Procurement spend data is Gold Dust – it just needs a bit of Alchemy to get it
The bed-rock of procurement excellence
Complete visibility of an organisations spend is the bed-rock of procurement excellence. High quality spend data is the basis for the core procurement processes; from strategic planning to supplier management, category management and contract management, through sourcing and negotiation to compliance, governance and reporting. The quality of spend analytics is directly proportional to the profit impact procurement can bring.
The problem is getting your hands on it.
It sounds simple in theory but, in practice, very few organisations have mastered it and fewer still on a sustainable basis and there are a number of reasons for this.
Problem 1: It’s based on data created for another purpose
The base data for procurement is the accounts payable transaction data - the definitive record of what a company has paid, to whom and for what. Overlaid on that will be purchase order data sets, expense claim data sets, purchasing card data sets and any catalogue order data sets.
The fundamental issue is that accounts payable data is good for financial reporting but not good for procurement. In order to get from ‘accounting numbers’ to actionable, supply-market intelligence requires a process of data aggregation, cleansing, validation and then detailed, transaction-level categorisation. It needs to be in supply-market categories - not accounting buckets.
Problem 2: Systems
As accounts payable data sits inside the finance system or an ERP system, it’s not always straightforward to actually see it. Of course, the finance department can run reports but they are finance reports.
In order to transform the data it needs to be extracted and in many organisations this can be problematic.
Problem 3: Complexity multiplied!
Multiple systems, multiple data sets, multiple companies, multiple subsidiaries, multiple charts of accounts, multiple languages, acquisitions, diversifications, restructures….
The more complex the organisation, the harder it is to piece together the picture.
Problem 4: Scale rapidly compounds the issues
The bigger the organisation, the harder it seems to get good spend analytics. It is very unusual that there is ownership of procurement spend data. More often than not it sits across an organisation, making it very difficult to formalise.
Problem 5: Keeping it live
Even when spend transparency is created, organisations often then fail to make the benefits sustainable. For example, it’s often done as a one-off exercise, to support a particular activity such as strategic planning. But it has the potential to become even more powerful if the data is kept refreshed (monthly, quarterly or even annually).
Problem 6: So what?...!!!
The true value is turning data into insight.
It is the “So What?” question.
For example, knowing that you spend money on packaging is a helpful starting point… but having the facts that tell you that your packaging spend is dispersed across multiple suppliers, your costs are rising whilst the cost of polyethylene has decreased and the currency index has provided an effect in your favour provides the clear, actionable insight to reduce costs.
We call this procurement data science.
The application of machine learning now allows us to run whole ranges of algorithms across huge data sets, providing intelligence and insight not previously possible. And the capability to pull in and connect data from outside an organisation layers on an exponential level of insight.
Continuing the same packaging example above; connecting your delivery metrics to your packaging suppliers whilst understanding their financial credit rating and the percentage of business you are compared to their revenue prior to your next negotiation enables you to optimise your outcomes.
Points to consider
- Procurement spend data is the foundation of procurement capability – it enables profit improvement
- Knowledge is power.. procurement data science provides the knowledge
- One-time visibility is great for planning, but refreshing data enables you to optimise on an ongoing basis
- If procurement spend analytics is a challenge, consider expert help
Leading-edge spend analytics platforms such as ProIntell are becoming increasingly powerful and effective tools. They help organisations to achieve complete management of their spend data, delivering actionable intelligence, visibility and insight. With options for data refreshments as often as needed, the benefits of spend transparency can create sustainable enhancements.