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Spend Analysis and Purchasing Intelligence: the winning Purchasing duo
Management guru Peter Drucker said: “you can’t manage what you can’t measure". This affirmation resonates greatly when talking about Digital Procurement. While the traceability of the Procure to Pay process is an asset, it is not an end in itself. Digital Procurement's solutions must now provide the Purchasing Department with the ability to analyze their activity, pool their information with other strategic centers of the company and set up efficient strategies and action plans. After the buzz caused by big data, companies need to engage in the era of smart data. A powerful Digital Procurement tool must enable accurate and relevant analysis to increase the quality and finesse of the company's management, the opinion from Vishal Chouhan, VP of SynerTrade North America.
Purchasing Intelligence: turning quantity into quality
Some companies concentrate up to 70% of their activity on purchases. Digital Procurement solutions today cover the entire Procure-to-Pay value chain, and enable us to collect as much valuable data as we can. This data is supplemented by external data, to provide buyers with all the information they need for sourcing, and managing and monitoring the supplier relationship from one end of the chain to the other. The interconnection of these solutions with the company's structure makes it possible at the same time to establish a collaborative and transversal dynamic with the employees involved in the Procure-to-Pay process.
The approach is similar with suppliers who, thanks to Digital Procurement platforms, are also active in sharing and enriching data. The Purchasing Department is therefore strategic in the company by the volume of data it generates from these different sources. "Big Data" makes sense in the digitalization of purchases. This can be mirrored by the fact that the Sales and Marketing departments have been able to live with the effects of web technologies and the emergence of adapted CRM solutions.
But such volumes of data can only create a limited value if we do not move from observation to analysis. In other words: The procurement solution must allow managers to measure the purchasing activity, analyze it and draw the right conclusions. It's about moving the Purchasing Department from Big Data to Smart Data. The idea is to implement a real Purchasing Intelligence approach to the performance of the company.
Yes, to measuring, but measuring what?
The procurement solution must allow the Purchasing Department to obtain in a simple and intuitive way the answer to the questions that are essential to its activity, according to the purchasing plan that is built in accordance with the company's strategy. This is a fundamental key to moving from a management tool to a guidance tool.
The following are the main questions:
• How can I know that my RFX / eAuctions are effective?
• How can I track the compliance rate of contracts?
• How do I know that the terms of my contracts are honored by my suppliers?
• Can I benefit from early payment terms? What are my payment terms?
• Can I benchmark my data with the market?
These questions derive directly from the objectives that the Purchasing Department sets for the year and will be adapted according to the company’s current situation. This suggests that the tool can be flexible or modular enough to adapt to the business environment, and that it can evolve to keep pace with the needs of users.
Purchasing intelligence for business agility
Throughout our blog entries, we also regularly come back to the importance of having clear interfaces, using the simplest applications to use and automating all repetitive and time-consuming tasks to allow buyers to produce all of their real added value. The tool must allow these different questions to be answered very quickly, in clear formats, simple to understand, and comment upon.
The purpose of the measure is to identify the blocking points of the activity and to be able to make appropriately adapted patches. Once you have defined what you need to measure, build the right reporting tools, you should ask yourself how to solve the problems and once again, ask the right questions.
• If I notice a bad evaluation on one or more suppliers: what actions can I take to improve the situation?
• If I notice an unusual peak of expenditure: what is the origin / the cause? How can I decrease it?
• My rate of use of the tool can be further improved: what changes should I make? How can I encourage employees or suppliers to fill in their data?
The answers to these questions will allow the implementation of relevant and necessarily productive action plans, with a dynamic of constant improvement.
Purchasing Intelligence for agile management
Data analysis allows the Purchasing Department to make decisions quickly, on the right items, and to become fundamentally agile. This agility will echo outside the walls of the Purchasing Department.
A Digital Procurement tool focused on Business Intelligence gives valuable information on purchases to other departments. We immediately think of the Finance Department, which can rely on purchases to verify the relevance of its budget monitoring. But other departments, such as R&D, can also benefit from analysis of purchases to change products, or marketing / sales departments to organize promotional operations on a given product based on cost.
Purchases become the preferred partners of other departments and can positively influence the company's action plans and overall performance. The digital procurement solution must therefore also be considered as a tool for the agility of the company and its competitiveness. It allows purchases to train all management in a more informed and comfortable decision-making process.
Moving from the era of Big Data to that of Smart Data is essential for the champions of the economy of tomorrow. This requires purchasing departments to rely on Business Intelligence-based Digital Procurement tools to make the most of relevant, consistent and scalable data analysis. Purchases are increasingly driving the digitalization dynamic in companies, but even more so, they are at the forefront of using the full potential of digital technologies in the service of the overall performance of the company. Here is a great answer to the problem raised by Drucker at the beginning of this blog post, and shows promising managerial options for any Purchasing Department to explore.
About the author
Vishal Chouhan, VP of SynerTrade North America