Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I’ll be reviewing a whitepaper entitled “Spend Analysis –
It’s what you don’t know that costs you (Part I)” from Iasta and Purchasing Magazine.
Considering that this whitepaper is 23 pages long and it is a “Part I” of an undeclared number of parts, Iasta appears to be trying to teach everything there is to know about spend analysis. Because they sell spend analysis software, that’s obviously a good thing for Iasta. But it’s also a good thing for you because, judging by this whitepaper, Iasta is providing some valuable, easy-to-read material that is focused on true purchasing education and not on pimping their software.
While this whitepaper covers a variety of topics, I found particular value in the sections contrasting doing spend analysis with a best-of-breed spend analysis system compared with using an ERP system. The whitepaper correctly points out that, because of the way that data is entered, ERP systems are rife with incomplete data, duplicated vendors, poorly categorized purchases, and more problems that, without the data cleansing capabilities of a true spend analysis system, significantly impair a purchasing department’s ability to access the information that could drive cost savings decisions.
One of my favorite quotes from this section of the whitepaper is: “A good ERP system does allow those requisitioning products to assign category codes but in many cases the requisitioner is not familiar with the coding structure, especially from a Spend Analysis perspective. Very often people do not take time to search for the correct code because they do not understand the importance. As a result the data is incorrectly tagged with the infamous ‘9999 – Miscellaneous’ category.”
I definitely know what they are talking about here. In this type of situation, it would be easy for a purchasing department to understate its volume when compiling its RFP and, thus, fall short of comprehensively leveraging its spend.
Further illustrating Iasta’s grasp of real-world problems with relying solely on ERP systems for sourcing information is this paragraph:
“When a payment is recorded in the ERP system, it contains the vendor name, the organizational unit responsible and the general ledger (GL) code against which the spending is booked. The GL codes are designed to support the accounting function, not the procurement function. These codes are heavily regulated by the authorities. For example, when a bank buys a printer from HP, the procurement group wants to link it with all other printers bought by the bank. However, the accounting for this printer will vary depending on how it is used, and on specific accounting rules that may apply. Two hundred printers bought at once would generally be considered capital goods in one set of accounts, but the same printer, bought as a single item, might be expensed. This means that the spending for a single commodity can be scattered across the balance sheet.”
The whitepaper goes on to discuss other spend analysis challenges from data in the ERP system being unchangeable after accounting periods have ended to political battles between purchasing and IT departments. Again, all very real-world stuff.
So, as you may imagine, I recommend downloading the whitepaper if you are thinking that the data you can get out of your ERP system is inadequate for what you want to accomplish. You can get your own copy of this whitepaper from Purchasing Magazine’s Web site (registration required).
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site’s New Whitepaper Section At