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ERP Is Not Spend Analysis

The raw transactions in an ERP system and in a spend analysis system may be similar, but the process of creating a spending cube overcomes the limitations in the ERP system’s data and augments it with data from other sources. Here are some of those limitations.

ERP data is generally incomplete.

The ERP system normally contains only the transactions
I have an ERP system. Why do I need to do spend analysis?
performed via the ERP system. Any payments done outside the system (e.g. credit card transactions or data from a merged entity) will not appear in the ERP system. These transactions are easy to add and consolidate with a spend analysis system.

The ERP system contains duplicate vendors.

A single vendor can show up multiple times in a single ERP system. This may be due to different billing addresses, the result of a merger, or just the fact that someone created two different payment instances. In order to maintain accounting accuracy, the ERP system resists restatement of historical information, and therefore these issues cannot be easily fixed, even though it is critical from a spend analysis perspective to do so. Furthermore, it is important for a spend analysis system to be able to associate together vendors who represent separate legal entities and who are separately paid. For example, two hotels in the same chain (e.g. Hilton) may be separate for payment purposes, but should be analyzed together to support negotiations.

The ERP system does not contain good commodity information.

When a payment is recorded in the ERP system, it contains the vendor, 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, and 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. 200 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.

ERP data is unchanging, spend analysis changes all the time.

Many companies have tried to solve the commodity coding problem by having users enter commodity information as they buy items. Unfortunately, users are not purchasing experts and therefore they get the commodity codes wrong as much as half the time. Further, the ERP system is designed to limit the changes to data once it has been entered. Once the monthly books are closed, it is a major event to modify records. In a spend analysis system, these changes are easy to do. If the procurement group decides that the commodity structure needs changing, this can be done in minutes. Using an ERP system, making a change on historical data can take weeks or months.