Author: Gerard Chick, chief knowledge officer at Optimum Procurement.
The adoption of analytics in business has been surging in recent years.
… but how procurement professionals can implement analytics into their decision-making processes.
Analytics holds many of the keys to unlocking procurement’s ability to drive improved performance, consult the business strategically and drive innovation and change across the supply chain. It also has the potential to help procurement come into its own as strategic partner to the business.
In spite of the clear opportunities it presents, the road ahead for procurement analytics is not without its challenges. Working in an organisation where there is no culture of data-driven decision making could mean that you have little faith in the reliability of the data available to you.
To access the data you need, it’s important to start with business needs or objectives and then work out what insights or information will help decision makers achieve them. It’s only then that you can decide on the actual data you need and the methodology and data capture tools to access it.
Challenges aside, procurement can benefit significantly from taking advantage of analytics. Large-scale automation of procurement processes is increasingly producing high volumes of data that can bring new insight into the business, helping it to better to understand how the supply chain needs to evolve and adapt.
The use of analytics in procurement offers an opportunity for organisations to consolidate, cleanse and connect spend and supplier data across the enterprise. Analytics can provide CPOs with greater visibility and unlock insights, helping them to reduce costs, drive compliance, mitigate risks, improve business intelligence and manage and develop suppliers.
In fact, the potential of analytics in procurement is so great that the higher-level value proposition sought by so many working in contemporary procurement becomes a real possibility, be it tackling complex spend categories, proactively mitigating supplier risks or effectively monitoring the performance of suppliers. Overall, analytics can help procurement offer more to the business strategically.
Technology can effectively and comprehensively consolidate and connect all forms of supplier data across an organisation. Supplier Information Management (SIM) is transforming the way businesses collect what they need to know about suppliers and analysts anticipate that this area will grow at triple the rate of any other supply technology this year.
Many of the businesses we speak to are considering the applications of analytics in procurement. To do this, they need to look at what they are currently doing, what they need to do next, what is interesting and what they currently are unable to see. Practitioners should prioritise these areas for consideration.
Those priorities will then dictate the specific objectives to drive procurement’s adoption and use of analytics. Without clear goals, data collection and analysis will be ineffective. In a procurement-specific context, data and analytics have to grow beyond spend analysis. CPOs must spend as much time creating new data assets as they do harnessing existing ones.
Because traditional methods for reducing costs are fast evaporating, CPOs should increase the time and effort invested in total cost modelling. In doing so, they will not only inform internal decisions, but also deliver to procurement an opportunity to drive strategy, thereby developing the top line impact modern businesses desire from them.
When it comes to practicalities, building an analytics capability has to start with a definition of the problem and a clear understanding of the boundary conditions. Limiting procurement’s scope by simply working with the data that is easily available will also limit the outcomes. CPOs need to contemplate the relationships between data sources and data points and look for indications of likely trends without direct access to ‘proof’ data.
* This post first appeared on the Spend Matters UK website.
Gerard Chick is chief knowledge officer at Optimum Procurement. His new book, ’The Procurement Value Proposition: The Rise Of Supply Management’ is available from Kogan Page.