Category Archives: Procurement Innovation

There’s No Such Thing as Spend Intelligence

For the last six weeks, I have been exploring problem solving methodologies you could use to help you with your sourcing problems. At a later date, I’m most likely going to take up six sigma and lean, but today I’m going to rant.

There’s no such thing as a Spend Intelligence Solution!

And before you start huffing and puffing about how wrong I am, please read this post in its entirety. Thank you.

A few weeks ago, Aberdeen released its study “The Spend Intelligence Benchmark Report: Turning Data into Action”. This study by Sudy Bharadwaj, Aberdeen’s new Vice President and Research Director of Global Supply Management, and Rick Saia, an Aberdeen Research Analyst, found that companies employing spend intelligence have reduced sourcing cycles by 19 to 25%, reduced the overall number of items they need to purchase by 10 to 15%, and reported contract compliance rates of 31 to 35%, depending on how long the program has been in place. These are some significant results, so there must be something to it.

Shortly after its release, this report sparked a considerable amount of coverage on the blogs. Jason Busch of Spend Matters challenged* the thinking behind Aberdeen’s use of the phrase spend intelligence. The main points of his post were as follows:

Consider how in a recent study, Aberdeen adopted the term “spend intelligence” to describe the broader spend visibility and analytics market. The purpose of my post today is not to rip into the findings — the study itself is highly useful — but to challenge the thinking behind Aberdeen’s use and definition of the phrase, “spend intelligence,” which at this point feels dangerous to me, just as overly political language feels dangerous to Orwell. Why? As an attempt to shoot some Botox into a segment of the Spend Management market that can be challenging to explain and position, Aberdeen’s choice of language shortchanges and over simplifies a concept, potentially corrupting how the market will look at a key Spend Management business process. …

The problem is that spend visibility and analytics is much more complex, requiring data cleansing, rationalization, classification and other efforts which go far beyond what is needed to gain insight into basic HR, financials, IT and other internal information, which fall cleanly in to the BI camp. …

Fundamentally, “spend intelligence” should exist both inside and outside the organization, but Aberdeen’s usage might lead companies to think that everything they need lies within. The problem with this thinking is that supply market information changes all the time …

… by focusing too much on the final insight itself, “spend intelligence” conjures up images of the end-result, rather than the journey or path to get there (which can be as insightful as the data crunching itself). For example, in data gathering efforts, procurement can learn just as much about spend categories by talking with design engineers and operations team members as reading the SAP tea-leaves where dirty data resides.

Not long after, Tim Minahan, who used to occupy Sudy’s position at Aberdeen, of Procuri (acquired by Ariba, acquired by SAP)came to the defense of Aberdeen’s Spend Intelligence Moniker on his blog Supply Excellence [WayBackMachine]. The main posts of his post were as follows:

As an analyst, every software vendor — … — touted their spending analysis capabilities. The caveat: you just needed to give them the data in a cleansed, classified, and structured format. … In short, most vendors pitched building a data cube or data warehouse from which you could run analyses and reports as spending analysis. They were wrong. And they confused the marketplace (possibly intentionally).

It is the automated and repeatable classification of spending information to a structured schema (e.g., UNSPSC, eClass, proprietary schema, etc.) and then the enrichment of this data with related business information (e.g., parent-child relationships, financial risk scores, contracts, performance information) that turns spend information from “dumb” data into true spend intelligence that a company can use to make fact-based sourcing and supply decisions rather than gut-based or hunch-based decisions.

The distinction between spend data and spend intelligence is an important one. Bravo Aberdeen for calling out the difference between dumb data and actionable intelligence.

And just a few days ago, Purchasing Magazine sponsored a webinar on the report where Sudy presented the main findings of the report and Brett Mauser of NCR, a corporation that recently implemented Zycus‘ spend management solution, discussed how spend intelligence has kicked NCR’s spend management program into overdrive. (Note that Zycus was one of the sponsors of the Spend Intelligence Benchmark Report.)

