Written by Matt Holzapfel
Procurement Leaders’ San Francisco Forum brought together executives from industries ranging from high tech to textbook publishing with the goal of sharing and uncovering best practices in procurement analytics. The content could not have been more timely.
A sluggish global economy means growth continues to be a struggle for many companies, elevating the importance of procurement. Sourcing managers need to do more than ask their suppliers for a “good guy discount” to keep pace. Analytics have quickly become a top priority of CEOs, with proven returns that can increase profits by 6% or more.
So what did we learn from 50+ procurement analytics executives sharing their experiences?
Effective analytics can be game-changing for procurement
The savings dollars already being generated from effective analytics are eye-opening. Companies such as GE are seeing over 10x ROI from advancing their analytics capabilities and utilizing leading-edge technologies such as machine learning and mobile apps. Other companies are exploring areas where they can make their analytics more predictive.
The general consensus was that many events impacting procurement, such as commodity price fluctuations and natural disasters, can’t be accurately predicted anytime soon. However, by making all relevant data readily available before a decision is made, procurement teams can more effectively anticipate landmines that may be ahead of them after negotiating a contract.
Improving data quality is the first step on the journey
The idea of predictive analytics created buzz throughout the conference, but almost every presentation highlighted the need for quality data above all else. It’s far less sexy, but simply ensuring there is only one part number, description, and price for a single valve has significant cost implications. As one presenter neatly described, teams must be able to crawl first before they can run and jump.
This challenge is particularly pressing for companies going through a merger or acquisition who now must show results on a tight timeline. One executive who successfully navigated a large-scale integration laid out the importance of identifying quick wins to gain momentum and maintain it. This sentiment was shared by others who agreed that pilot projects are an effective way to get results without waiting for a multi-year IT initiative to address every upstream data quality issue. A great summary was, “the data will never be perfect, but there is a lot you can do with what you have. Get moving!”
It’s not too late to start the analytics journey
During one of the roundtables, someone said, “I thought we were really far behind on analytics, but after hearing from other attendees, I realize that many of us share the same challenges and are still figuring a lot of things out.”
Improving the analytics capabilities of an organization requires dedicated resources and an ongoing commitment. Finding and developing the right mix of talent that understands data and procurement takes time. Likewise, identifying the right technology solutions for the organization’s unique challenges is an iterative process.
Fortunately, the ROI of even short projects can be significant. Many of the speakers pointed to 1 or 2 year initiatives that yielded significant returns and helped their organization dramatically improve their analytics capabilities. Moreover, the success of these initiatives ensured that investment would continue to be made in analytics talent and technology.
The conference made a resounding case for the value of analytics in procurement. Predictive analytics may be years away from being mainstream, but one safe prediction is that analytics will continue to gain importance in procurement.