Procurement analytics is much more than just spend analysis. It can help all departments in the business to correct and strengthen their strategies and increase overall efficiency. Here, we’ll discuss the benefits of procurement analytics for an enterprise.
Procurement is crucial for a business. It influences the various elements of the supply chain, right from production to quality control to distribution of the goods. With such an important role, it’s no surprise that businesses need to adopt the latest technologies to stay up to date in the dynamic global market and survive the competition.
In many enterprises, the procurement teams are already handling cross-functional activities and working with teams from other departments. In fact, according to a survey by Procurious, more than 81% of procurement teams feel pressurized to be more effective when responding to supply chain challenges. While this is alarming, the good news is that close to 80% of CFOs intend to maintain or increase enterprise digital investment in 2023.
Procurement analytics is the process of using data and technology to help procurement teams make better, faster, and more efficient decisions. Instead of relying on guesswork or outdated reports, the teams can use real-time analytics to choose the raw materials, vendors, procurement methods, transportation routes, and so on. As per the report by Verified Market Research, the global procurement software market will touch $9.5 billion by 2028 with a CAGR (compound annual growth rate) of 7.6%.
In this blog, we’ll read more about the benefits of procurement data analysis and how businesses can overcome challenges to fill the gaps in skills and technology.
Procurement analytics involves data collection from multiple sources (and ERP systems) and the analysis of this data to derive actionable insights for faster decision-making. The collected data is categorized into different segments based on the business KPIs. The analytical reports are shared using business intelligence or data visualization tools.
However, procurement and spend analysis are much more than data visualization reports. It helps business enterprises make use of historical and current data to determine the best way forward in managing vendors, suppliers, and other members of the supply chain. The ultimate aim of procurement analytics is to optimize resources and increase ROI while enhancing customer satisfaction.
CPOs (Chief Procurement Officers) have a great responsibility on their shoulders. They need to ensure the cost of procurement is within the budget without compromising quality and also maintain good partnerships with vendors. At the same time, CPOs have to consider various business goals and align the department goals accordingly.
Fortunately, procurement analytics can provide a comprehensive solution to all these aspects and more. Let’s look at the various benefits of using purchasing analytics in the business.
How to manage resources for the entire business? Are there areas in a business that is overspending? Can the organization reduce expenses without cutting corners? The answers to these questions can be found by relying on procurement analytics. That’s because the various activities of procurement analytics are interdependent and influence one another.
For example, by monitoring inventory, the teams can determine the usage of different materials within the businesses. It helps track which items are necessary and which can be procured in fewer quantities to prevent overspending. By optimizing resource allocation, the business can improve the spending management indicators and increase opportunities to save costs.
Countless things could go wrong during the procurement process. External factors can lead to delays, damages, and other issues, resulting in losses for the business. Even if an enterprise has been following the same procurement process for years, the element of risk will always remain.
However, procurement analysis can help in managing this risk efficiently. It empowers the teams to identify bottlenecks and challenges that can and cannot be controlled by the business. Then, these issues are addressed individually to establish a risk management policy and minimize losses.
For example, an organization with vendors from other countries has to create a risk policy to handle geographical border restrictions, weather-related delays, socio-political factors like wars, etc., to ensure that the supply keeps coming despite the adversities.
Data is the key to making informed decisions in today’s world. Data analytics help combine past and present data to derive meaningful insights for identifying trends, understanding the challenges, and becoming proactive to make the most of market opportunities.
Procurement analytics will help the enterprise track the demand and supply in the market and adjust the orders accordingly. Demand forecasting reports help stay one step ahead of competitors and meet customer demands before other businesses can take advantage.
The supply chain network of a business can be lengthy and complex. Maintaining transparency throughout the process can be difficult without using the right technology. That’s where using analytics in procurement helps organizations. Data is collected from different sources and made available to teams from various departments across the business. This allows the finance, IT, marketing, and customer service teams to use the data to improve sales and customer experience.
For example, customers around the world are becoming more aware of sustainability and eco-friendly practices. Many customers want to know where and how a business procures its materials. A transparent supply chain makes it easy to share this information with customers. In fact, some brands use it as a marketing strategy to attract customers.
Category management is a part of spend analysis and vice versa. The spend categories are created by grouping similar types of purchases under individual heads. Spend analysis gives the procurement teams the necessary data to segment the purchases and expenses by creating a basis for category structure. It is the starting point of category management and allows businesses to have a clear picture of how much they spend on each category and ways to optimize the expenses.
