Why Do We Still have First Generation ERP/Data Warehouse BI?

the doctor was recently asked by a senior consultant if a CFO was right when he said why should I use Spend Analysis if my ERP has BI functionality that allows me to do ‘any’ analytics and generate reports … and I only have one ERP instance as the company was relatively small (< 100M).

How is the CFO wrong? Can we even count the ways? First of all, let’s go back ten (long years) to when SI published this great post from the spend master himself, Eric Strovink on screwing up the screw-ups in BI where he noted that Baseline, in their efforts to defend AI, were simply pointing out more holes in the process. In this post, the spend master noted:

1. A central database won’t solve the analysis problem, and at the end of the day you’ll have just as many spreadsheets as before … which, as every CFO and CIO knows, is way too many.

2. Business analysts should be able to construct BI datasets on their own, as needed, from whatever data sources are useful/appropriate, and it shouldn’t be difficult for them to do so … but most BI tools only make it easy to construct datasets and reports on data in the ERP. And you NEVER, EVER, EVER have all the data you need in the ERP. Some is in the AP. Some is in the sourcing and procurement systems. Some is in the WIMS. And then there are market data feeds that can provide insight, not in the ERP.

3. While BI is said to be the cornerstone of a governance program, a governance and stewardship program doesn’t actually put any meat on the table … whereas modern spend analysis systems do.

4. While BI can support data integrity, it typically isn’t cleansing that’s the problem, it’s (1) the fixed organization of the data, which is guaranteed to be inappropriate for any analysis that hasn’t been anticipated a priori, (2) the ad hoc reporting on it, which has to be easy to accomplish, as opposed to requiring IT resources (see below), and (3) the fact that cleansing can’t be accomplished on-the-fly (as it should be) by the business analysts themselves.

5. BI systems are difficult to use and set up, it is difficult to create ad hoc reports, and it is impossible to change the dataset organization … especially compared to spend analysis.

And this doesn’t even begin to address the facts that

6. BI reports are pretty generic, and not fine tuned to Sourcing, Procurement, or Finance. Modern SA systems, built by Sourcing, Procurement, and Finance professionals, have out of the box reporting fine-tuned to the needs of sourcing, procurement, and finance professionals that report on spend by category, supplier and metrics by category and supplier with easy drill down and segmentation by department, category, etc.

7. BI engines work on one schema — the ERP schema. And this is not always appropriate for Sourcing and Procurement who need to manage by category. and then do what if analysis against different re-categorizations to try and find the best way to source and procure for the organization. Modern SA tools allow for the creation of different schemas, different cubes on those schemas, and different views on those cubs. Power not in the BI.

8. BI engines expect the data in the ERP. SA systems don’t. They can import data from multiple systems, flat files, market feeds, etc. — put it in private, or public workspaces, reclassify and modify and augment the data as needed, and create true intelligence on a category or a supplier — not just a summary of last year’s spend by product or supplier.

9. The ability of first (and even second generation) BI engines to create arbitrary reports is considerably overstated. Most of them limit the facts and dimensions that can be used in reports to those in defined tables, and limit the self-service reporting to modification of pre-defined templates. Not the freeform capability of a modern Tableau or Qlik solution, and definitely not the freeform capability in a best in class Spend Analysis solution that can allow any dimensions or facts to be used and reports and dashboards to be created using any defined report components in an easy drag and drop manner.

And so on. Hopefully by now you get the point — especially when there are SA solutions out there that start at only a few thousand a month and provide at least 10 times the value of that outdated BI solution the ERP company should be paying you to use. (The technical debt they owe you on this is huge!)

Scared of AI? Try Auto-Classify!

Last week we noted that if you were scared of AI (and rightfully so, as it tends to over-promise and under-deliver), you should start with Auto-Buy — specifically, auto-buy for certain tail-spend products and services where the platform can at least get you market average pricing on a product or service you’re likely overpaying by 15% or more on. The platform might not be able to match the best expert, but it can far surpass an average buyer, and paying market average is better than overpaying by 15%.

