A clear view

From the April 2022 print edition

The procurement analytics market is projected to reach $8 billion by 2026 (Marketandmarkets, 2022). Why is it growing so rapidly? Amidst the global pandemic, companies are turning to supply chain analytics to increase their end-to-end supply chain visibility to make more informed decisions that increase their bottom line, mitigate operational risks and diversify their supplier base. Analytics is the process of collecting, modeling and analyzing data, along with being able to turn it into actionable insights.

Over time, the role of the procurement professional has evolved, transitioning from a transactional buying role into a strategic decision maker. The objective for any procurement professional today should be to procure materials or products that prioritize the most convenient combination of quality, cost, timing and environmental impact.

As such, suppliers and vendors should be assessed on all four aspects. For example, procuring a product from China will have different repercussions from a cost, time, quality and environmental-impact perspective than it would from a product arriving from Europe. Analytics help procurement professionals make the best decision when balancing all four critical aspects.

In addition, our global trading environment today is characterized by higher complexity, amidst changing regulations, new supplier options, rising pressures for full transparency coming from consumers and company shareholders and so on. The modern procurement professional is now confronted with a reality that demands deeper and faster understanding of what is going on within the supply chain.

This new reality challenges the conventional toolbox used to monitor our supply chains. Methods such as Excel spreadsheets are no longer sufficient to deal with the level of effectiveness and timeliness that’s required. While spreadsheets can house data, they do not have the ability to create an accurate, clear and insightful view of the procurement process performance in a timely manner.

It’s becoming increasingly important for companies to establish a centralized data hub or control tower that provides visibility and guides decisions across the organization. Analytics can act as a central hub with concrete and measurable elements that help drive future decisions.

Analytics streamlines reporting
Spend analytics allows procurement professionals to understand, in detail, how they are spending and investing money from the organization in the most effective way possible. Sourcing risk analytics allows users to evaluate their suppliers and create a diversification strategy that is connected to risk. If too many materials are being sourced from one supplier and there is a disruption in their supply chain, analytics can help you determine the best alternative strategy. In addition, supplier performance is measured through analytics tools, allowing organizations to access real time information surrounding reliability. This allows companies to make imperative decisions around continued work or proactive conversations with their suppliers.

Which KPIs are important?
The metrics to be measured will always depend on the company’s goals and strategic priorities. Typically, however, there are six KPIs that procurement professionals should prioritize. First, reviewing the total cost of ownership (TCO) to ensure alignment with your company’s financial strategy. Second is supplier in-full on-time (SIFOT) for supply planning and supplier relationship management. Third is supply variability and lead time adherence. Fourth is inventory turnover for packaging and raw materials, as individuals need analytics to tell a story around asset management and the level of inventory carried. Fifth is inventory write offs that are driven by the expiration of materials. Lastly is plastic emissions, because as a procurement professional, you have direct access to decision making that affects plastic waste and equivalent carbon emissions.

Key implementation challenges
Having a solid data foundation is the most prominent challenge. This can be overcome by developing a supply chain data management strategy upon which companies can build a solid analytics infrastructure. This is critical for starting the analytics journey and gradually increasing the value added to the organization.

Data integration is a common challenge we are seeing amongst businesses. Supply chain data is typically being stored in different systems, making manual reporting extremely inefficient. Often, companies make use of data generated from internal and external sources. Leveraging external data from suppliers and internal data from transactional activities can contribute to increased end-to-end visibility. Although your organization might have an ERP system in place, there is relevant data that exists in other systems of record that could enrich the procurement analysis, but it is not easy to access, validate and integrate. Having an automated process that allows you to view all relevant data in one area, is imperative to a company’s success.

Real-time visibility is becoming one of the top priorities for many companies this year because of how quickly disruptions can occur. The pandemic has proven how important real-time visibility is for the flexibility of modern supply chains. Manual reporting methods that only allow for information to be viewed monthly are no longer sufficient. Cadence and velocity of data updates are important and best overcome with SaaS models.

Benefits of analytics
Using the right analytics at the right time can be a huge enabler for companies to save cost, reduce operating risks and increase environmental accountability. While many procurement teams still focus on tracking purchase price variance (PPV) metrics, we recommend that companies adopt the total cost of ownership (TOC) approach.

The reason for this is that it depicts a more accurate and comprehensive view of the holistic cost of procuring materials, providing better insights and visibility into your spend. As a result, procurement teams can effectively find opportunities to save on cost without negatively impacting transportation costs and working capital on inventories.

Analytics can also positively affect your business agility through supply lead-time reduction, increased customer response times by reducing lead-time variability and lastly, carbon footprint impacts by reducing the amount of plastic waste that needs to be managed through the supply process. Reducing carbon emissions and plastic waste is not only a benefit to the planet, but also to your company.

Hugo Fuentes Diaz is the CEO of a leading supply chain analytics platform, The Owl Solutions.