It All Starts with Your Procurement Data
The beginning of any journey in indirect procurement is capitalizing on your procurement data to shape both goals and opportunities. Historically, indirect purchasing has been responsible for the procurement of non-production materials (NPM) and services. Unlike direct purchases that have a relatively constrained supplier base and a controlled, or planned, use of parts, indirect procurement has almost an infinite variety in parts and supplies that can be bought from tens of thousands, if not hundreds of thousands of suppliers. With so many supplier options out there, how does an organization stay on top of their indirect procurement? The answer: data.
In order to improve indirect procurement, it has to start with the data.
You can make guesses and assumptions about what is happening but you won’t really know if it actually is without your procurement data. A recent Gartner research note titled “Start Preparing Now for the Impact of AI on Procurement” discusses how data can be categorized into four main groups: supplier data, internal data, subscription data, and public data. Each grouping serves as a different source from which your organization may receive data. Being aware of all necessary internal and external data sources will help you stay organized and make it easier for you to get it into the appropriate tools and systems. Let’s review the main points of each data group:
1. Supplier data – gathered by enabling a supplier to self-submit information that can be shared on a permissions basis with multiple buyers to avoid repetitive data entry and enable supplier scalability.
2. Internal data – comes from internal systems that provide insights and classification, including ERP systems, CRM systems, and supply chain management systems.
3. Subscription data – pulled from credible data aggregators and can usually be pulled from a supply base management solution via a procurement network. It can be verified and validated by the content provider and used to complement the data submitted by the suppliers.
4. Public data – external public data that can be pulled many different sites ranging from a government database to an anonymous blog and varying in levels of reliability and data structure.
We know that there are tons of numbers and information at your disposal. So what do you need to get started? There are three steps that are key to being able to start with your procurement data – access, understanding, and management.
• Access: Make sure you know what systems are being used and where the data is stored. More importantly, make sure you have permissions to access the data. Knowing where it is but not being able to access it won’t get you very far. Remember, there may be internal and external data sources that you will need access to. A procurement tool that can easily integrate with your all of your systems is helpful here.
• Understanding: A vital step to being able to use this data is to have an understanding of it. In their research note, Gartner discusses how not having “access to the right analytical and data science skills” can cause organizations to “struggle to get value from AI in procurement as a result of not understanding the opportunities and limitations.” Understanding your indirect procurement data can allow you to identify trends, improve performance, develop new policies, and make more informed decisions.
• Management: Check that you are managing the data appropriately. The “Holy Grail” in indirect has always been data management – high quality catalogs and enriched data descriptions that enable multi-sourcing. Without proper data management, you may be missing a significant piece. According to Spend Matters, “Recent studies have found that indirect spend can account for up to 50% of a company’s purchases, and manufacturers specifically can spend 20% or more of their total revenue on indirect expenditures.” With indirect making up such a large portion of your spend, you will want to ensure that you are accessing the hidden and unexploited areas in order to make an impact.
What happens if you don’t have all of your procurement data?
There are many issues and problems with not having enough procurement data that a typical organization may run into. Below, we review some of the most common:
1. Too many cooks in the kitchen
Many people and functions have control of spending. Consequently, a business’ professional buyers and their buying systems aren’t always involved in sourcing decisions. Because of that, spending data isn’t always captured.
2. Data is not structured correctly
Content management has to structure, classify, re-classify, and personalize data in order to enable sourcing, purchasing, and operating decisions, creating repetitive work that is unnecessary.
3. Finding answers is a challenge
There is often a struggle to find detailed answers due to different sources, potential errors from manual inputs, or indifference. This is why procurement analytics’ role tries to shine a light into areas of spending that are often dreary at best.
4. Irregularity in purchasing
It is not unusual for a large company to have hundreds of thousands of maintenance and operating supply parts that they manage and buy on an irregular basis as well as a broad range of services from equipment maintenance to prototype parts to cleaning services. Understanding trends and getting insights from that level of data is difficult. It’s also a moving target as new parts and items could be added on a daily basis.