In this post we said that your spend generally breaks down into strategically sourced, bought from the GPO, catalog buy, and the rest falls into the tail. And the way to save significant money quickly and easy is to get the tail out of control … a large tail spend can be costing you 6% against the bottom line. That’s huge. And there’s only one way to get this under control. Auto-buy. And there’s only one way to do better — get the spend out of the tail into the other categories.

This is easier said then done. Tail spend might only be 20% of the spend by dollar, but it’s 80% to 95%+ of spend by volume — trying to classify each and every purchase to a strategically source, GPO, or catalog category it could fall into is a monumental task, and that’s why the tail spend stays high,

But it’s not a monumental task for AI. Remember, we can’t do millions of calculations a second – computers can. And when enough of these calculations are done, and correlated, computers can make assignments that, on average, greatly exceed the accuracy of an average buyer in significantly less time. Plus, the rare-misclassification will be found quickly by a human buyer and re-assigned to the right category — either the product has an equivalent in the GPO, or it doesn’t. Either it has an equivalent in the catalog, or it doesn’t. Or it fits the way the strategic buyers buy, or not. But in the first two cases in particular, the computer will be not only be able to identify the best matches with high accuracy, but even provide its reasoning.

So use the AI for what it’s good at — bulk computation and analysis. And be confident that while it will greatly reduce your tactical workload and make you more efficient, it won’t replace you — in fact, it will make you irreplaceable as you will be freed up to spend more time on the strategic, value generating work.

Category Management Savings Drying Up? Time to Cross-Optimize!

Leaders know that the best way to savings success, especially when the CFO and CEO demand savings today (even though this could sacrifice value tomorrow), is category management — a razor sharp focus on buying like products from like suppliers that allows for apples-to-apples comparison across products on key dimensions of price, quality, warranty, lead-time, etc. so that the best buy that meets the mandatory savings target can be made every time (and as much value preserved in the category as possible).

But Leaders also know, just like the third auction in a row increases costs, good category management sees savings fall rapidly as the fat is quickly squeezed out of the margin and the waste quickly squeezed out of the production, delivery, and inventory process as everything is optimized. This means that as soon as raw material costs go up, category costs go up, and not down.

This can be problematic when (unrealistic) expectations are placed on the Procurement department year after year and savings need to be found even when, apparently, none exist. But here’s the thing, while they don’t exist in the raw materials, or even the overhead, of production, they do exist in the distribution and inventory and still exist in the volume. But only in volume beyond what’s in the category.

This means that the only way to extract them is to increase the volume, which means that you need to simultaneously cross-source and cross-optimize across categories that can be shipped together from the same supply base. For example, while it might be logical to separate brass, bronze, and copper parts from a category management perspective, considering that some suppliers will likely supply parts across these categories (considering brass and bronze are alloys that contain copper), from a sourcing perspective it makes sense to source all three categories simultaneously. This way you can optimize logistics and negotiate additional volume discounts based on spend levels.

This also works in CPG — a supplier may supply computer devices, audio devices, and home security devices — and while you may want to manage these separately, you want to source them simultaneously. And it will work across seemingly unrelated categories if you are buying from suppliers that are essentially distributors (like office supplies vendors, MRO vendors, etc.). All you need to do is find a set of categories where the majority of products come from the same supply base. How do you do this? Simple: use a modern spend analysis tool.

And how do you source multiple categories simultaneously and cross-optimize logistics, inventory, and discounts for the lowest overall total cost of ownership (while maintaining value)? Strategic sourcing decision optimization — the technology SI has been telling you to acquire for a decade. Which vendor? Whichever one suits your needs best. Coupa, Jaggaer ASO, Jaggaer Bravo, and Keelvar are all great. Determine is re-building the Iasta capability on the b-pack platform, and when complete, will join the A-list again … and BidMode is about to hit the scene. Just get one, so you’re not left behind.