Not only do procurement and spend analysis help with category management but also provide businesses with the necessary insights to link the strategies with business values to increase benefits. It allows the CPOs and CFOs to focus on each category separately and find ways to optimize the process and increase savings.
The benefits of procurement and spend analytics include tangible cost savings for the business. This can be done through the following:
Procurement analytics can help a brand thoroughly understand the reasons behind the expenses incurred to help create a strategy for cost savings. For example, if a business uses only one supplier in a certain category, it can approach more suppliers to create competition and reduce the overall cost.
Technology like artificial intelligence and machine learning can automate repetitive tasks performed by procurement teams. Paperwork, invoices, sending alerts or emails, tracking inventory, placing orders, making vendor payments, etc., consume hours.
However, automating these processes will free the teams and allow them to focus on creating a powerful strategy for the business. This, in turn, increases the performance and productivity of the employees and the business. By combining it with procurement analytical reports, the middle and top management can enhance the results of value-addition activities.
Lack of quality data is a concern in many businesses. Even organizations that invest in analytical and business intelligence tools worry about data quality. However, using analytical tools makes it easy to collect data from several internal and external sources. This data is cleaned and formatted before being analyzed. Furthermore, no data will be left unused.
Procurement and spend analytics highlight data deficiencies in a business. This gives the necessary information to establish new data pipelines and streamline data flow within the enterprise. Ultimately, it leads to higher data quality and accurate insights.
Internal benchmarking is the process of analyzing the organization’s performance against its own previous performances to increase the standards. One of the biggest advantages of procurement analytics is to get comprehensive data visualization reports about the various procurement processes and ways to set higher benchmarks.
For example, a business can get real-time insight into the cost of procurement for each unit, factory, project, category, etc. This information can be combined with reports from other departments to measure if the organization is generating profits. Procurement and spend analysis also help the top management identify why one department is delivering better results than the other and how changing the procurement strategies can enhance the overall performance.
Businesses need to have strong and long-term relationships with vendors and suppliers. Factors like trust, reliability, etc., are necessary for two businesses to work together. From getting the best quality materials to price negotiations and other services, many aspects can be improved to increase the quality of business relationships with vendors.
For example, when both parties use the same data and analytical reports there are fewer chances of miscommunication. Negotiations become easier when the business and the vendors are on the same page. Furthermore, having better relationships with suppliers and vendors will give a business an edge over other brands. The vendors will be willing to go the extra mile to help the organizations (extending credit, faster delivery, higher material quality, etc.).
While procurement analytics is essential for a business, it is not always easy to implement. The enterprise has to overcome certain challenges, such as:
What are the biggest skills gaps in procurement analytics? The lower and mid-level employees should have the necessary skills to use business intelligence tools and work with data visualization apps like Power BI and Tableau. However, the enterprise should have a team of AI and ML developers to build the data analytical models from scratch and customize them to suit the business requirements. Many business organizations bridge this skill gap by partnering with offshore BI service providers.
Do you have the right tools for procurement and spend analytics? The right tools for a business depend on its transaction volume, region, industry, competitors, etc. Choosing incorrect or unsuitable tools and technology can lead to additional losses. A reputed data analytics consulting partner will understand the business requirements and recommend tools that deliver the expected results.
A small business cannot have the same budget as an established multinational company. However, it may have to compete with it in the local markets. SMBs can strengthen their positions by hiring offshore service providers to develop, deploy, and customize procurement analytical tools instead of trying to create a new model from scratch. This also gives businesses direct access to expert skills without spending money on recruitment.
Microsoft Power BI is among the top business intelligence and data visualization tools in the market. Many enterprises and manufacturers set up Power BI dashboards to process large datasets and derive manufacturing analytics in real-time. It helps in identifying problem areas, tracing patterns, and finding effective solutions to roadblocks.
From performing ad hoc analysis to collaborating with other factory supervisors and managers, Power BI’s interactive dashboards help manufacturers at every stage of production. The best and easiest way to integrate Power BI with the existing systems is by hiring offshore experts. Many top manufacturing enterprises partner with Power BI consulting companies to set up the platform and customize it to deliver actionable insights in real-time.
Considering the extensive benefits of analytics for procurement and spending, it is no surprise that there is a growing demand for relevant software and skills in the global market. Purchase analytics can help a business develop better strategies, have greater control over internal processes, manage costs and revenue, increase customer satisfaction, and generate higher ROI.
Business organizations can partner with data analytics companies to choose the appropriate analytical methods, tools, and technology to streamline the process across various departments and make decisions using real-time reports.