Advanced analytics are all the rage these days in supply chain, though surveys show most companies are very early in their journey for using such tools.
With lots of data but sometimes not nearly as much insight, procurements seems like an attractive target for an advanced analytics approach. But where to focus?
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| The problem, Crawford says, is that long term relationships may cause purchasers to form a bias towards certain vendors. |
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In a recent column for the SupplyManagement.com web site, a publication of the Chartered Institute of Procurement and Supply (CIPS) , basically the Institute for Supply Management of the UK, Thomas Crawford, group procurement manager at pharmaceutical company Almac Group, shared insights his company had gained from the deployment of analytics.
To start, Crawford cites research from McKinsey that found implementing advanced analytics can help procurement groups achieve a cost savings of 3-8% when compared to using traditional metrics.
In fact, Crawford says not pursuing advanced analytics "would impede our organization's ability to analyze spend efficiently and preclude us from uncovering significant insights hidden in the depths of our data."
Crawford says Almac's experience thus far has identified six high impact areas where advanced analytics can really improve procurement performance. Those are:
1. Transforming data into robust management information: Doing so informs global procurement planning, and supports discussions and collaborations across business units with internal stakeholders, Crawford says.
2. Evaluating spend: Crawford says companies can apply spend categorization to inform operating models. This will create a clear picture of the procurement spend landscape, via what he calls "spend cube" analytics.
By using data algorithms to segment data, such analysis can go deep as the line item detail to identify price vagrancies between suppliers, while trend analysis highlights any price variances over time. Crawford says in his experience, the deep data mining approach identifies synergy opportunities across the Almac's global business units, and makes lower cost or more efficient options more evident.
3. Optimizing procurement strategy: By observing trends and changes in the spend landscape, companies can optimize their procurement strategy for the future, Crawford says. However, he adds, if organizations are going to invest in developing data analytics, it is critical to treat the data as live management information. Trusting the data is truly the only way to ensure that a company received the full return on any investment, Crawford adds.
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 4. Supplier segmentation and positioning: Producing management information provides the transparency necessary to complete supplier segmentation and positioning exercises across global business units and subsidiaries, Crawford says. This exercise in turn supports conversations with senior internal stakeholders and drives the prioritization of activities.
5. Relationship management and development: Next, after strategic suppliers have been identified, organizations can focus on developing the appropriate types of relationships. This helps drive innovation and can shape market demand at the front end, Crawford says.
6. Eliminating bias: Often, long-term, trusted relationships are developed with some vendors. The problem, Crawford says, is that these relationships may cause purchasers to form a bias towards certain vendors, and automatically assume that those vendors are providing the best value. By using data analytics to measure performance across multiple dimensions, this bias can be eliminated, Crawford says.
So there you have, six key impact areas for procurement analytics. SCDigest would argue there are a number more.
What's your take on Crawford's analysis? Let us know your thoughts at the Feedback section below.
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