Procurement Analytics – Myth and Reality

All of us in Sourcing and Procurement would agree: Analytics are great and required for top Performance . However, when talking of Procurement Analytics Maturity, many companies I’ve worked for believe having most of what they need with when evaluating their Analytics capabilities. I’ve been surprised how perception of what Analytics are was underestimated and thought it worth a post.

So what are Analytics?  In short and crisp: Analytics are (should be) Actionable Insights. The  key word is actionable, it makes the whole difference with Insights alone. Insights give you an information that you still need to enrich to come to an action, while actionable insights gives you the ability to act almost immediately.

Let me illustrate. A Multinational company have managed to get all its spend data into a nice and friendly Spend Analysis tool which provides a 360 view on everything. A light in the dark : the tool helps you now to see who buys what when, how and for how much (the spend cube). Data are usually extrated from PO and AP. Yes, it’s a great progress as it bring some visibility to work on answering below questions:

  • Is my supplier based optimised on a specific category?
  • Could I use more eCatalogues to enable hands-free procurement?
  • Are my suppliers delivering against their promise?
  • When shall I plan to renegotiate my contrats
  • Am I applying properly volum discounts at the end of the year?
  • Am I aggregating correctly spend within a same Group company?
  • Is spending aligned with Budget?
  • Etc…

But to get anwers on above questions, you need just more than what you have in a spend cube. You need to collect data from other sources, make a link between then probably at supplier level, take into account internal policy, finally do some analysis thought company specific filters (thresholds, businesses, geographies etc…) before coming to an actionable workplan.

Now, imagine that those required data Sources are interconnectable if not already interconnected, able to enrich each other automatically, to ‘learn’ from other sources i.e. leverage further information from social networks, websites, devices, mails, databases… Instead of just giving you the information that « you have a lot of suppliers », Analytics would provide you with a different message (illustrative):

  • You can reduce your supplier base by up to 75% (source : benchmark)
  • the rationalisation can be done by taking the following actions: aggregate spend on following suppliers as they perform much better than the others (source: supplier performance system) etc…
  • You shall renegotiate you contract A+B+C together as company A acquired B and C
  • You should start renegotiating Contract E, F as they will expire in 6 months from now…

Day and night right? Ok, I can also feel some scepticism in your eyes and a question in your mind : Are Procurement Analytics available?  Yes and no. Yes as it exists in some niche areas, no as there is not a Procurement Analytics tool as per the above releasing actionable insights on the end to end process.

Analytics are actually facing 2 major challenges which requires still extensive human support (internal or outsourced):

  • Data accuracy. Unaccuracy needs human intervention and mini-bots to be fixed. It’s recognised on the market as a key barrier to Analytics, e.g. graph below from Hackett Group published in « Procurement Analytics in the Era of Big Data: What CPOs Need to Know  » white paper in October 2014

Key Barriers for Analytics

  • Data Source interconnecty. Key is to access and connect different sources (people, process, systems, data etc) together, hands-free,  to enrich the information and make it actionable. The cloud definitly helps but a lot has still to be done in this arena before accessing to the graal : real time actionable insights

actionableinsights

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