Tapping the power of predictive analytics in procurement
Spend analytics around procurement practices are crucial to helping organizations control their expenditures. However, cumbersome spreadsheets, manual accounts payable and accounts receivable records, and paper invoicing obscure insight into a business’s historical procurement data.
Aggregating thousands of data points without knowing what to look for drains time and resources from a company’s finance team. It is critical that executives involved with company spend and procurement have the tools to analyze financial data so that actionable insight can be extracted.
Predictive analytics can help businesses in all industries save money by providing key market intelligence that informs how executives spend, purchase and manage supplier relationships.
Why are data and predictive analytics right for procurement?
Predictive analytics allows organizations to identify patterns in business and forecast probabilities. Being able to gather huge volumes of data allows companies to integrate tangible proof-points from the past into their future spend management planning.
As predictive analytics continues to gain traction across different business sectors, many procurement executives have yet to implement the tools necessary to reap the benefits of big data. This is in part due to “enterprise inertia,” or an organization’s unwillingness to change over to emerging technologies, slowing the adoption process.
Predictive analytics gives businesses the ability to see around corners and uncover potential opportunities as well as potential challenges. Armed with the detailed, actionable insight harnessed by big data, business leaders can spend more time on growing their companies and looking for new ways to innovate.
Big data enables executives to conduct detailed spend analysis to optimize performance, identify trends, and improve decision making and policy management. However, just collecting data is not enough to make a difference in a company’s bottom line.
For example, a company’s data may show that the prices for raw material needed to manufacture their products are going up. Using predictive analytics, executives can use this information to inform the next step, such as reevaluating contract pricing or switching vendors.
Where do we begin integrating predictive analytics for procurement?
Procurement leaders need to make sure a solid foundation is in place to harness the full potential of predictive analytics. This includes a business foundation and a tech foundation. By enhancing existing procurement and strategic sourcing protocols, predictive analytics works to improve supplier relationships, costs, contracts, and service levels, and to mitigate risk.
First, companies must develop a corporate strategic plan that coordinates short-term and long-term goals they wish to achieve across departments. These business goals do not have to be set in stone, but they will better inform how predictive analytics will be used in forecasting future plans. Without a clear plan of action, the true power of predictive analytics will be lost.
Companies must also have a proper tech infrastructure in place to handle the data that will be analyzed. While this may seem like a daunting task, many third-party providers are able to streamline to aggregation, analysis and implementation to take the onus off of in-house IT and business analyst resources.
Finance and procurement leaders who embrace predictive analytics can advance decision-making skills and gain the ability to guide, optimize, and automate decisions to meet specific business goals and redefine organizational processes in real-time. Predictive analytics can also be used to determine events or outcomes before they happen – this is critical to keep companies one step ahead of the industry and the competition.