Your Procurement New Year Resolutions

To save you some time, the doctor has compiled a list of the most important.

1. I WILL NOT READ PREDICTION ARTICLES

As the doctor has stated repeatedly, most predictions are old news or remanufactured shoes, as clearly explained in our long series on The Future of Procurement where we tackled the same predictions you hear year after year after year and explained how some are, sadly, as old as commerce itself. Thus, there is no need to waste your time on them.

2. I WILL IMPLEMENT AT LEAST ONE NEW BoB MODULE OR SYSTEM

Let’s face it — even if you are 1 in 12 organizations and in the Hackett Group top 8%, I can guarantee there is at least one major Supply Management system or Source to Pay module you are missing (or lacking critical functionality in). In order to do a great job, you need a great system. This year, resolve everything to do everything you can to get at least one more tool that you need to be effective, or more if you are missing any of the following:

spend analytics with near-real time updates (at least weekly)
catalog buying or e-requisitioning system
SRM
optimization-backed sourcing

Why?

you have to understand what you are spending, otherwise you have no baselines and can never know if you are improving — plus, you need to catch overspends before the contracts run out to get supplier credits
all purchases, even if they are not on contract or not sourced due to lack of time, need to get in a system for analysis and tracking
your suppliers’ performance is your performance, you need to understand what suppliers you are doing business with, how they are doing, and have a platform to collaboratively define and implement corrective action and development plans
for complex categories or high dollar events, you need to be optimized; even 2% savings on a 10M spend pays for a senior buyer with overhead and bonus for an entire year!

3. I WILL IMPROVE AT LEAST ONE TIME CONSUMING TACTICAL PROCESS PER QUARTER

There is no value in tactical work. This is where you hand over as much as you can to the machine that can do it faster, better, and cheaper than you. You can’t do millions of calculations and comparisons a second — it can. You can’t consolidate data from 20 different sources into a 20 page report in less than a minute — it can.

What you need to focus on is strategic work. Analyzing the top recommendations that come out of the Cognitive Procurement system to make sure they make sense, that the system didn’t miss anything, and that it works for your organization. And then figuring out if you have the experience and expertise to ignore a system market buy recommendation to go negotiate a better deal with top (incumbent) suppliers because your 20 years of insights gives you an edge that cannot be encoded. Or if the projected results from a market auction with the top 6 suppliers is better than your team would ever do with their complete lack of category experience. Your value is your ability to use your intelligence, not your ability to push paper. Let the dumb machines do that, and do what you were hired for!

I WILL SURVIVE!

An ode to vendors who need to be forgotten!
Confused? See our piece on Technical Debt

At first, I was afraid, I was petrified
Kept thinking I could never live without you by my side
But then I spent so many nights thinking how you did me wrong
And I grew strong and I will learn to get along

And while you claim brand new function
I just walked in to find you here with the same old dysfunction
I should have changed my phone number
I should have blocked your web domain
If I’d have known for just one second you’d be back with the mundane

Go on now go, walk out the door, just turn around now
’cause you’re not welcome anymore
Weren’t you’re the one who tried to lock my data down?
You think I’d crumble? You think I’d turn my mind around?

Oh, no, not I, I will survive
Oh as long as I know how to buy, I know that I will thrive
I’ve got my wits to give, and I’ve got my years to give
And I’ll survive, I, I, I will survive

It took all my strength to deal with the distress
Trying with all my mind to mend a broken process
I spent so many nights feeling just incompetent
Oh, I cried but now I know I will ascend

And you see me, somebody new
Not that desperate little person still stuck with you
Now don’t come promising features you can’t implement
Now I’m saving all my time for a vendor who is competent

Go on now go, walk out the door, turn around now
You’re not welcome anymore
Weren’t you’re the one who tried to lock my data down?
You think I’d crumble? You think I’d turn my mind around?