you can. Sort of. But it’s not a good solution, and you shouldn’t do it.

Why?

A whole host of reasons including, but not limited to:

  • force fitting square services into round holes is not a good solution
    [you’ll have to shave off the corners, and they could be important]
  • you’ll never know what part of the service is the most complex or costly if you can’t collect, and compare, the right, granular data
    [and, moreover, which suppliers are marking up the most and extorting high profits across the board because one part of the project is actually costly and complex and you have no way of knowing how big that one part is; that one part could only be 20% with the rest of the project being achievable with low-cost common cookie-cutter services]
  • when the project runs late or over budget, you’ll never really know why (unless there are a lot of change orders);
    [it might be just one of the phases or one task among 20 was considerably under-scoped or there was one part of the project in particular the supplier was just not suited for (even though they were for the rest of the project and were a stellar performer for mostly similar projects in the past, which didn’t have that one new/complex task; e.g. up until now, it was all simply enterprise system integration and installation and you used a different vendor for the security configuration and audits; but this time, the buyer baked it in to the core SoW, the supplier quoted as being able to do it, when they really didn’t have the expertise on hardening the product, configuring your firewalls, or fixing issues found by your third party security auditor)]
  • you won’t be able to build an accurate performance profile on your services providers and identify which ones typically come in on time, on budget, and to spec, while meeting any CSR/ESG or diversity targets set by your organization
    [and this is critical as those are suppliers you should be prioritizing for future projects, and those that aren’t performing as well, if strategic, are the ones that need to be the focus of development projects]
  • you won’t be able to manage, or even track, the project in the platform
    [and you should at least be able to look up where a project is with respect to milestones, whether or not it is on budget, and if the suppliers involved are involved with any other projects, and how much work a supplier has unfinished with you before you give them another award]

In other words, you should not use a sourcing solution that is substandard for services for your services projects — you should use one that is. And while this means you may have two sourcing solutions, this doesn’t necessarily mean you will need to have two data stores, SRM systems, analytics systems, etc. Modern Best-of-Breed solutions these days are being built API-first so they can plug into the solution you used for most of your sourcing and then punch out to them for specific projects, and push the awards back when you’re done. As indicated in our post last month that asked Where’s the Procurement Management Platform, you should be looking for a core solution that can serve as a platform, and then best of breed augmentations where needed, as no one vendor can do it all. And that’s okay. If they meet the majority of your need, and are willing to plug into an ecosystem, that’s where you start, especially since, as per our Source to Pay is Extensive series, you can’t implement it all at once anyway. But if you have significant services spend, you need to get it right.

* the doctor is fully aware you can compare apples to oranges, but the comparison is not very useful!

Source-to-Pay+ Is Extensive (P9) … Time for Spend Analysis

In our last post, we reviewed many of the core modules of S2P that can be successfully argued as “high priority” for implementation and came to the conclusion that the next module you get, and get started on (whether or not you integrate it right away or not) is Spend Analysis. This is because it not only helps an organization identify its biggest short term, near term, and long term opportunities, but also helps an organization identify which solutions its likely to get the most immediate value from.

For example, if the largest opportunities are:

renegotiation and renewal with key strategic suppliers and/or supply base rationalization (NOT REDUCTION, but we’ll save that rant for when we get to Supplier Management)
then you will need to get Supplier Management implemented promptly
payment term and timeframe rationalization and/or standardized warranty and repair cost recovery (from suppliers)
then you will need to get a good Contract Management solution implemented as fast as possible
risk identification and mitigation
then you will need to implement contract management with (third party) risk data integrations to help you address the risks in contracts
tail-spend reductions
then you will need to rapidly integrate catalogs from approved and preferred vendors into your eProcurement system, set rules limiting orders from non-approved suppliers without managerial overrides, and set budgets as well as enforce x-bids-and-a-buy spot-buys through the platform
mid-to-high spend categories off contract
then you will need an appropriate strategic sourcing solution
overspend recovery from contracted suppliers
then you will need an enhanced I2P solution that prevents additional overspend as well as an audit recovery tool that creates detailed overspend reports and tracks recovery from the supplier
etc.
etc. etc. etc.

However, without a good spend analysis solution, it’s likely that you won’t identify any of your best opportunities. But with the right spend analysis tool, you will, in time, identify almost all of them.

How will you do that? Using a combination of out of the box reports, analytics, and insights and deep, hunch-based, what-if analysis by your expert sourcers and data analysts. And what capabilities does the tool need to have for you to do this? Keep your eyes peeled for Part 10.