Introduction
The practice of employing quantitative methodologies to obtain actionable insights and outcomes from data is known as procurement analytics. It entails gathering and analyzing data to enable fact-based decision-making and competitive advantage. It usually reports on what has happened in the past and makes estimations based on historical data using predictive analytics to predict what will happen in the future.
Procurement analytics uses quantitative methodologies to obtain meaningful insights and outcomes from data to provide companies and firms with better visualization of their procurement budget. Predictive analytics software gathers data from internal and external sources and organizes it in procurement dashboards. They enable businesses and organizations to use procurement data to make informed decisions and obtain strategic, competitive benefits.
Procurement analytics is critical for enhancing the efficiency of a company’s overall business operations and providing helpful market knowledge to aid strategic business choices. Without it, organizations often miss cost-cutting opportunities, do not meet KPIs, encounter supply chain disruptions, and pay higher costs.
Importance of Procurement Analytics
Analytics is often recognized as one of procurement’s most valuable resources and disruptive forces. Most Chief Procurement Officers (CPOs) consider analytics the most crucial technology in their organizations.
Importance of Procurement Analytics
Over the next decade, analytics has also been identified as the most disruptive force in procurement. It is a prevalent misperception that procurement analytics is limited to spend analytics. In truth, analytics affects all aspects of a company’s operations, from strategic sourcing to category management and procure-to-pay. Here are the reasons why analytics are so vital in procurement.
Category Management
When applied correctly, analytics provide category managers with superpowers. Category managers can use procurement analytics to find cost-cutting possibilities, segment and prioritize suppliers, address supply risk, and foster innovation.
Strategic Sourcing
Data informs the most effective company strategy. Analytics aids strategic sourcing by finding the ideal dates and locations for sourcing events and proposal requests. It can decide which suppliers to include in sourcing projects and provide detailed information on their quality and risk levels.
Contract Management
Analytics is beneficial throughout the contract lifecycle management process. It can send notifications when contracts need to be renegotiated and provide information for supplier discussions. Furthermore, analytics can find maverick spending to increase contract coverage and compliance.
Procure-to-Pay
The transactional part of procurement can benefit significantly from procurement analytics. Purchase order cycles may be tracked, and analytics can enhance payment terms. Payment accuracy, rebate opportunities, and mistaken payments can be checked while eliminating fraud.
Sustainability and CSR
Companies increasingly recognize the benefits of analytics in assessing sustainability, corporate social responsibility, and associated risk in the supply chain and procurement. Procurement decisions can have an environmental or social impact, and analytics can reveal opportunities for more sustainable options.
Steps of Procurement Analytics
During the projected period, the procurement analytics market is expected to increase from USD 2.6 billion in 2021 to USD 8.0 billion in 2026, with a Compound Annual Growth Rate (CAGR) of 25.3 percent.
Procurement Analytics Process
The use of procurement analytics technologies and services is projected to be driven by several factors, including increased expenditure on marketing and advertising by businesses, a changing landscape of consumer intelligence to drive the market, and the expansion of customer channels.
Procurement analytics provides insight into spending, supplier performance, and prospects for cost savings. However, even if spending data is already stored in systems, making sense of it is typically tricky. Before insights can be discovered, three data processing procedures are needed.
Data Extraction
It begins with data extraction from all sources and consolidation into a single central database. Data is ready to be enriched and sanitized once it has been extracted. Data extraction is converting obsolete and jumbled data sources into a clear, unified format that is easy to understand and analyze.
Data Cleansing and Categorization
The data must then be classified into distinct and well-defined groups. A precise data classification is needed for practical expenditure analysis, making the heterogeneous spend data easier to oversee and manage across the company. This procedure unifies all purchase transactions into a single taxonomy, allowing customers to see their total spending in one place. This step can also enrich data by using automatic translations or consolidating suppliers.
Reporting and Analytics
The data is now ready to be analyzed after it has been categorized. Expenditure analysis gives the spend visibility that helps deliver intelligent analysis for faster opportunity identification, better sourcing decisions, and complete spending management. Access to dependable spend analytics is essential for significant cost savings and the realization of potential opportunities.
Advanced Procurement Analytics
Advanced analytics approaches employ computers to find patterns in large data sets, allowing procurement analysts to query their data, find statistically significant pricing drivers, and cluster the data based on those drivers. The clusters show a group of purchases with no notable cost driver changes, revealing the variances in vendor performance. One significant advantage is that, unlike individuals, advanced analytics algorithms do not make conclusions based on gut instinct or place disproportionate emphasis on data outliers. The tools also make it possible to evaluate thousands of permutations fast to see which statistical clusters best suit the data.
Negotiation
Preparing a fact base with information on prior transactions is the first step in effective negotiations. By inputting a description of the prospective transaction, advanced analytics allows the manufacturer to find a cluster of providers at once. The average price of similar purchases is highlighted in a summary of cluster data and a list of accessible vendors and their prices. The manufacturer can come to the bargaining table with prices based on historical data and information on vendors who work in this market armed with a solid, quantitative fact basis.
Vendor Management
Vendor segmentation and management are all about building relationships. As a result, it is more susceptible to the various biases that affect human interaction. While the personal element of the relationship should be respected, decisions about vendor performance should be based on facts rather than emotions. Advanced analytics can help reduce biases from the evaluation because it is especially beneficial in isolating vendor performance within a cluster.
Yearly Planning
Advanced analytics can be handy in assessing purchasing data to support a comprehensive sourcing strategy. Inventory-carrying decisions can also be influenced by modeling. Based on the data, the procurement team may decide whether to pay the carrying cost for more inventory or pay a premium for spot purchases.
Magistral’s Services on Procurement Analytics
Procurement is recognized as a crucial business contributor by many firms. Procurement expenses account for 40 to 70 percent of all costs and are a variable source of competitive advantage. Effective organizations use data to manage supplier relationships, grow their businesses, and even bring innovative ideas to life. In the last two years, more data has been created than in humankind’s history, posing unfamiliar problems for procurement analytics. Developing analytical technologies speeds up the data-to-insights process and opens new possibilities. Procurement analytics can boost operational efficiency throughout the sourcing and supplier management process. The following are the most common services offered by Magistral for procurement analytics:
-Spend Analytics
-Low-Cost Country Sourcing
-Sourcing Strategy
-Vendor Rationalization
-Bid Management
-RFP Management
About Magistral Consulting
Magistral Consulting has helped multiple companies to reduce operations costs through its offerings in Procurement and Supply Chain offerings
About the Author
The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com