Big Data, Machine Learning and AI have led to great advancements and improvements in various business functionalities. One key sector among them is procurement. The large amount of data generated by this business function can be successfully mined to provide keen insights, trend data and more for successful procurement strategy implementation. For instance, a business of around US$ 2 billion in annual revenues generates a large amount of data associated with about 20,000 transactions – having around four to five significant price drivers for each category.
The data driven decisions aided by big data provide new insights that enable collaboration at scale. Machine learning has progressed so far as to facilitate new algorithms to recognize patterns in complex data sets. Procurement teams can then use queries to determine various important factors such as variables that drive of price. Furthermore, all this information can be used to model data clusters that provide large amounts of information at a glance. These data clusters can then be used in:
- Negotiation – Data clusters can be used to identify the various sources of needed parts or services and average prices paid so far. The trend data can then be leveraged to get the best possible price.
- Vendor Management – Data can also be used to assess vendor relationships. They can provide information such as vendor’s performance, their delivery of services and parts and more to select the best vendor for each part of service in the future.
- Strategic Planning – Based on all the historic data collected, a data driven comprehensive sourcing strategy can be formulated for the year ahead. Moreover, having all data on hand means getting the best prices, getting ahead of shortages in supply, spotting potential issues earlier on and rectifying them before they become large-scale problems.
On the whole digitizing the procurement process increases connectivity between the various business units, internal and external stakeholders. The procurement team will have details on minutiae from cost structures, service or part availability, lead times for the same, risk factors in sourcing from a particular source and various metrics on quality of parts and service.
Benefits of Digitizing the Procurement Process
Procurement is a hub of informational data flows. The procurement team has historical data on spending, product specification details from engineering teams, details on contract adherence, details on invoicing, and information on all the suppliers including profiles and scorecards. Big data can be used to develop the supply chain tiers. That combined with AI can be used to spot and mitigate risks. These tools accumulate a lot of data from different sources that can then be used to understand underlying drivers of trend, pricing and sales volumes. The more data that is collected the better the insights available.
Digitizing this process has the benefit of linking people, process and technology to provide a very efficient and effective business process. In fact, market studies indicate that digital procurement programs have increased annual savings by up to 40% and decreased time spent by procurement teams on mundane tasks by 30-40% so far.
Digital Tools in the Procurement Process
Procurement automation enables a duality of approach. Automation can help manage external supply and risk while expanding the horizon when it comes to looking for opportunities. Data transparency adds to the benefits of digitalization in procurement. The benefits of digital tools in procurement fall into two main categories –
- Creating Value
- Preventing Value Leakage
Digital Tools Creating Value in the Procurement Process
Digital tools can add value to the procurement process by increasing spend visibility and improve the whole sourcing process. When it comes to spend visibility, digital tools hold advanced intelligence in the form of trend data that can then be used to formulate a spend cube using AI and machine learning.
The sourcing process can be improved by making the supplier qualification process more efficient, drafting an effective workflow process by understanding demand and various market dynamics. Furthermore, use of analytics in the sourcing process can illuminate the vagaries in pricing, vendor efficiency and more. Details on Linear performance pricing (LPP), Total cost of ownership (TCO) etc. can be used to provide suggestions for improvement. Cost analysis can also point out opportunities for maximum savings.
The digital interconnectivity also allows for easy interactions and connections in the early stages. A lot of software vendors provide collaborative spaces for file repositories, video/audio conferencing and remote/virtual work environments. Digital tools here can be used to consolidate demand, provide vendor insights and business unit strategies for multi-disciplinary teams.
There are also opportunities for eSourcing through eCatalogs and eAuctions. The future is in automated analytics for category specific bids.
Digital Tools Preventing Value Leakage in the Procurement Process
Digital tools can prevent value leakage in the payment process and in performance management.
Procure to Pay – the PTP Process
- PTP Workflows – This is present since early 2000’s and has evolved since, increasing the scope of end-end process from sourcing to payment. They now create a predictive order of configurations for repeat buyers. This reduces process time and standardizes order templates.
- Compliance Management – Digitally advanced compliance management systems can scan each procurement transaction. Information from structured sources such as ERP systems to unstructured sources such as invoices and expenses can be scanned to assimilate data. All the accumulated data can then be used to spot problem areas and prevent issues before they occur. They can also aid in identifying an issue pertaining to non-compliance in transaction intensive purchases like in transportation, freight, parcel service such as maintenance, repair and operations (MRO).
- Supplier Performance Scorecards – With data backing the procurement process, teams can get real time insights on supplier performance, gaps in the business process, cost of materials or service, analysis report on quality and delivery issues.
- Organizational Performance pertaining to the Procurement Team – Digital systems can manage the progress and results of the procurement process and provide individual performance metrics on a real-time basis.
Overall end-to-end digitization of the procurement process with advanced analytics and automation adds value at every level of the process, providing deep insights that allow data driven decisions on a real time basis. The right tools will ultimately aid effective strategizing for success.