According to the study, and reinforced in the webinar, companies with best-in-class spend intelligence solutions have a process maturity that is twice that of their counterparts, and those processes are almost twice as likely to be aligned company wide. In addition, those processes are twice as likely to be automated. And mature, automated, processes get results. So why am I insisting that there is no such thing as a spend intelligence solution, when it appears that these solutions not only exist, but get great results?

Let’s start with the definition of intelligence.

Intelligence is a most complex practical property of mind, integrating numerous mental abilities, such as the capacities to reason, plan, solve problems, think abstractly, comprehend ideas and language, and learn.

And since spend management solutions are software, let’s review a definition for software.

Software is the (collection of) program(s) that enable a computer to perform a specific task, as opposed to the physical components of the system (hardware), where a program is the collection of source code and libraries which have been compiled into an executable or otherwise interpreted to “run” in (active) computer memory, where it can perform both automatic and interactive tasks with data.

Simply put, intelligence is a property of mind and software is a property of machine. And despite the efforts of the artificial intelligence community, I do not expect the property to cross the chasm anytime soon. Artificial intelligence is simply a collection of very sophisticated algorithms processing large data stores, instruction sets, and probabilities very quickly to come up with reasonable responses to queries – it is not thought, although it might appear to be thought since today’s computers can perform billions of calculations in a second. And that’s where my beef with the term spend intelligence lies.

Furthermore, as Jason Busch of Spend Matters points out, the term is very misleading and overlooks the fact that results from enhanced spend visibility and analytic efforts require data cleansing, rationalization, classification and other efforts which go far beyond what is needed to gain insight into basic HR, financials, IT and other internal information, which fall cleanly in to the BI camp.

So if you want to call it spend visibility, actionable spend, or maybe even spend knowledge, I’m all for it. But since the real intelligence lies in the user of the tool who takes the actionable data and uses it to get results, there is no spend intelligence software, only spend intelligence enablement software. And when you get right down to it, that’s what you really need as an expert power procurement user – software that helps you make the right decisions, not software that purports to make those decisions for you.

However, regardless of what you call it, check out the “The Spend Intelligence Benchmark Report: Turning Data into Action” while you have the chance. Just like the “On Demand Supply Management” report, it is top notch research, whatever you want to call it.  After all, as Tim Minahan pointed out, the distinction between spend data and spend intelligence is an important one, and the Aberdeen report is one of the first reports to call it out, even if I may take issue with the impreciseness of the terminology used.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Coupa Cabana Cafe: Open For Business

And to celebrate, they’re having the sale of the century! They’re practically giving it away. You can try it for free! You heard me! For Free! Now that’s a price that can’t be beat!

The reality is that Closed systems are dead. From software to supply chains, open is the new standard. And Coupa is making it reality, with the first open source eProcurement system designed to revolutionize your procurement process.

As printed in this month’s issue of Wired, it’s an All-Access Economy. Openness is a fundamental business principle. It’s what the internet is built on. Progressive software companies are taking the software-as-a-service model to the next level by exposing the API’s. You can tap into Amazon.com and eBay servers to create your own storefronts, Google to create your own maps, and Flickr to create your own montages.

And now, in addition to rolling your own Content Management System (CMS) with OpenCMS and Customer Relationship Management System (CRM) with Sugar CRM, you can roll your own eProcurement System with Coupa with its built in catalog management, adaptive “tag-cloud” indexing, and zero-click shopping cart. (Beat that Amazon!)

For those of your following along, I offered a glimpse of what was to come in my Procurement Independence at the Coupa Cabana Cafe post earlier this month. In this post, I’m going to dig a little deeper, but try to keep it short since you can now check it out for yourself at www.coupa.com.

The new site is pretty slick – and the one minute introduction video is all it should take to catch your interest. The video highlights ten key features of Coupa. I discussed half of these last week, but I’m going to list them all because most of them are innovative.

