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A Different Approach to Spend Analysis: AI Meets Human Intervention

  • Disha Kumar
     
    March 12, 2021

Gaining actionable insight into procurement spend is vital for robust budgeting, successful negotiations, and driving significant savings – and it should be a key input into any category strategy. Here’s how The Smart Cube can help.

 

Having visibility of your procurement spend helps to decrease costs, increase efficiency, simplify budgeting and negotiations, reduce maverick spending, and improve supplier management. It’s an essential part of becoming a truly strategic function. But, good spend analysis doesn’t come easy. And bad spend analysis can do more harm than good.

At The Smart Cube, we’re often approached by procurement leaders who are struggling to monitor their top spend, get visibility into tail spend, or want to discover how they can work with different categories to quickly improve cost savings.

The simple fact is, to get spend analysis right you need to dedicate a lot of time to a lot of different things. In fact, just compiling and cleaning the data required to gain any level of insight can be a hugely resource intensive job, and one that often requires dedicated internal resources.

In our experience, the challenge of spend management typically results in businesses taking one of two approaches. Firstly, it’s common for companies to only conduct deep dives into easy and accessible data, like direct spend and top category spend. This means factors like tail spend and indirect spend aren’t investigated, and huge savings opportunities can be missed.

Illustration of project-manager-hand-management-skills

 

The other common approach is to invest in software solutions to help gain new levels of insight. But software on its own isn’t a panacea. Often the quality of underlying data is very poor, especially if a business has multiple operating units, or has grown through acquisitions, and software cannot easily deal with such data issues.

We also consistently see the categorisation accuracy of these solutions deplete over time, which means they can’t provide the insights companies need to make the most of hidden opportunities and improve decision making. And when you’re locked into a two or three-year licence this can be a problem.

We receive many requests from clients using off-the-shelf spend analytics tools and software, who have faced issues with incorrect categorisation and generic taxonomies. These clients seek our support to increase accuracy, provide category intelligence, and deliver detailed spend analytics that helps uncover new cost saving opportunities.

 

A different approach to spend analysis

Our spend analytics offering is designed to empower category managers with improved spend visibility, using the KPIs that are most relevant for their company’s procurement maturity stage – rather than the generic one-size-fits-all approach software most often provides. 

The Smart Cube’s spend analytics is built on a philosophy of combining proven AI algorithms with human intervention. While AI helps accelerate the end-to-end spend analytics process, our knowledge assets and procurement expertise ensures delivery of the most relevant data insights at a category, as well as, a subcategory level.

Illustration of AI and Human Intelligence contacting

Our knowledge assets include tools and algorithms that are based on machine learning and text matching techniques. These assets are accelerators and enablers for managing each step in the spend analytics study – from data collection, cleansing and categorisation, to category opportunity assessments – on big datasets. Our procurement specialists bring in the much needed human knowledge and understanding that drives accuracy of results and increases the depth of analysis.

For instance, in the categorisation step, the procurement specialist designs a custom taxonomy (based on best-in-class industry taxonomies) that matches a client’s maturity stage and procurement organisational structure. Keeping this taxonomy as a base, we conduct manual categorisation on a sample of a client’s spend database, to create training datasets. These training datasets are inputs to our categorisation algorithm and expand the error-free categorisation to the remaining dataset. The top spend is reviewed by our procurement specialists to ensure an error-free classification of the spend. This recursive process enables us to speed up the delivery of results, while maintaining a high classification accuracy, and provide spend visibility at subcategory level.

We can also deliver category opportunity reports in a shorter turnaround time using a mix of our Opportunity Assessment AI tool and our procurement specialist’s vast experience of identifying cost savings opportunities, to a subcategory level.  

These reports provide a detailed understanding of where your money is being spent, where you should consolidate spending with suppliers, how to renegotiate and restructure contracts and, perhaps most importantly, when you should cut ties with suppliers altogether.

 

AI+HI in action

Through this approach, we’ve recently helped one client – a global pharmaceutical company – to identify $29.5 million in savings across five categories, in just seven weeks.

We’re also working with a leading consumer product company, supporting the procurement function with data collection from myriad sources, accurately categorising this data, helping to generate visibility into direct and indirect spend, and enabling identification of new opportunities with deep-dive category opportunity assessment studies. This ongoing relationship has led to efficiency improvements of more than 40% so far.

 

An extension of your procurement team

Spend analysis software can be great at giving you an overview of your spending and highlighting some opportunities. But where it really falls short is in telling you how to act on the insights it provides and delivering actions that create a strategic business impact. Not only can our approach dive deeper to give you more accurate and relevant information, we can also help you plan a strategy suited to the specific needs of your procurement department and support easy decision making.

big-data-illustration

 

Acting as an extension of your procurement team, The Smart Cube delivers end-to-end support for spend analytics, through our Category Intelligence and Procurement Analytics  solutions. By replacing software with human expertise and deep category intelligence, we make sure you get more from your investment.

If you’d like to talk about how we can help you get started with more impactful spend management, get in touch today.

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