Procurement analytics, what is it?
Procurement analytics is the process of collecting and analyzing procurement data to form insights and assist in making solid business decisions. The collected data can be procurement Spend Analytics reports to more advanced analytics to predict budget forecasts. Procurement analytics collects data from various sources such as enterprise resource planning, grouping data to and visualizing using dashboards or other business intelligence tools.
Using procurement analytics many organizations find it essential to get a consolidated view on procurement spent. Procurement analytics has evolved over the years from being offered as one-off projects such as spend cubes to now consisting of several specialised solutions, dashboards, and different types of automation software.
Procurement analytics is much more than visualizing the data. It is more about collecting, filtering and enhancing large amounts of data from systems to create meaningful business value. Organizations can take advantage of the existing data to predict and improve business operations. When used effectively procurement analytics can enable smart informed business decisions involving purchasing and supplier relationship management.Spend Analytics
Different types of procurement analytics
- Descriptive Analytics – Historical procurement data is analyzed to understand what happened in the past.
- Diagnostic Analytics – Procurement data is examined to answer the question “why did it happen” using techniques such as drill-down and data mining.
- Predictive Analytics – Procurement data is examined to identify the likelihood of future outcomes and future procurement outcomes.
- Prescriptive Analytics – Advanced analytics is examined to answer the question “what should be done” it is the final phase of business analytics.
The importance of procurement analytics
Procurement analytics does not only relate to spend analysis, it relates to all activities from sourcing, category management and procure to pay processes. Below we will have a look at the importance of procurement analytics across different procurement functions.
1. Category management
Procurement analytics allows procurement teams to identify savings Opportunities group and better manage suppliers as well as better manage supply risks and make room for innovation.
2. Strategic sourcing
Examining procurement analytics in sourcing helps identify optimal times and areas to perform sourcing events and requests for proposals. Analyzing the data helps identify which suppliers to include in sourcing projects and provide insights into suppliers’ quality and risk management.
3. Contract management
Procurement analytics in contract management can help alert when contracts need to be reviewed or renegotiated, or provide data for supplier negotiations. Most importantly it can help identify maverick spend to help compliance and improve contract management.
Procurement analytics can help you measure purchase order frequencies and improve payment terms. You can review payment accuracy, find rebate opportunities, identify mistakes and reduce fraud.
5. Sustainability and corporate social responsibility
Procurement analytics can help discover the environmental or social impact of procurement decisions and identify opportunities for more sustainable alternatives.
Procurement data sources
Organizations often face the challenge of decentralized and unorganized heaps of data, as businesses are formed from more than one business unit, financial processes may differ from region to region. Procurement teams are starting to gather data from internal and external sources to obtain business value.
Internal data sources
This data originates from within the organization, such as enterprise planning systems (ERPs) or standalone systems. Procurement teams may also use and examine the data provided directly by their suppliers or different business departments provided in the form of Excel spreadsheets or other financial records.
External data sources
This data originates from outside the organization’s databases. This may include public information such as information on suppliers, current market prices or other useful information readily available on the internet. External data may also include other information such as supplier credit ratings and supplier risk profiles.
Procurement analytics Key Performance Indicators
Procurement key performance indicators are useful in that they give organizations insights to measure performance and direct procurement strategies. These indicators can also be used to target procurement’s performance to stakeholders or to prove contribution to company-wide goals and targets.
The challenge with procurement key performance indicators is inconsistency within an organization or having different meanings difficult to translate for stakeholders.
Why partner with Agilus?
Agilus helps businesses turn procurement data into actionable insights that lead to cost reduction and business operation efficiency. Our custom state of the art artificial intelligence software has helped many organizations increase the bottom line and efficiency.
If you would like to find out more about how we can help your company grow and improve operational efficiency, get in touch.