  • RSS Feed for the latest news from the procurement department.
    Every news site and blog should have a RSS feed!
  • Toolbar that ensures all actions are a click away.
  • Ask an Expert … where answers become part of a dynamically evolving FAQ.
  • Dynamic Adaptive Tagging.
    After all, no static classification scheme is ever complete.  This allows the classification scheme to evolve into what you need, not what someone else thinks you need.
  • Catalog items are accompanied by average employee ratings.
    This is awesome. When I go to Amazon or eBay, I do not care what John or Jane Doe think, I want to know what like minded people think … and in business, I want to know if it works for my like-minded co-workers.
  • Enterprise Policies are included in search and always available.
  • Drag and Drop Buying.
    This is the most intuitive shopping cart I’ve ever seen – as it captures the real-life usage of a cart.
  • Automatic population of ship to address and account information.
  • Graphical Approval Chain so a buyer always knows what the process is.
  • Attachment and Supplemental Document Support.

In addition, the web site points out the following capabilities:

  • Self Service Requisitioning
  • Goods and Services Support
  • Local Catalog Management
  • CSV Data Upload
  • Powerful Global Search Capability
  • Punch-out Support
  • Email Notifications and an on-line inbox
  • Requisition History
  • A How-To-Buy Policy Framework for integrated user education and always up-to-date document access
  • Contract Creation and Maintenance
  • Flexible PDF Purchase Order Generation
  • ERP integration APIs

And if you are willing to shell out a reasonable amount for the enterprise system, you also get:

  • role based access control
  • power user direct requisition entry forms
  • business groups
  • quickforms for special requests
  • REST ERP synchronization methods
  • no click requisition email templates … Beat that Amazon!

Essentially, employees use the interactive web interface to select items and submit for required approvals – the system determines the best price, the preferred supplier and the right contract, and then sends the purchase order electronically to the supplier. The company gets a standardized solution, which saves money and improves compliance, and employees get a system that they can actually use to get their work done.

In addition, Coupa provides support and implementation services. Open source users can buy per incident support packs and enterprise users get a full-featured support package that includes:

  • issue determination and bug fixes
  • updates, maintenance bundles, and patch support
  • issue diagnosis and resolution
  • performance tuning advice
  • exclusive support forums

In addition, Coupa offers implementation services, primarily through integrators and value-add resellers, that include eProcurement Deployment Best Practices, customization guidance, and integration assistance.

But let’s get down to business. This is an open source solution, being released to the community, which will, hopefully, improve upon it and return the improvements to Coupa and their customer base through the LGPL license. Coupa is starting off on the right foot by having a Wiki and a Forum, partitioned into general topics, open source, enterprise, and developers all ready to go from the beginning.

The wiki, which tracks updates, documentation, the coupa roadmap, and technology choices, allows you to report issues via tickets, which can then be searched using Coupa’s powerful search technology, or reported on using any one of the following reports:

  • Active Tickets
  • Active Tickets by Version
  • All Tickets by Milestone
  • Assigned, Active Tickets by Owner
  • Assigned, Active Tickets by Owner (Full Description)
  • All Tickets By Milestone (Including closed)
  • My Tickets
  • Active Tickets, Mine first

Coupa is built using Ruby on Rails and designed to work with just about any standard relational database (MySQL, SQLLite, Oracle, SQL Server, PostGreSQL, and DB2), web server(LightTPD, Apache, Mongrel, and IIS), and web browser (IE, FireFox, and Safari so far … I’m hoping Opera, which was the first to introduce many of FireFox’s key features, although it is not open source, is next) and runs on Mac OS X, Windows, and Linux operating systems.

Dave Stephens explained why Coupa Technology uses Ruby on Rails in a recent post on Procurement Central [WayBackMachine]. And for the most part, I agree with the choice. An open-source project needs to be built on efficient open-standard technology that is easy to use, penetrating the market, and appropriate to the task at hand. For the most part, Ruby on Rails fits those criteria.

However, I should note that I do not agree with Dave’s assessment of Java. Although Java is not a suitable choice for UI development (let’s face it, Swing is a real pain in the backside, JSP is a mess, and JSF is not intuitive to even a relatively experienced Java developer), I would still strongly consider Java for the application backend of an enterprise application. Java’s extensive libraries make the development of complex business logic, data structures, and persistence layers relatively easy. Java’s JIT compilation makes Java code as efficient as C++. Furthermore, XML, which is supported in Java by DOM, SAX, and JAXP, is development language independent and supports your language of choice for front end development. (And even though Dave is right in that many IDEs are bloated and overkill for many tasks, some, such as IntelliJ, actually make developing in Java a simple pleasure.)

