Analytics is one of the most important and misunderstood topics in procurement.
Each year Deloitte reminds us that most CPOs view analytics as the technology area with the most impact on business. Ernst and Young have gone a step further naming analytics as the most disruptive force in procurement over the next decade. All the smartest consultants and procurement visionaries you can find speak up the importance of analytics.
While it is broadly agreed that analytics is important, there is little agreement on how to effectively leverage analytics in procurement. Today you have an overwhelming amount of procurement analytics solutions on offer from self-built reports to modules in procurement software suites. Each solution offers “smart” or “intelligent” features.
In this guide, you will be introduced to the idea of procurement intelligence. You will learn how procurement intelligence differs from spend intelligence, business intelligence and artificial intelligence. You will see how procurement intelligence compares to other comparable solutions or methods. After reading this guide you will have a clear idea about the different options for procurement analytics and how only one option boosts your team’s procurement intelligence.
Why intelligent analytics matters in procurement
Let’s start with an analogy.
Which is the smartest: a horse, a beaver or a fox?
A horse can be hard-working and loyal. A beaver can flap its tail and build dams. A fox can be resourceful and independent. In the right environment, each animal can adapt and learn, but it doesn’t make much sense comparing their intelligence. Each animal will be smartest in their own domain, but each has limited intelligence on their own.
The same goes with intelligence in business. The word gets used a lot from anything like market intelligence, business intelligence and artificial intelligence.
The term “intelligence” gets used especially often in relation to procurement analytics, so let’s scope out its meaning and implication for your procurement team.
What is procurement intelligence?
Procurement intelligence is the ability to acquire and apply knowledge from procurement data in order to create business value.
- Procurement intelligence is not just a tool or a service. You can not lease it from a software vendor or commission it as a project from consultancy.
- Procurement intelligence is not a stand-alone solution you buy off the shelf. It is an enabler that works best to increase the capabilities of real procurement professionals.
- Procurement intelligence is not focused only on reducing spend. It is the holistic approach to leveraging data for more innovative, sustainable and efficient sourcing strategies.
- Procurement intelligence can be trained and improved over time. With automation, effective data management and collaboration, you can improve your organization’s procurement intelligence quotient or pIQ.
The most effective way to gain procurement intelligence is through analytics. When effectively utilized, analytics narrow the data to action gap, inspire insights to form strategy and give your business an uncopiable competitive advantage.
Procurement intelligence vs. spend analysis
Within procurement analytics, procurement intelligence differs greatly from conventional approaches to spend analysis.
- Procurement intelligence goes much beyond rigidly pre-defined spend cubes and OLAP analyses. It’s not a one-time exercise, but a continuous and collaborative process.
- Procurement intelligence moulds based on each organizations’ needs. It identifies and focuses on the most valuable key performance indicators (KPIs).
- Procurement intelligence looks beyond past spend reporting. It takes a forward-looking and proactive view where data turns into plans and actions.
Procurement intelligence vs. business intelligence
Procurement intelligence should also not be confused with business intelligence (BI) methods or tools.
- Procurement intelligence is based on your procurement organization’s unique skills and competencies. It is not a standardized approach to reporting or management dashboards.
- Procurement intelligence is inherently democratic and transparent. In procurement, data-driven intelligence can be used equally well by category managers as C-level executives.
- Procurement intelligence is agile. It does not rely on limited resources and development cycles of centralized IT departments.
Procurement intelligence vs. artificial intelligence
One final source of confusion is between procurement intelligence and artificial intelligence (AI). In procurement intelligence, the procurement experts in your business are in the driving seat.
- Procurement intelligence is not just a probabilistic machine learning algorithm. Its intelligence comes not just from AI but equally from pre-built dashboards, templates and industry-specific use-cases.
- Procurement intelligence is not about 100% auto-classification. While intelligent automation can speed up and improve spend classification, it still relies on and augments procurement experts’ category expertise and intelligence.
- Procurement intelligence is not a single-purpose AI-engine. It’s not about to replace your job, but rather make your work more efficient.
With the rise of machine learning-based approaches, procurement intelligence paradoxically increases the importance of human knowledge, as it uses AI as an enabler and not as a solution.
We’ve now seen how conceptually procurement intelligence differs from spend, business and artificial intelligence. Now let’s see how it makes your life better and get back to the example of the horse, the badger and the fox.
When to upgrade from excel-based reporting
Even today, many procurement organizations rely on Excel-based spend reporting. In practice, this means that smart procurement analysts must take the time to gather procurement data into massive spreadsheets and meticulously run macros, pivot sheets and magic to produce regular reporting. In the best of times, the reports get done on time, in the worst of times a single calculation error messes up the whole process.
