Actually, according to IDC research, today supply chains have access to over 50 times more data than five years ago. Here are the principal KPIs that will allow you to evaluate and monitor your suppliers performance. In the Deloitte CPO 2020 Flash Survey, only 50% of procurement leaders surveyed had high or very high visibility into their tier 1 suppliers, while 90% of organizations rated their visibility into their extended supply networks as moderate to very low. Considering that a typical fraud case lasts 14 months before its detected, causing an average loss of $8,300 per month Well, the sooner you find out, the less money you lose (thanks, Captain Obvious). Procurement spend analytics helps assess your processes and find optimal answers to such business questions as. hbspt.cta._relativeUrls=true;hbspt.cta.load(4388958, '554266f4-0a10-4636-9e55-253dbd3e0ee5', {"useNewLoader":"true","region":"na1"}); 844-4-Raiven(844-472-4836)Contact Raiven, Raiven | All Rights Reserved | Privacy | Terms, 7 Ways to Improve Strategic Sourcing Using Data Analytics, The Business Benefits of Strategic Sourcing, 4 Metrics to Consider for Strategic Sourcing. So, how can you grasp the benefits of analytics for your procurement department? Such platforms can process information from a variety of sources and conduct more advanced analyses. Find companies like yours and hear their stories first hand. Some examples of such savings are investing in new technology or entering into long-term contracts to get better discounts or avoid price fluctuations. If you would like information about this content we will be happy to work with you. Analyze the supplier market. If you use a separate RFI (request for information), RFP (request for proposal), or RFQ (request for quote) platform, youll have to integrate it with your ERP or procurement system to collect the necessary supplier data. When teams do run analyses on specific product categories, that process is often manual and thus not scalable, leaving much of procurements volume unmanaged. Look at all purchasing data, then break it down into different departments and locations. In Deloittes 2020 CPO Flash Survey, procurement leaders identified cost management as their top priority right now, commanding nearly 8x more focus in day-to-day operations. Procurement is a cornerstone of a supply chain, being its first and basic stage. optimizing MRO supply chain procurement here, you may want to consider a procurement platform. The end goal is a procurement strategy that builds a mutually beneficial relationship between suppliers and the business, as well as evolves with the changing needs of the company. Strategic sourcing can eliminate spending outside of contracted suppliers. Meanwhile, well describe the process of turning the raw data around you into actionable insights. This one is crucial. Good procurement procedures help building operators and contractors get the materials they need to keep a commercial building or multifamily property running in a timely and efficient fashion. Now the trick here is not to collect as much data as possible but to carefully choose what data would be useful for analytics purposes. For example, when you become a member of RaivenMarketplace, you receive access to Avendras best-in-class contracts for MRO supplies. Key performance metrics. That might be one of the reasons why enhancing supply management capabilities, as well as adopting and investing in advanced technology, emerged as the two primary themes among the survey respondents. This is a shame, because data offers much more potential. For procurement, the opportunity lies in combining internal procurement data assets with relevant external data assets to benchmark performance against peer groups based on real data and in real time. It might have richer functionality to address the specific problems within each procurement aspect, however, for them to work well together, youll have to establish a bunch of custom integrations and ensure a seamless data exchange. Maverick spending can also be detected with the help of software by comparing contracts with actual transactions made and detecting discrepancies. Through these measures, the procurement functionand the entire enterprisecan become much more resilient. The main problem at this stage is the inability to see the full picture and make accurate forecasts to enable choosing the right partner, plan production or sales, and negotiate the best deal. Utilizing analytical insights, Orbweaver points out, electronic component purchasing officers can be confident that they are always receiving the highest-quality product available at the best price., 4. This may include vendor consolidation or changing the level of open market transactions. Sourcing is the process of finding the source of the necessary goods and services. Manual operations and/or outdated technology arent able to provide the required visibility and support your decisions. You have to understand how your supplier partners are performing throughout your cooperation, track how they fulfill their obligations, and compare them to their competitors. The objective is to ensure not only that the promised improvements actually occur, but also that they dont trigger negative ramifications elsewhere in the organization. 