All in all, Coupa has set the bar high for eProcurement applications.

Merger & Acquisition: The New R&D?

Last Friday, I talked about The Wired 40 and questioned whether SAP belonged in a list which included the likes of Salesforce.com and Google.

Well, as the name implies, there are 40 companies in this list, and some of them, like Cisco, News Corp., and Pfizer may have essentially bought their way onto the list with their acquisitions of smaller, more innovative, companies, as described in Buy It Now. Cisco acquired 107 companies over a 12-year period, including cable-box maker Scientific Atlanta, to become the market force it is today. News Corp. bought MySpace’s parent company and Pfizer bought biotech firm Vicuron Pharmaceuticals. (Furthermore, eBay bought Skype, Salesforce.com bought Sendia, Google gobbled Dodgeball, Urchin Software, and Upstartle, and Yahoo acquired Konfabulator, Webjay, Upcoming.org, Flickr, and del.icio.us.)

Furthermore, with the IPO market still sagging and the Post-Enron regulations increasing the cost and difficulty of going IPO, many small firms are now playing the acquisition endgame. Companies form with the sole intent of selling to Yahoo, Google, Microsoft, SAP, or SalesForce.com.

It’s essentially mature Crowdsourcing for large-organizations, except the organizations are going after collectives, in the form of small companies, that have already identified and made progress on the problem the large company is encountering instead of individuals. And since Networked Person is slowly taking over today’s knowledge-based economy, with her ability to virtually form new R&D collectives with her wi-fi blackberry transmissions, I think M&A based R&D may be one of the primary forms of innovation in large organizations for some time to come.

(Sourcing) Innovation Always Matters

Last Thursday in Global Sourcing: Does Innovation Matter?*, Jason Busch of SpendMatters responded to my invitation in my post Is Low Cost Country Sourcing to China Really Innovative? of the previous Wednesday to comment on my take that “the hurdles and landmines of manufacturing in — and exporting from — China will ultimately catch up with the low labor rates that make the region so attractive in the first place“. The gist of his response was:

(1) It’s irrelevant whether a Spend Management activity is “innovative”, all that matters is the cold facts should speak for themselves and the savings or efficiencies gained from the activity should outweigh the risk it introduces.

(2) Companies contemplating China outsourcing still have much to gain, particularly with respect to supply base localization efforts in China aimed at building local manufacturing capability to penetrate the Asian markets.

(3) Low cost country sourcing, which has essentially been around since the concept of “trade” began, is not about a place or country, but the process of being able to move quickly to take advantage of opportunities as they arise in Asia, South/Central America, Eastern Europe, and maybe even Africa.

(4) Companies newly embarking on low cost country sourcing will find China to be nearer to the end then the beginning of the opportunities curve, with the implication that those countries actively using China for low cost country sourcing already still have the most to gain.

With respect to Jason’s first point, I have to agree that the cold hard facts should speak for themselves but disagree as to Jason’s statement that “innovation is irrelevant”. Innovation should be at the heart of every activity you undertake, and fundamentally, any new action you undertake is probably innovative to you. What is debatable is the degree of innovation. After all, innovation, which can simply be defined as “ahead of the times”, is all relative – to what you do and what your competitors do. Sometimes it will even be undertaking an initiative that generated a known failure for your competitor or an initiative that everyone thinks was past it’s prime ten years ago. Being innovative is not just inventing new tricks, its finding new ways to do apply old tricks, and knowing when to do so to reap the rewards.

With respect to Jason’s second point, I agree that the possibility exists, but firmly believe that it is not a cold hard truth. Not all companies will be equipped to take advantage of the opportunities that exist and navigate their way around the quagmires of wage inflation, skilled employee retention, energy crisis, and over-extended infrastructures. Furthermore, freight costs are increasing around the globe, not just to, from, and in North America and parts of China can still be quite distant from other parts of Asia. (After all, it is the largest country in Asia, excluding Russia, and the third largest country in the world.)

