Regardless of whether you prefer to call data as the "new oil," the "new water," or any other comparison such as "air," it is widely recognized that data is omnipresent and vital for organizations, just like procurement. When you understand the significance of data in creating value, the next step is to embark on the data journey. Begin by comprehending what Procurement Analytics entails, the value it offers, and how procurement analytics helps in improving supplier performance.
What is Procurement Analytics?
Procurement analytics involves more than just visualizing data. It can be compared to refining oil, where the focus is on gathering, cleansing, and enhancing vast amounts of data from various sources to generate business benefits. The significance of procurement analytics lies in producing quicker, more precise, and more practical business insights, as well as gauging the procurement department's impact on the organization's financial performance.
It also involves utilizing data analysis and statistical methods to enhance the procurement process. The application can lead to improvements in supply chain management by offering valuable insights into supplier performance, detecting trends and risks, and optimizing procurement processes. By leveraging procurement analytics, organizations can make informed decisions, streamline operations, and achieve better overall supply chain outcomes.
If you want to learn more about procurement analytics, types, benefits, and some use cases, read Procurement Analytics 101: Beginner's Guide 2023
Shift from Traditional to Data-driven Procurement
Do you recall the past when procurement operated on manual processes and intuition? Those days are long gone, as data-driven procurement is now a long-term, enduring trend. Through the utilization of data analytics, firms can discover valuable insights and enhance their procurement strategy. Moreover, the digital transformation of procurement has significantly increased overall efficiency.
However, procurement teams encounter a notable challenge during the process when suppliers fulfill their promises by delivering goods or services on time and within the designated budget. Monitoring supplier performance is crucial for the smooth operation of the organization. To achieve this objective, businesses need to harness the power of procurement analytics—a powerful tool enabling procurement teams to monitor supplier performance and take proactive actions to tackle any emerging issues.
Procurement Analytics & Supplier Performance: A Great Match
Utilizing procurement analytics enhances supply chain management by offering comprehensive visibility across the entire procurement process, from sourcing to payments. This visibility facilitates the identification of inefficiencies, bottlenecks, and cost-saving opportunities. Moreover, procurement analytics enables the monitoring of supplier performance and the identification of trends that could impact the supply chain. By leveraging procurement analytics to enhance supply chain management, organizations can optimize their operations and enhance their financial performance.
Having comprehensive spend analysis, data empowers an organization to prioritize supplier performance monitoring based on their importance. However, this is just the initial step. To establish a robust analytical foundation for supplier relationship management (SRM) processes, which in turn support risk and cost management procedures, it is crucial to consolidate and integrate spend and supplier performance data from all relevant sources.
Each company possesses distinct strategies and objectives for its supplier performance management. Consequently, no two companies measure and monitor data in the same manner. However, a common challenge faced by most companies is the extraction and integration of large volumes of data from various sources.
Supplier performance can be measured in numerous ways, but three primary data-rich dimensions include quality, service, and competitiveness. Let's delve into each dimension –
Quality: - It serves as a critical dimension for measuring supplier performance, enabling enterprises to identify, assess, or prevent potentially costly damages arising from returns or defects.
Service: - It’s another crucial dimension commonly used to evaluate suppliers, and Enterprise Resource Planning (ERP) systems serve as the primary data source. Analysts can extract data from the ERP system to gather information on lead times, which are calculated based on purchase orders (PO), as well as track supplier reliability through metrics such as On-Time Delivery (OTD). By utilizing these data points, organizations can assess the supplier's performance in terms of service.
Competitiveness: - Gaining insight into supplier competitiveness enables a company to identify favorable opportunities and stay aligned with market dynamics, offerings, and pricing. Attaining a clear view of supplier competitiveness helps with the analysis of data related to both internal and external benchmarks. By examining internal benchmarks, procurement professionals can evaluate spend patterns, particularly focusing on prices and payment terms, to enhance their understanding of supplier competitiveness.
The advancement of contemporary cloud-based data management and business reporting technologies has facilitated the measurement and reporting of supplier performance to cater to the requirements of procurement professionals.
Presently, companies can leverage the potential to deploy comprehensive, automated management dashboards equipped with integrated real-time supplier performance data. This enables highly efficient supplier relationship management, empowering organizations to make informed decisions based on up-to-date information.
Tracking & Improving Supplier Performance: Procurement Analytics
Now the question is, how do companies track and improve supplier performance through procurement Analytics.
We’ll delve into different step-by-step strategies where companies can align their supplier performance optimization with the firm’s goals & objectives using Procurement Analysis
Establishing Key Performance Indicators: - Identifying Key Performance Indicators that should be precise, quantifiable, more relevant to business goals and procurement needs such as on-time delivery, product quality, and cost savings.
Procurement teams may employ various key performance indicators (KPIs) to assess supplier performance, such as:
On-time delivery: The percentage of deliveries that are received on or before the scheduled delivery date.
Quality of goods or services delivered: Measured by the number of defects or complaints per unit of goods or services delivered.
Cost-effectiveness: Assessed by comparing the price of goods or services delivered to industry benchmarks.
Collecting and Analysing Data: - After establishing the KPIs, the procurement team proceeds to gather and analyze the necessary data. Multiple sources contribute to data collection, including supplier performance reports, purchase order data, and contract compliance reports.
Procurement analytics tools play a crucial role in streamlining the data collection process. They integrate data from diverse sources and present it in a user-friendly format and assist in identifying patterns and trends within the data, allowing procurement teams to gain valuable insights into supplier performance and uncover potential areas for enhancement.
Monitor and Action: - Once the data has been collected and analyzed, the procurement team must proactively address any identified issues and work towards enhancing supplier performance. This can involve negotiating contracts, adjusting delivery schedules, or collaborating with suppliers to improve the quality of goods or services provided.
Regular monitoring of supplier performance is crucial, accompanied by the flexibility to adapt strategies. By taking desired measures to address issues and enhance supplier performance, procurement teams foster encouragement in building strong supplier relationships and ensure the smooth operation of the organization.
Conclusion
To fully leverage the potential of procurement analytics, businesses should prioritize the implementation of the appropriate tools and processes. Procurement teams are encouraged to invest in cutting-edge procurement analytics solutions that can seamlessly integrate data from diverse sources and offer valuable insights into supplier performance. By equipping themselves with the right tools and establishing efficient processes, procurement teams can optimize their procurement operations, leading to cost reduction and enhanced supplier relationships.
We at Polestar Solutions help their client with our Procurement Analytics 5-step framework to gauge, analyze, and accelerate your Procurement Analytics adoption!
We don't let procurement challenges hold our client’s organizations back. With the advantage of our 2-Week Procurement Analytics Maturity Assessment, firms optimize their procurement process and improve supplier performance.
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