Spend Analysis is Not a DIY Project: You Need the Right Tool
Data Warehouses, OLAP, and Excel Are Not Spend Analysis
Guest Post: SpendHQ welcomes the thoughts and insights of the “Sourcing Doctor,” Michael Lamoureux of Sourcing Innovation.
A spend analysis is not the kind of project you want to take on without the right tools. Most organizations without a spend analysis solution attempt to do spend analysis by way of data warehouses, OLAP (On-line Analytical Processing), or even Excel. Not only is it the case that none of these approaches meet the basic requirements for spend analysis, but they all have considerable shortcomings that put the validity of an analysis into jeopardy. Most spend analysis initiatives fail to deliver additional results after 12 to 18 months, and that’s because most organizations don’t base their initiative on a proper spend analysis tool.
Warehouses are not spend analysis tools because they are merely super-databases that store a copy of all of the organization’s data in one location. They don’t contain any cleansing or classification capabilities beyond the ability to create new tables that store externally generated classifications or mapping. Cubing is generally limited to derived views, and reporting is very limited.
Moreover, by creating a second copy of all of the data, the organization is just creating more issues around consistency and timeliness.
OLAP isn’t spend analysis either. OLAP is a utility for (pre-) calculating sums, averages, and other mathematical functions, and all it is useful for is creating numbers that can be pulled into predefined, static reports. Combining it with data warehouses doesn’t create a spend analysis solution either. Now, in addition to data storage and the ability to store (externally generated) categorizations and cleansings, OLAP adds formula and reporting capability and, if the computations are properly defined, the ability to drill into line items into the report. However, this is not full cubing or cutting capability, as the drilling and reporting is fixed and based on pre-defined cuts and calculations.
However, reporting is not enough. With respect to spend analysis, a report is one-time use. Once the savings has been identified and the opportunity realized, the report is no longer useful for opportunity identification. A new report is required. Even if the platform contains a report builder, if the platform is only capable of supporting one schema on a limited data set, there will only be a limited number of ways to analyze the data, and only the builder will be capable of generating a small set of unique reports on the data. These will quickly be exhausted, and no further opportunities will be identified.
Furthermore, by now it should be obvious that Excel is not a spend analysis solution either because all one can do in Excel is import a limited set of data, pivot on dimensions, and then define roll-up OLAP type measures on the data set. It’s just a poor-mans OLAP on a data warehouse.
Home-Grown Systems Are Not Spend Analysis Solutions Either
If an organization already has a powerful data warehouse solution and an IT department, it might decide that it can build its own spend analysis solution by acquiring a powerful report builder and data visualization solution, such as QlikView or Tableau, and implementing it on top of its data warehouse solution. While this was the typical solution offered by many vendors in the early 2000’s, this is not true spend analysis because it is still based on OLAP and, as we indicated in the last section, this has limited flexibility.
Proper spend analysis requires proper classification and cleansing. This requires deep domain knowledge, something that an organization’s IT department is not likely to have. As a result, the initial mappings and data will be poor and of little use to the sourcing analysts. It will take many repeated efforts before even the initial top N reports are of any use. During that time, the sourcing analysts will lose out on valuable opportunities.
While the intentions will be good and the effort substantial, at the end of the day, the home-grown solution will typically be held together with the IT equivalent of duct tape. In addition, because the internal team will not be experts in the construction of analytics solutions, the solution will be relatively inflexible and limited to canned reports. Furthermore, because the solution was built in-house, it won’t have five nines reliability and when it goes down at 5:01 pm on Friday, it will likely stay down until sometime the following Monday when the support tech who knows how to fix it gets back to his desk. In other words, a home-grown down-home recipe makes a great pound-cake, but it doesn’t produce a good spend analysis system.
While technical capability alone is not enough for an organization that wants the ability to complete, and receive value from, real spend analysis, the technical capability required is a piece of the puzzle that is not met by data warehouses, OLAP, Excel, or other home-grown solutions. So be sure that when the organization is considering a solution for spend analysis, that it is a real spend analysis solution built on proper technical foundations and not a hacked-together solution that will provide little return on investment.
SpendHQ is a spend analysis solution that provides rapid, accurate and detailed visibility into enterprise spend data. This full-service SaaS (Software-as-a-Service) spend analytics solution delivers actionable insight for sourcing and procurement professionals.
Recognized for innovation and industry impact in the procurement space, SpendHQ was named to the 2015 Red Herring Global 100 list, and listed as a finalist in the CODiE 2016 Awards as a “Best Supply Chain Management” solution. With SpendHQ at their fingertips, clients ranging from Fortune 500s to mid-market companies are finally able to see their enterprise spend clearly and drive savings confidently.
As a standalone extension of Insight Sourcing Group, SpendHQ is built by industry leaders with unmatched sourcing knowledge. Inc. Magazine has ranked Insight Sourcing Group among the fastest-growing private companies in America every year since 2008. In 2015, Insight Sourcing Group was also named the #1 Boutique Consulting Firm in the U.S. by Vault.com and the #1 Small Strategy Firm by Consulting Magazine.