Moving on to Jason’s third point, although the concept of sourcing from low cost countries can be traced back thousands of years, low cost country sourcing has taken on a whole new meaning in the past thirty to forty years. Traditionally, you sourced products globally that you could not produce, or produce in sufficient quantities, locally. Generally, exceptions were only made when it was prohibitively expensive to produce the products locally. After all, before the rise of fast ocean liners and air-freight, it took a long, long, long time to get product from Europe and Asia to North America, and the risks of catastrophe (storms sinking ships, piracy, etc.) were much, much greater. And it is only recently that the leaders in global sourcing have evolved the concept from sourcing from a region to sourcing from an opportunity, a concept I fully agree with – after all, it is a very innovative transformation of the concept of low cost country sourcing.

And with respect to Jason’s final point, I agree fully. For many companies, China will soon be on the way out as new opportunities make their way in.

The puck has been returned.

* Link no longer available.  All posts pre-2012 disappeared during the site revamp in June 2023.

The On-Demand Supply Management Benchmark Report

Aberdeen Group recently released “The On-Demand Supply Management Benchmark Report: Enterprises Turn to the Web and Find Quicker and Better ROI to Help Achieve Supply Management Goals“. (A copy of this report was available for a limited time from Iasta, who licensed it for distribution and made it available on the e-Sourcing Forum [WayBackMachine].)

There are a number of significant findings in this report. Since you can download it for free, I will not attempt to cover the findings in depth here, but simply display the following teasers that should get your mouth watering for more!

  • 57% of survey respondents indicated that on-demand performs better than traditional installed behind-the-firewall legacy applications with a further 33% indicating that on-demand performs about the same; that’s 90% of respondents agreeing that on-demand performs as well or better than traditional legacy applications
  • 57% of survey respondents indicated that on-demand systems are easier to upgrade than traditional installed behind-the-firewall legacy applications with a further 34% indicating upgrades required about the same amount of effort; that’s 90% of respondents agreeing that on-demand systems are at least as easy to upgrade as traditional legacy applications
  • 52% of survey respondents indicated that on-demand systems require less implementation time and effort than traditional installed behind-the-firewall legacy applications with a further 39% indicating installs took about the same amount of time and effort; that’s 91% of respondents agreeing that on-demand is at least as fast to implement as legacy systems, if not faster
  • enterprises deploying on-demand solutions improve spend under management by 28% more than enterprises that deploy installed on-site solutions over the course of a year … 28% … considering that the savings potential for each dollar of spend under management is between 5% and 20%, even if the actual savings realized is only 30.3% of planned savings (industry average – best in class do much better), then you are looking at a savings of at least 1.2M for every 1B … 1.2M+ … and considering that decent on-demand suites can be obtained for 250K/year (not counting professional services), you could easily save 1M just by using on-demand! ( If you are best-in class and capture 70% of planned savings and efficient and get 15% on each dollar of spend under management, you save roughly 3M more on every 1B going with an on-demand solution! )

And that statistic sums up nicely everything I’ve always believed about the inherent value of on-demand. For more of my views, check out my 3-part series over on e-Sourcing Forum if you haven’t already (The Good, The Not-So-Bad, And the Coming Pretty …) and Sudy Bharadwaj’s thoughtful commentary, also on e-Sourcing Forum.

Have a great day and enjoy the study!

You might also enjoy “A Six Step Framework for On Demand Supply Management”, released on the same day as well (login required). Part of Aberdeen Group’s Enterprise Strategies: Insight and Advice for Enterprise Executives, it overviews the Aberdeen PROFIT Framework for Supply Management as a Service (SMaaS). The PROFIT Framework was designed “to aid supply management evaluators in understanding how to deploy an On Demand solution to drive value”. It provides a series of Process, Regulatory, Operational, Financial, Intelligence, and Technology questions whose answers are designed to help you make the right decision.