July 7, 2016 | Written by: Matt McGovern
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All too often, procurement strategies and\or programs seem to fall short of their optimal outcomes. The culprits are usually:
- Inefficient processes or systems
- Personnel constraints or limitations
- Lack of collaboration or stakeholder engagement
- Lack of proper analysis of the challenge and measurement of results
Technologies, particularly connected and centralized ones, that automate and manage source-to-pay, contract management, risk management, and supplier management go a long way in helping to alleviate these issues. They also elevate and expedite procurement transformations, strategies, and programs.
Our research with more than 1,000 procurement organizations worldwide shows that best-in-class procurement organizations prioritize automating and connecting procurement and supplier management processes and tasks – and that these leaders have begun to move toward analytics-centric procurement.
Dr. Robert Handfield, director of the Supply Chain Resource Cooperative and author of The Procurement Value Proposition: The Rise of Supply Management, recently completed a study examining how leading companies are leveraging analytics to advance their strategic priorities.
One executive interviewed for the study sums up his perceptions of the current state of analytics among procurement: “Many procurement organizations do not yet have the capacity to look at things analytically. In my experience across a number of organizations, what is consistently missing is a combination of the ability to ‘dig in,’ and to come in wearing a consultative hat.”
Dr. Handfield cautions that many procurement organizations are lagging. In our data-driven, data-intensive business environment, analytics is fast becoming essential. As companies continue to expand operations globally and supply chain and compliance complexity grow, analytical capabilities – and the insights gained from analytics – will be increasingly important.
He says, “The message is clear: procurement must seek to build analytical [capabilities] and insight,” even in the absence of perfect systems or perfect data. He notes that levels of procurement and analytics maturity can vary and evolve over time, but analytics can immediately play a key role in enabling procurement transformation and success – whether in savings and value creation, risk mitigation, or supplier development and innovation.
In the report, Dr. Handfield also defines processes for establishing an analytics program, and discusses different stages and classes of analytics:
- Historical procurement analytics examines what happened in the past. Examples include spend analysis of accounts payable data, contracts, and spend under management. Reviews of key performance indicators (KPIs) are typically backward-looking and often seen as a “check-the-box” measurement. Where real insights begin to occur is when information is presented in the context of baselines and trends emerge, leading to quick identification of deviations, variations, and patterns that may prompt team reviews and action items.
- Real-time analytics enables procurement executives to respond more quickly to different conditions, and allows for localized decision-making when it comes to variable needs, production schedules, logistics and delivery requirements, and local supplier capabilities. Real-time risk metrics that provide notification of a change in a supplier’s condition can also trigger mitigation efforts.
- Predictive analytics is one of the most important, but least understood, types of analytic insights. It must be formulated against questions: What do we want to know? What is our hypothesis? A well-developed set of predictive analytics can provide indications and forecasts of issues before they occur – and drive strategic actions, especially at the category level.
Forward-thinking procurement organizations can reduce complexity and risk, and optimize value and supplier innovation, by using analytics to capitalize on the wealth of data available to them.
Regardless of the maturity of your analytics program, I highly recommend reading Dr. Handfield’s report, Procurement Analytics: Enabling the Journey to Value. If you’re pressed for time, but interested in a bit more information, my colleague recently summarized the five key takeaways from the report.