2022 Endeavor Business Media, LLC. Please try again later. But those data give only a partial picture of whats happening. By connecting finance, product development, and procurement data, companies can gain the transparency they need to understand their true risk exposure, and thus take the steps needed to increase operational and financial resilience. Its a company overhead, so if its value is high, look for improvement opportunities (such as perfecting your inventory planning or optimizing your inventory management activities). The more granular the data, the more information you have to analyze. Digitization has already greatly improved this business aspect, facilitating contract creation and editing, introducing e-signatures, increasing security, tracking expiration dates, and enabling convenient search and storage functionalities. Did the right items go to the correct location? Its also important to understand the alignment with stakeholders and the finance department. The International Association for Contract and Commercial Management (IACCM) research showed that on average, companies lose around 9 percent of annual revenue due to poor contract management. Now, the fun part. For example, theres always demand for major raw materials such as wood, coal, wheat, or steel and the fluctuations are mostly rather moderate. Software can monitor the outcomes of the contract such as supplier performance and milestones by extracting the agreed terms (e.g., price or delivery time) from the contract and comparing it to the actual cooperation results. Procurement teams need to know how much is being spent, when, and where. Instead, the basic analytical and reporting modules of ERP (or other business management software), BI tools, or even Excel spreadsheets are used to make visualizations and identify trends. You cant make contracts and build delivery schedules effectively if you dont know future demand, production or sales volumes, and the amount of goods you need. It shows the part of unplanned orders, usually because of inventory shortages. It rather shows your dependency on your partners. Software can categorize your spendings and provide an understanding of where your money goes. For example, lets say you annually spend $1 million on MRO, buying from a trusted supplier that gives you a 10 percent discount. Here are four pieces of must-have data for strategic sourcing managers and why they matter. Predictive stage: Weve already explained why making precise forecasts is the basis of accurate resource planning, budgeting, negotiating contract terms, and other crucial procurement processes. Its less obvious and harder to measure since they are not mentioned in the income statement (thats why they are often overlooked). Ambiguity detection. Procurement functions are growing more complex, and the business environment is becoming more volatile. An easy-to-use one-click procurement platform can decrease employee reluctance to use traditional (aka cumbersome) ways of buying. However, they are not industry-specific and might lack procurement-related metrics or be unable to provide the necessary granularity or analysis. In a world in which uncertainty and disruption will likely remain a constant, procurement leaders will need to be even more resourceful to help their organizations manage cash, while limiting supply disruptions. (Deloitte 2020 CPO Flash Survey). This metric is extremely important because it measures how well suppliers are fulfilling the terms and conditions of the contract. If the answer to any of these questions is regularly a no, youll need to enforce terms and conditions and possibly look elsewhere in the future. You can also use a vendors scorecard to visualize their performance on one dashboard and compare by different criteria. Because automation comes in different types, ranging from full analytics suites to digital assistants, companies will want to test options and tailor the right set of solutions for their needs. Analytics, for example, is not a secret. 7. If you as a business owner or manager dont know whats going on within your organization, you arent able to timely take measures in case of unplanned situations (and those are sure to happen, no doubts). Designed and built as a part of your business workflow, its tailored to meet the unique needs of your procurement process. BI tools and visualization platforms such as Microsoft BI, Tableau, or QlikView can also be a solution as they have customizable dashboards and powerful visualization capabilities. Supplier availability = Number of times items were available / Total number of orders. Your procurement team is central to the success of the entire company. Demand forecasting to define purchase amount, Tracking vendor-related KPIs to choose suppliers and monitor their performance, Contract management to review and audit agreements, Invoice and payment analytics to detect errors, compliance issues, and fraud, Procurement analytics software and its implementation approaches, Deloitte Global 2021 Chief Procurement Officer Survey, Analytics Maturity Model: Levels, Technologies, and Applications, Supply Chain Analytics: Opportunities in Data Analysis and Business Intelligence, Demand Forecasting Methods: Using Machine Learning to See the Future of Sales. The people who use these insights to make the most dramatic improvements in performance can become change agents whose stories help inspire the rest of the organization. 2. Advanced tools can also compare your documentation to the latest legal and regulatory requirements to ensure compliance (or identify gaps). For example, monitoring maverick spend on a new contract can be quickly identified and reduced., https://www.linkedin.com/organization/11093979, Knowledge is Power in the Ongoing Chip Shortage. Supplier contract compliance rate (or SLA compliance rate) measures the vendors compliance with business requirements and negotiated contract terms. Accounts payable challenges. Automation can significantly streamline the accounts payable (AP) process as it helps in reducing errors, reviewing consistency and compliance, increasing accuracy in matching an invoice with a purchase order (PO), and even offering self-invoicing solutions. Businesses need to understand what data to look at to create a strategic sourcing process. Prescriptive stage: At its highest level, analytics is capable of automatically suggesting optimization options and providing decision support by giving actionable recommendations. To succeed, you have to be able to forecast consumer behavior, price changes, impact of innovations, and so on. If the answer to any of these questions is regularly a no, youll need to enforce terms and conditions and possibly look elsewhere in the