Purchasing Gets it Wrong Again: Spend Analysis IS Cheap.
A recent article in Purchasing on what $100K buys in spend analysis software has me jumping up and down again (their 2007 article on the ABCs of Spend Analysis, which was beautifully dissected by Eric Strovink in What Purchasing.com Got Wrong, had me fuming for weeks). According to this new article, being able to analyze spend is critical (which it is), but it isn't cheap and price tags start at $100K -- and buyers may have to pay more for insight into new opportunities for sourcing and consolidation. WTF?!?!?!
Allow me to say that again. What the frack? It is cheap! Pricing starts at $36K/year for the most powerful spend analysis tool on the market. That's significantly less than the $100K price tag they list. $64,000 less. (I guess that's the real $64,000 question!) A one year single user license for BIQ is only $36,000. It includes unlimited utilization by your senior analyst and all of the new features described in their last press release, including nodal and transactional computed measures, dynamic referencer filters, a super-fast 64-bit loader, and the ability to drill-down on 50M transactions in real-time on your laptop. (You might need a quadcore with 16 GB of memory for that size dataset, but those are pretty cheap these days.) And, you can get a 100 user license for much less than $100K/year, even if you pay by the month with the option to quit at any time.
As usual, it's obvious that Purchasing.com's research consisted of a simple web search, product description screen-scrapes, and a quick call for pricing, as opposed to the in-depth web demos that I insist on before Sourcing Innovation will even acknowledge that a product exists. And the results are dismal. While Ariba, Bravo, CVM, Etesisus, Global e-Procure, Ketera, SAP, and Zycus all have spend analysis solutions, they are not equal. Iasta's is actually built on third parties (BIQ and Spend Radar), FieldGlass is limited to services, Insight is a services organization which, to the best of my knowledge, still uses third party tools, and I'm sure big players like Emptoris (which just announced faster reloads and data warehouse restructuring time) and new SaaS players like Rosslyn Analtics (which are trying to take a cloud-based approach) are sure to be annoyed at being wholly (and unaccountably) ignored.
You're better off starting with a Google search and visiting individual vendor sites than reading this article.
Once again.
Categories: Spend Analysis, rants
Tags: Spend Analysis BIQ Purchasing.com
While some soft ware does a reasonable job with quote and spend analysis, it takes a good understanding of process, materials and labor costs to get to the root cost of any product. If you don't have a fundamental understanding of these basics, all of the soft ware in the world won't help you. There are too many variable to understand for it to be clean and viable. So, yes, there is soft ware out there at $36,000 per seat, but what does it really tell you about the cost of what you are buying?
That depends on the software. With some solutions, very little. With other solutions, in the hands of a well-trained user, you can quickly find out just about anything you want to know.
In BIQ's case, the software I quoted as starting at 36K per year (and maxing out at around 80K per year for unlimited seats), with their new Computed Measures Language, you can not only build any cube you like on any dimensions you like, at any time you like, but can also define your own dimensions calculated anyway you like. And you're not even restricted to spend data.
IQ West, one distributor, uses it to analyze cable subscriber data. Another distributor, Opera, has used it to analyze production and performance data on multiple occasions. One customer built 75 different cubes to look at every aspect of their operations from financial and non-financial perspectives! You can use a good analysis tool to identify demand patterns, analyze commodity trends, and even to identify potentially fraudulent spending patterns. With the right tool and imagination, the possibilities are endless, especially when you can build your own cubes on a variety of data sources - AP, Pcard, invoices, market data, operational performance data, risk data, etc.
To find out more about the power a good modern data analysis tool geared towards spend analysis can provide, I recommend checking out Eric's recent series:
http://blog.sourcinginnovation.com/2010/01/22/Spend-Analysis-I-Its-The-Analysis-Stupid.aspx
http://blog.sourcinginnovation.com/2010/01/25/Spend-Analysis-II-Why-Data-Analysis-Is-Avoided.aspx
http://blog.sourcinginnovation.com/2010/01/27/Spend-Analysis-III-Crosstabs-Arent-Analysis.aspx
http://blog.sourcinginnovation.com/2010/01/29/Spend-Analysis-IV-UserDefined-Measures-Part-1.aspx
http://blog.sourcinginnovation.com/2010/02/01/Spend-Analysis-V-UserDefined-Measures-Part-2.aspx
as well as the Spend Analysis category archive here on SI. I know that I only scratch the tip of the iceberg at 85 posts, but it's a good start.
