September 20, 2010
Column | techwatch

Software that finds the fat (so you can cut it)

Spend analysis software can sift through transportation/distribution expense data to identify opportunities for savings. But some say shippers would fare better with a TMS.

By James A. Cooke

The cliché "a penny saved is a penny earned" still has relevance for companies looking to cut costs in these lean times. That's why more businesses are weighing the use of "spend analysis" or "spend management" software to sift through their expense data for opportunities to save a few pennies. As the name implies, this type of software is designed to collect and classify data that companies can use to compare prices and drill down into the details of their expenditures.

Spend analysis software has been around for at least a decade, but up to now, it's been used mainly in the procurement area. For the most part, businesses have used these apps to analyze the cost of supplies, specifically bills of material, as well as services.

But that's starting to change. Companies have recently begun using these apps to analyze their distribution- and transportation-related expenditures. One of the areas being targeted is distribution center spending. For example, Jason Hekl, vice president of marketing at software developer Coupa Software Inc., says one of Coupa's retailer clients is using the software to track "non-merchandise" DC expenditures like cleaning supplies, plastic bags, lighting fixtures, and window-washing services. Software vendor Ketera reports that its customers are using its spend analysis program to scrutinize DC capital equipment expenses.

But it's not just DC expenditures that are coming under the microscope. Transportation spending is being examined as well. For example, Ketera says several of its clients are using the software to look at what they're spending on cargo movements and logistics services as well as on customs and port fees.

Another vendor of spend management software, Ariba, reports that customers are using that company's app to manage their transportation costs. The software developer says its clients typically use its tools to make "apples to oranges" comparisons—meaning they're comparing different carriers and modes on the basis of both price and non-price criteria.

Other companies are using spend analysis software to help answer the age-old question of whether a retailer could save money by taking control of its inbound transportation. (Typically, manufacturers roll the cost of freight into their prices, but retailers sometimes find it's cheaper to make their own arrangements.) BravoSolution says several of its retail and consumer packaged goods (CPG) clients are using its spend analysis applications to build a business case for taking over the management of their inbound transportation—for instance, using the app to quantify their aggregate freight volume to use as leverage when negotiating with carriers.

But not everyone's sold on the idea of using this type of software to analyze transportation spending. Analysts caution that software designed for procurement may not be the best choice for evaluating freight expenditures. In most cases, they say, shippers would fare better with a transportation management system (TMS) with built-in analytic features.

The problem with using spend analysis programs is that they're generally not designed to pull the requisite transportation data from other software systems. To perform a transportation analysis, you need shipping cost information by carrier, lane, and mode of transit, explains Gartner analyst Dwight Klappich. "Spend tools don't understand this concept of lane," he says.

That means that before it could start its analysis, a shipper would probably first have to extract the necessary shipping data from a TMS and feed it into a spend analysis program, Klappich says. And the task would become all the more complicated if the shipper wasn't already using a transportation system, Klappich warns. "It will be much more difficult to capture the data to feed the spend analysis tool without the TMS."

That's not to suggest that analysts frown on the practice of spend analysis. Quite the opposite, in fact. "Spend analysis has become even more important as we move through a difficult economic environment," Klappich says. "Spend analysis needs to exist in logistics or transportation departments these days, whether they're using spreadsheets or software tools. It's important to understand what's driving your spending."

About the Author

James A. Cooke
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP’s Supply Chain Quarterly and a staff writer for DC Velocity.

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