It’s time to upgrade from Excel-based reporting to procurement intelligence when:
- Your team’s time is too valuable to waste on data crunching.
- You need weekly and not quarterly data refreshes for active performance management.
- When your focus is on forward-looking decisions and not just past cost reporting.
- When you work in a competitive industry where months old data can cost your business.
Let’s all agree Excel is much like a horse. It is a great servant, but a horrible master. The intelligent option is to move your analytics away from spreadsheets.
When to upgrade from BI-based reporting
Across many organizations, business intelligence tools were the natural successor to Excel-reporting. Indeed, for general reporting, they have changed the face of analytics. The challenge with BI-tools is that they are jacks of all trades and masters of none. It is relatively quick to set up a procurement-focused dashboard, it is another to ensure the data is timely, reliable and actionable.
It’s time to upgrade from BI-based reporting to procurement intelligence when:
- You need more than pretty visuals. Most procurement organizations need both the high-level view and the ability to drill right down to the transaction line-item level.
- Your data quality is important. You need to be able to cleanse, re-classify and refresh your procurement data quickly and accurately.
- When you need a safe and reliable “always-on” solution. Large organizations often need 99,7% up-time and clear governance, stewardship and safety procedures when things go wrong.
- You have too much data and not enough insights. Many BI-solutions come with the promise of centralized data repositories holding all enterprise data. The hard part is not collecting but leveraging the data in highly specialized areas like procurement.
Increasingly business intelligence solutions are sold with the idea of a data lake – an idyllic scene where vast amounts of structured and unstructured data flow underneath and you’re left to sift through data like a beaver. The challenge with beavers is that they also cause flooding. You’ll be smart not to turn your data lake into a swamp.
When to upgrade from procurement suites
A third popular option for procurement analytics is so-called full-suite solutions or spend analysis modules within source-to-pay software. These modules are more aligned to procurement’s needs than Excel- or generic BI-solutions and many cases fit the purpose. However, there are also many cases where full-suite solutions don’t live up to their full promise.
It’s time to upgrade from full-suite solutions to procurement intelligence when:
- Data quality doesn’t live up to promise. Complex analytics tasks like spend data classification is easy to promise and difficult to deliver. Problems with data quality usually arise only after a source-to-pay implementation.
- You can’t integrate all your data. When the focus is on delivering a consistent “source-to-pay” process within one ecosystem, it often leaves gaps with other internal and external sources of data.
- Analytics doesn’t fit into a rigidly linear process. A decade ago the full-suite promise was built on the idea that procurement teams could follow a linear 7 or 8 step process. For most procurement teams, the need for analytics is broader than just spend reporting.
- You need transparent decision making. Too often full-suite solutions are delivered like a black box. They provide answers but don’t give visibility on the method.
- You see beyond cost savings, approvals and reporting. Many full-suite solutions are still transaction-focused, while creative uses of procurement data is bringing value in areas like profitability forecasting, supply chain resiliency and innovation.
Full-suite procurement solutions are a bit like a fox. They can be resourceful and even cunning, but they can also be too independent and un-collaborative.
When is procurement intelligence not for you
Let’s take a break from the animals and get back to the matter of analytics.
You may be interested in upgrading your procurement analytics, but you’re not quite sure if procurement intelligence is for you. Here are a few cases why procurement intelligence wouldn’t be a good fit:
- Procurement intelligence may be a tricky approach if you have limited budgets and IT-resources. Small-to-medium sized businesses may not have the scale and data resources to go for a full-fledged intelligence solution.
- Procurement intelligence doesn’t always work in a conservative digital culture. If you work for the military or a government department, you may face resistance openly sharing intelligence.
- Procurement intelligence may not work in very traditionally siloed organizations. If your purchasing organization does not talk with finance this collaborative approach may not be for you.
Procurement intelligence works best in open, forward-looking organizations where digital transformation is embraced and analytics is seen as a strategic asset and not a reporting interface.
How to boost your procurement intelligence
We’ve had a thorough look at procurement intelligence and different procurement analytics solutions. Now we’re getting to the meat of the story. How is it that you can boost your procurement intelligence?
The answer is simple, talk to us at Sievo.
We are the original procurement intelligence company. We’ve pioneered procurement spend analytics since 2003. We were the first to develop a realized savings methodology trusted and approved by finance and a spend forecasting solution that predicts and impacts profitability. We were among the first to embed machine learning capabilities to our procurement analytics and a procurement benchmarking solution based on realized spend.
Above anything else, we’re procurement enthusiasts passionate about increasing the procurement intelligence of our customer organizations. In analyst reports and customer feedback our professional services and customer teams are regularly mentioned as an outstanding and collaborative partner. Our analytics solution is only as valuable as the insights you derive from it, and that’s why we work harder to boost your procurement intelligence.