Today’s CPOs are under pressure to deliver greater strategic value to the business. Here’s why analytics hold the key to success.
Procurement is changing. Once entirely focused on lowering costs, the modern procurement function is asked to deliver truly strategic value to the wider organisation.
It’s expected to identify and mitigate supply chain risk; drive ethical and sustainable sourcing practices; improve the efficiency of production; ensure the quality of products; and contribute significantly to innovating new products and processes.
It’s a lot to take on. And fickle customer preferences, technological disruption and volatile global markets make every one of these things even harder to achieve.
To ensure they can meet their goals, forward-thinking procurement leaders are turning to analytics and data science to gain improved visibility into the past, present and future of their operations.
Here, we look at how this approach can provide rapid and reliable answers to procurement queries – and three steps you can take to gain the insights you need.
Step one: wrangle your data
The impact data science can have on the business world – and the wider world, too – is no secret. So, it might surprise you that 76% of CPOs either haven’t started a procurement analytics project or are only just considering one.*
The fact is, the majority of the world’s procurement organisations are sitting on a gold mine of untapped data. But taking advantage of it isn’t so simple.
Identifying and extracting relevant data from disparate, legacy systems can be complex and time consuming; interpreting and contextualising it, even more so.
In fact, as many as 60% of those struggling to effectively adopt and apply analytics blame poor data quality, standardisation and governance, and 40% say their data is scattered across multiple systems.*
That’s why the first and most important step on your analytics journey is data identification, integration and management. If you can collate all your data together in one place, carry out the correct checks and validations, and ensure it’s ready for analysis, then you have a great foundation for truly informed decision-making.
Step two: identify your need
In years gone by, procurement analytics was done almost entirely in spreadsheets and largely focused on historic data analysis.
Today, things couldn’t be more different. There are all sorts of tools and technologies that can help you navigate this complex world and gain value. How much value comes down to one thing: how big a question dare you ask?
There are essentially three levels of procurement analytics that you can undertake. Each one is more sophisticated than the last, but with greater complexity comes a higher reward.
There is descriptive analytics, for when you want insight into what’s currently going on in your organisation. This covers things like real-time reporting and provides vital visibility into KPIs for performance measurement.
Then there’s diagnostic analytics, for when you want to take a closer look at why certain things have happened within your procurement function. This includes techniques like risk and root-cause analysis.
And finally, there are predictive and prescriptive analytics – where the real value lies. This approach allows you to forecast and assess scenarios for forward planning, using simulations to model and understand the business impact of different strategies and tactics.
Step three: gain insight into everything
With predictive analytics you can prepare your organisation for previously unforeseen events, reducing the impact of market volatility and making critical decisions proactively rather than reactively.
More importantly, you can gain insight into the most granular levels of your supply chain
For instance, if you need to learn about a specific ingredient and how a dramatic climate shift may affect your ability to source it, then you can model that scenario and establish an appropriate ‘plan B’.
Similarly, if you needed to know how the long-term effects of coronavirus might impact your supply chain and ability to source items from certain countries, you can find out before it impacts your business – and then react accordingly, using simulations to model the best alternatives.
And it’s not just about ensuring you can source the best quality products in the most efficient, cost-effective and reliable way.
The insights gained through predictive and prescriptive analytics can help improve every element of procurement, from supplier sourcing negotiation and contract management, to innovation and sustainability – providing the tools and intelligence the function needs to be a truly strategic business partner.
And those traditional cost-saving expectations aren’t forgotten, either. A McKinsey report states that statistical models and advanced analytics can help procurement teams achieve cost savings of up to 8% compared to traditional pricing models.
Need a partner for procurement analytics?
Here at The Smart Cube we have a 17-year track record of delivering valuable, tailored research and analytics to procurement teams at some of the world’s largest companies. Using a combination of external and internal data, we help them to make robust decisions and develop actionable strategies which have resulted in:
- 5-15% savings influence on categories
- 3-5x productivity increase for data and analytics related tasks
- 50% reduction in category intelligence and analytics operating costs
- 10% improvement in negotiation impact
Find out more about how The Smart Cube’s Procurement Analytics solution can help you apply analytics at scale to uncover new opportunities for cost savings and value delivery, proactively mitigate supply risks, and drive continuous innovation.
And read how we have applied Procurement Analytics in practice for our clients:
Leveraging Procurement Analytics to manage purchase price variances for Elizabeth Arden
*Source: Deloitte CPO Survey.