The era of digital disruption has made it necessary for businesses all over the world to acquire, analyze, and use insights produced by the enormous volumes of data accumulated during the course of doing business.
And with a wealth of big data generated, procurement presents a unique opportunity to gather actionable insights that result in significant cost savings, process improvements, and improved decision-making—not just for procurement organizations, but for businesses as a whole.
Procurement generates a veritable sea of data that affects every area of business. If a company uses procurement analytics well and makes strategic use of the information it provides, it can bring about significant benefits.
What is Procurement Analytics?
Using procurement analytics, procurement teams gather and examine the data produced by the procurement processes to produce insightful information that supports process optimization and enables better decision-making.
This analysis can be as basic as using a spreadsheet for a spend analysis in procurement or as sophisticated as using predictive analytics to integrate market and supply chain data into the workflows of purchase orders to ensure competitive pricing and contract compliance.
In general, procurement data analytics combines unstructured and structured data from a variety of internal and external sources. The data is sorted, classified, and then processed, much like or delivered to a refinery, to make it as simple as feasible to access, examine, and leverage to provide business intelligence insights.
Supplier-side data, transactional data (including data from ERP and accounting software), and tactical data gathered from (for example) sales or general ledger and marketing data supplied in spreadsheets by other business units are examples of internal data sources.
Public data (including social media), information on the currency and stock markets, supplier data, and market intelligence are examples of external data sources. In order to help leaders identify trends and opportunities, businesses may also use industry-specific data, such as supplier codes, credit reports, risk exposure profiles, and market indexes.
Procurement analytics is a growing number of cutting-edge technological tools being used to transform big data into discrete data sets.
These tools are frequently supported in the eProcurement space by artificial intelligence, process automation, and collaboration-friendly cloud-based data management. More readily than a mass of unstructured data could ever be, searchable, organized, and comprehensive data may be seen, analyzed, and further refined to give cost savings, value, and better competitive advantage.
Let’s take a look at different types of data analytics that drive procurement analytics:
Descriptive analytics: Using descriptive analytics, you can analyze procurement data to describe historical events.
Prescriptive analytics: Predictive models created from procurement data are used to support decision-making.
Diagnostic Analytics: Procurement data is used to identify the reasons behind previous events.
Predictive analytics: With predictive analytics, you can analyze existing procurement data to reveal market trends and patterns and forecast potential outcomes.
Spend analysis has historically been the main engine behind procurement analytics. Nevertheless, due to highly advanced eProcurement software solutions, procurement leaders seek more tech-powered prescriptive models developed using automated, data-driven processes and artificial intelligence. We’ve listed below a few examples of procurement analytics for a better understanding.
Despite the fact that no two business firms will have precisely the same procurement objectives or procedures, the majority of them use some or all of the most popular applications provided by procurement data analytics including:
Spend Analytics: This analyzes spending information gathered from a variety of internal and external sources to help with spending management.
Supply Chain Analytics: Analyzing and comparing compliance and performance data for vendors.
Contract Analytics: Analyzing contracts with suppliers and related meta-data, such as terms, conditions, and prices.
Invoicing Compliance: It reduces fraud and theft risks60 by enforcing automation, transparency, accountability, and compliance with internal workflows. Also, it enables three-way matching that is quicker and more precise in order to guarantee timely payment and the capture of more discounts with lower costs.
Contract Compliance: Makes use of contract analysis data to ensure that special terms, conditions, and pricing are followed. Eliminates rogue spending by strengthening transparency and enforcing compliance.
Compliance with purchase orders: Decreases rogue spending. enhances workflows for compliance and approval. By guaranteeing consistent adherence to both internal procedures (such as “No PO, no pay”) and contract requirements, pricing volatility is reduced.
Savings Lifecycle Analytics: Analyzing the efficiency of special projects designed to achieve cost savings.
Forecasting: Predictive models are used to identify future trends in consumer spending and how they will affect the bottom line of a business.
Set KPIs: Monitoring and assessing performance and compliance using key performance indicators (KPIs). KPIs can be created for internal operations, vendor performance and compliance, or company market performance.
Significance of Procurement Analytics
Spend analysis is no longer the outer limit of analytics in procurement. You can leverage procurement analytics to improve all facets of the procurement process and extend core advantages like continuous process improvement to the other business units within an organization because they give procurement teams access to and complete control over the data sets produced by procurement processes.
It is simpler to gain actionable, unbiased insights in real time because of the objectivity and raw power of modern data analytics. With artificial intelligence, procurement analytics can analyze the relationships between many data sets far more quickly than any manual method could even hope to. Faster, more precise insights produced by better analytics have a long-lasting effect on a company’s revenue generation, internal process optimization, and competitive advantage.
Moving further, let’s understand the impact of procurement analytics on different procurement processes:
Procure-to-Pay (P2P): Accurate and quicker approvals, elimination of fraud and erratic expenditures, optimized purchase order and invoicing procedures.
Category Management: Advanced data structure and analysis make it simple to segment vendors, products, and services. reduces supply risk and promotes innovation by enabling untapped growth opportunities.
Strategic Sourcing: The evaluation shows the best markets and times for sourcing events. Procurement teams may find the best vendors for a project using up-to-date vendor compliance and performance data. In order to enhance environmental and social responsibility inside the supply chain, analytics might also make use of external data sources.
Power Your Performance: Benefits of Procurement Analytics for Your Business
Organizations can start to benefit from the insights they provide in a variety of ways once they embrace the promise and power of procurement analytics, including
Improved Risk Management: By detecting supplier-specific and market-based risks and offering alternatives with a more favorable risk profile, procurement analytics can help you optimize your supply chain risk.
Cost Efficiency: Enhancing short- and long-term savings through monitoring and enhancing the performance of initiatives focused on cost-effectiveness. It is possible to find hidden opportunities to save costs by streamlining current procedures, changing the way that vendors are sourced strategically, and considering social or environmental trends.
Robust Financial Forecasting: Predictive models can be used to develop prescriptive models, enabling businesses to invest and spend money more wisely while budgeting for sustainability and innovation without running the risk of disaster from unforeseen costs during critical times of the year or being forced to pay higher material costs.
Cash Flow Accuracy: By removing human error, erratic expenditure, and processing delays from procurement procedures, process improvements driven by analytics insights can increase the accuracy of available capital.
Call for Opportunity: Opportunity Development: Businesses can leverage procurement analytics to indicate strategically significant market patterns that can be used for expansion and growth. Supply chain analysis can reveal which vendors have the best potential for cooperative projects or business alliances.
Those who decide to traverse the big data seas will find opportunities knocking at the door. Utilize procurement analytics for your company’s benefit and gain the knowledge you’ll need to come up with wise, strategic choices that will prove helpful in the process optimization, competitiveness, and profitability of your firm.
At Polestar Solutions, we help your business with procurement analytics adoption and cost-effective implementation through our maturity assessment and detailed data discovery workshop. Speak to our Experts today and capture the value of procurement analytics for your business.