Historically, procurement teams have had to deal with multiple structured and unstructured databases. To make decisions based on facts and acquire a competitive edge, procurement teams require the collection and utilization of data. Best-of-breed procurement teams need to be able to consolidate and analyze this data in one place.
Analytics in procurement refers to the practice of employing quantitative techniques to extract useful information and results from data. It gathers data from many internal and external sources and displays it in a meaningful form for procurement teams.
Procurement software and the analytics it enables help companies and businesses better understand their procurement spending by employing quantitative methodologies to draw relevant insights from data. These insights can enable teams to make better decisions in time.
Wondering how analytics can improve your procurement performance? Here is how:
1. Better supplier evaluation.
Analytics provides access to information on variables like on-time delivery, the quality of the delivered goods and services, lead time and more. This enables businesses to assess their suppliers with a supplier management platform. A supplier’s realized performance can be compared to predetermined benchmarks to identify opportunities for development and improvement.
The most fruitful debates are fact-based and backed by solid evidence. With better data analytics, firms can negotiate more effectively and set clear expectations with suppliers. This can also help in developing better supplier relationships.
2. Better risk analysis.
Every transaction involves several variables vulnerable to risk, including quality of product, legal and financial conformance, corporate reputation, reliability and many more. By adding risk analysis into the decision-making process, advanced data analytics may assist procurement departments in making the best spend decisions.
Data on geographical risk, price and compliance risk and preventative actions may all be combined to help procurement teams better predict potential supply chain issues. With the aid of data, they can discover usage trends and other information that can be used to create more informed purchasing plans and better supplier agreements that lower the risk.
3. Increase accuracy for demand forecasting.
Data analytics can connect recurrent and unanticipated environmental aspects to improve demand forecasting accuracy. Usually, if demand forecasting is inaccurate, it can lead to unwanted inventory or a shortage. More inventory means there are higher inventory costs and more chances of pilferage. In contrast, less inventory can lead to customer dissatisfaction and loss of potential business.
Analytics can leverage multiple data sources and provide an accurate forecast of demands, along with probable safety stock, which helps organizations be more prepared to meet customer needs. This benefits the procurement department and the organization as a whole.
We live in a world where data is everything. When gathered and analyzed strategically, data can help organizations stay ahead of the competition by highlighting the areas of improvement and anticipating what’s next. By analyzing the data with the help of procurement analytics, better decisions can be made, helping organizations stand out in the market by knowing the best way to move forward.
Prasanna Rajendran is the VP at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible procurement software for procurement teams to streamline all their purchasing processes in a single place. He has over 20 years of experience in technology and has helped Fortune 500 companies with custom solutions in the sourcing and procurement space.