future. Procurement activities generate vast amounts of information. Once youve extracted data, you have to store it somewhere. It considers delivery time, number of delays, reaction time in case of issues, difference between the price paid and the price quoted, etc. It allows you to optimize inventory and avoid shortages or overstocking, thus reducing related costs. Forecasting demand, predicting price fluctuations, and understanding market trends would allow you to identify opportunities for savings and process improvements, as well as create accurate budgets and effective strategy. Custom solution. Direct spend is more obvious and is easier to monitor, so many companies can be unaware of indirect spend breakdown and underestimate its impact on the bottom line. With specialized analytical tools, you can better control your cash flow, evaluate the accuracy of payments, and track such payment-related KPIs as purchase order lifecycle. To detect suspicious transactions, software scans documentation in search of. In procurement, there are a number of challenges that directly impact productivity and ultimately, the companys bottom line. Emergency purchase ratio is a reverse metric. It helps monitor the overall performance stability. Yes, I understand and agree to the Privacy Policy. Real-time data will allow you to monitor strategy implementations and allow the tweaking of plans to increase success, CIPS adds. How long is it taking for products to get to the business from the time an order is placed? As you can plainly see, they are tightly interconnected, since implementing advanced technology as part of a business digital strategy delivers improvements in efficiency and uncovers savings opportunities. How long are products likely to last? If your dark spending is 20 percent, it comes to $200 thousand worth of goods bought without discount, or $20 thousand of lost savings. Experience the EMS one click at a time, in this gorgeous, all-encompassing, interactive demo. While some suppliers may offer lower prices, if the quality of their product isn't good, a business will end up spending much more on it in the long run. Its difficult to predict the future, but businesses cant be successful without accurate planning. Demand forecasting is crucial for procurement as it allows you to estimate the necessary amount, type, and quality of goods or materials to be purchased based on the predicted level of consumer demand. Manual invoicing makes compliance quite difficult and can result in serious tax-related issues. People are more likely to consume information thats been made digestible, so creating readable reports and user-friendly visualizations is important. One apparel company used spend-analytics automation to understand small-value orders. So, a high value is also a reason to reconsider your inventory strategy. Here, data scientists and data engineers are involved to build and maintain data pipelines which might include data warehouses and even data lakes. In addition to these main groups of procurement KPIs, there are also such categories as employee-related KPIs and sustainability metrics. Create a strategic procurement plan based on the business' needs. As youve decided on your suppliers and set up a delivery schedule, you just want it to go as planned. Was the right quantity delivered? Its not only about forecasting though. In business, shopping or procurement isnt that much fun. A utility used this approach to consolidate procurements enterprise-resource-planning (ERP) data along with general-ledger and cost-item data. Many people believe that shopping is therapeutic (and as a matter of fact, studies prove it). This site requires you to register or login to post a comment. You must have JavaScript enabled in order to access the Celonis website. Are deliveries timely? is extremely important because it measures how well suppliers are fulfilling the terms and conditions of the contract. Depending on your analytical resources and the market you operate in, you can apply one (or both) of the two main approaches to demand forecasting. But companies face challenges in trying to implement it at scale, primarily because procurement data can be inherently messy and fragmented. The application of big data analytics allows a procurement leader to pull together such diverse data sets including invoice unit, price variance and fulfillment, supplier and buyer information, benchmark price, and tax information into a single, comprehensive analysis. Risk assessment, supplier evaluation, and strategic decision-making based on huge amounts of historic and current data would be most accurate and lead to maximum business efficiency. For example, data mining helps find hidden, unobvious patterns and dependencies and can help detect compliance issues, fraudulent transactions, and maverick spending; or, process mining techniques let you assess and optimize your existing processes. That difference has financial and long-term relationship implications for executives to identify, quantify, and think through. Negotiate with a list of select suppliers. It can show the effectiveness of your inventory planning and management efforts. PO accuracy refers to the number of correctly fulfilled POs, i.e., delivery of the right items at the right time. A trained ML model can find and highlight inconsistencies and ambiguities or flag missing elements such as currency fluctuation clauses. other internal information such as Excel spreadsheets, databases, paper documents, etc. However, they are less related to operational efficiency and strategic management, so well not cover them here. What is procurement analytics and the opportunities it offers? These insights can enable teams to combine expected changes in supply and demand with real-world environmental factors to create dynamic and scalable pricing models. Ideally, the decision-making process in procurement should also incorporate multiple perspectives, so that the company understands the full implications across the entire value chain.