Typical procurement analysis tends to focus on the ‘who’ (am I spending with) and the ‘what’ (I am spending on).
But this misses the more important point – the ‘why’ (am I spending here). Essentially, the wider business context of the procurement decision: “Why are we refurbishing these high street stores?”; “Why do we need new accounting software?”; “Why are our sales teams using certain airlines?”.
Adopting this more interrogative and value-adding role is the ideal way for procurement to establish itself as a highly strategic role within an organisation.
The obstacle is a lack of information. The ‘why’ of every purchasing decision has historically been hidden behind too many disparate data sources and it hasn’t been possible to pull them together into a coherent whole. Understanding whether a new high street refurbishment will result in higher sales, or whether certain journeys are additive or profitable depends on this wider context, which simply hasn’t been visible to procurement to date.
Big data analytics tools have been proven to deliver quantifiable benefit to procurement departments, but unless they are fed with all the necessary data, they restricted to only revealing the ‘who’ and the ‘what’. The challenge is therefore one of corporate culture – overly-protective data ownership and information siloes undermine procurement’s ability to see the wider context, in turn undermining its ability to offer value and strategic support.
For example, a FTSE 100 client of ours discovered a dramatic and sudden drop in spend with one of their major suppliers. By pulling activity and performance data from all the associated business areas and identifying correlations with spend data, we showed that the ‘why’ was down to the supplier’s recent substandard output, and that the individual business units were resorting to other suppliers off contract. This naturally led to a new tendering process to find an alternative supplier.
This on its own was an excellent result as our client’s own delivery quality was quickly improved and the unauthorised spending was stopped. But the value of the insight proved even greater when the original supplier pulled out of the market 16 months later. Had our client not had the early ‘why’ intelligence and switched supplier proactively, they would have lost that supplier without warning, and suffered a catastrophic hole in their supply chain.
By breaking down the information siloes, procurement can show the commercial value of its role and offer more meaningful recommendations, and start correlating spend data with outcomes. This is more than a deeper understanding of spend, and certainly more than intelligent purchasing. Big data analytics and the use of data sources from across the business can help Procurement bridge the gap from the tactical to the strategic – from controlling expenses to proving the ROI of CAPEX.
☛ Keesup Choe is CEO at Pi