5. No standards in product descriptions
Coding and classification creates the tendency to describe the same thing in multiple ways. For example, to an analytics tool “bolt, steel, 8mm diameter” is not intuitively the same as “steel bolt, 8mm dia” or even “bolt, 8mm dia, steel.” Likewise, the same item may be represented by several product codes, depending on where it is used. Such discrepancies are like petri dishes for dirty data that inhibit insights.
6. Low quality product data
Product data is often poor, ill formed, incomplete, or conflicting. You’ll find the same descriptions actually meaning different parts along with different descriptions actually meaning the same part. A 3/8″ hex drive could be just about anything. One operation considers a pneumatic torque wrench an assembly tool, another a power tool, and another a hand tool.
7. Tough to introduce competition
Not having data works for incumbent suppliers because while you may not know what you are buying, they do. The problem is in trying to introduce competition. You can’t aggregate spend for leverage and supplier consolidation if you don’t know what the spend is. You also can’t get suppliers to competitively bid on items or services that you can accurately describe.
8. Service data isn’t detailed
Service data is often just summary data. If there is a challenge in part data, that problem explodes when talk about services starts. When it comes to service data, you might have a general idea of what services you bought from what supplier. But with that, you have no concept from the data regarding the elements, usages, or cost of the services provided. In order to address this, organizations are forced into extensive post analysis RFIs to fill in their understanding.
9. Too many platforms and approaches
Acquisitions and mergers intensify the problem with multiple new data platforms and approaches to managing and capturing indirect spend data.
If your organization suffers from any of these issues, ____.
The impact of technology & analytics on indirect procurement
Now that we know some of the challenges that come from not having all of your procurement data, let’s discuss how technology and analytics can make a positive impact on indirect procurement.
The 2017 CPO survey by Deloitte highlighted analytics as the area of technology that will have the greatest impact in the next two years. In the survey, they discussed how the quality of data and the lack of data integration is the greatest barrier. “Improvement to the quality of data will be key in order to deliver this ambition, with 56 percent of CPOs citing quality of data as the main barrier to effective application of digital technology.” The survey results go on to show that “75% of CPOs responding believe that procurement’s role in delivering digital strategy will increase in the future and analytics will have the largest impact for over 65% of procurement leaders.” **ADD MORE ABOUT TECHNOLOGY & ANALYTICS**
The use of procurement analytics unlocks the opportunity to:
• Reduce costs by consolidating expenditures on fewer providers, thereby exerting greater leverage in purchasing negotiations.
• Avoid wasteful expenditure through over-specification, where materials are ordered to a higher standard or specification than is actually required along with the use of ‘off-list,’ non-preferred suppliers.
• Improve buying efficiencies by enforcing compliance with pre-agreed pricing, discounts, and volume-based price break structures.
**ADD A TRANSITION**
Forget big data, start with the right data.
You can have the most beautiful looking dashboards, but at the end of the day, the look of your dashboards doesn’t matter without the right data. You really need technology to do this. **ADD MORE ABOUT TECHNOLOGY & TOOLS**
This is where a procurement tool like Xeeva is extremely beneficial. Our patented, full suite solution is powered by artificial intelligence technology mixed with embedded domain expertise working in harmony for faster and better results. This underlying technology of our Virtual Data Manager combined with strong visuals drives our visibility results solution and keeps everyone on the same page. By cleansing, organizing, and categorizing your spend data, you can easily stay on top of your metrics as key insights are revealed, identifying new savings opportunities and ways to optimize. Our sourcing results assists you in managing the sourcing lifecycle, empowering collaboration. With the help of our Virtual Sourcing Manager, you will be able to streamline projects and monitor progress. Our unique, embedded AI technology continues to work hard uncovering savings and increasing compliance and alignment in our procurement results solution. And last but not least, Marketplace acts as a one-stop-shop for suppliers in our supplier results solution. Here you can efficiently oversee the supplier relationship, implement accountability, and communicate more effectively to ensure suppliers are meeting their performance goals.
**NEED MORE INFORMATION FOR THE POINTS BELOW:
• Ability to serve clean data
• Provide benchmark pricing
• Rapid analysis
• Best practice assessment
• Actionable insights
• Measurable results
• Clear opportunity identification
• Articulate the change that can happen by using technology and data in indirect procurement