Procurement has yet to buy into data-driven decision making
New data reveals that most companies are still ill-prepared for a data-driven procurement process.
A recent survey of senior executives who oversee over $450 billion in annual material spending finds that the overwhelming majority (97 percent) believe that a data-driven procurement process is vital to achieving long-term value, cost reductions and efficiency gains. But nearly half (49 percent) expressed concern that their in-house talent is not able to cope with such a process.
“A world-class sourcing and procurement organization could examine at least 1.5 million data points affecting the supply chain,” explains Rajesh Kalidindi, founder and CEO of LevaData, a provider of supply-chain solutions that conducted the survey. “This tsunami of data far exceeds any individual’s ability to digest and respond strategically.
“People know that digital disruption in the supply chain is already underway,” Kalidindi adds. “Given this, we were greatly surprised to learn how many procurement managers are still using outmoded management tools.”
The survey also established metrics for best-in-class versus average procurement performance. For example, total procurement cycle time for a best-in-class organization is 3 days, versus 40 days for an average performing business.
Likewise, best-in-class procurement managers engage with their suppliers on a constant basis, while average performers only engage with half of their total supply base at least once a year, and the poorest performing 10 percent fail to even track the frequency of their procurement negotiations.
Sourcing market intelligence
The type of tools used to gather data for procurement negotiations was another differentiator among procurement managers: Five percent of the survey participants are using third-party, purpose-built technology solutions, while two-thirds (67 percent) use internal business intelligence applications or Excel spreadsheets, which primarily aggregate internal data and perform limited tracking of market intelligence. Another 15 percent rely exclusively on data provided by their suppliers for their market intelligence.
“Far too much of the sourcing we do today is based on data that is not easily analyzed,” notes data scientist Donald Farmer, a principal at software industry advisors Treehive Strategy. To improve their decision making, he says procurement managers should “insist on contracts being data-driven. That will greatly increase [their] competitive advantage going forward.”