You can also check out the wiki-paper on the e-Sourcing wiki:
http://www.esourcingwiki.com/index.php/Spend_Analysis_and_Opportunity_Assessment#Spend_Analysis_Applications:
and BIQ maintains a great white-paper library (that provides lots of general advice that is not platform specific):
http://busiq.com/WhitePapers.html
And while I agree that not all spend analysis software will help you get to the ultimate root product cost, the first steps are to figure out if (a) you're paying a consistent price that is (b) market average and (c) varying in accordance with changes in the raw materials and labor pricing indexes that are the most significant cost drivers of the product and that, at least to this level, your spend is optimized. Spend Analysis can definitely help you do that. And once you're there, you bring in predictive cost modeling tools Apriori and Akoya to get you the rest of the way if the analysis indicates further savings opportunities are present.
I would agree that all solutions are not created equal, and that a client may not want to spend $100K for a Spend Analytics solution. But in the online article you are referring too, you can also find Ivalua as a vendor who can deliver a broad solution for less than %100K. It is even mentioned that for Ivalua to get to the mark, it will have to add more than 50 power users and 100 view only users, which in my view is very seldom required.
Yes, buried, you can see "for less than ... Ivalua Buyer activates standard modules", which, combined with the preamble to the article, gives the impression that you don't get everything and, more importantly, the impression that it's not much less than 100K. That's my beef. The whole article leads one to believe that spend analysis costs (much) more than 100K.
But I have to disagree with your point that you seldom require more than 50 power users and 100 view only users. While 50 power users will be enough for most small and mid-size organizations, for spend analysis to truly make it's mark, every individual in the organization needs to have access to the analysis results to see the impacts of not following the sourcing strategy, not following the procurement rules, not following the operations policies, etc.
This reads like an ad for BIQ. How can we take this serioiusly?
All Anonymous Posters:
(1) If you want your comment (that follows the comment rules, see the sidebar) to show up, use a valid e-mail address from which you can receive and reply to a confirmation e-mail, or your comment will get marked as spam (and presumed to be from an automated bot). If the comment is not marked as "pending" in my blog admin tool (which means a human confirmed submitting it), I might not notice it. (Since it's very easy to create anonymous web mail accounts, it only takes five minutes if you truly want to post something anonymous.)
OneMoreGuy:
(2) I'm sorry you feel that way. I can guarantee that this is not an ad for BIQ. If it was, I would have done a much better job considering that Eric (CEO) does a great job of keeping me informed about the product, ongoing development, and customer successes.
I chose BIQ as my example vendor because they're the only vendor that has been completely transparent on their pricing model and given me their entire pricing sheet. I know for a fact that base pricing starts at 36,000/year and ends at 75,000. (If you pay more than that, you're also buying services.) While I know that Rosslyn and Ivalua are also under 100K, I don't know how far under, when you hit the 100K, and precisely how much you get at each price level. If you want to know more about these companies, check the archives. I've covered both of them in a fair amount of detail recently.
Rosslyn Analytics:
http://blog.sourcinginnovation.com/2010/01/26/rosslyn-analytics--taking-analyticsbased-insights-to-the-masses.aspx
http://blog.sourcinginnovation.com/2010/01/28/rosslyn-analytics--building-an-analytics-visibility-platform-the-massess-will-rally-around.aspx
Ivalua:
http://blog.sourcinginnovation.com/2010/02/09/ivalua-tackling-endtoend-sourcing-and-procurement-part-i.aspx
http://blog.sourcinginnovation.com/2010/02/11/ivalua-tackling-endtoend-sourcing-and-procurement-part-ii.aspx
I've also covered Bravo, CVM, and Ketera in the past, along with many others, and will cover anyone that gives me a demo. If you know of another vendor that offers a spend analysis solution that starts under 100K and offers value, post a comment or, if you know someone at the company, ask them too.
Credit where credit is due.
Jason Busch just posted a great response to Purchasing's article on Spend Matters. Titled "Spend Hydroplaning" Jason makes a number of great points on how easy it would have been for Purchasing to reach out, get the facts, and write a killer article on Spend Analysis that would have helped their audience, who I believe are now more confused than ever on this important topic. This is the link:
http://www.spendmatters.com/index.cfm/2010/2/25/Purchasing-Asks-the-Wrong-Question-on-Spend-Analysis-Part-1
I can't wait for Part II. Even though Jason and myself often disagree on the finer points of spend analysis, when it comes to the basics, we both have the same view. It's critically important, you need visibility, not all approaches are equal, and you have to ask the right questions.