Welcome to Procurement Analytics Demystified.

A comprehensive guide for procurement analytics – including definitions, examples and best practices.

This guide is for anyone who wants to explore the key topics and opportunities of utilizing analytics in procurement.

Some of the key questions we will cover:

 

procurement analytics example

Read, take notes and enjoy!

What is Procurement Analytics?

Procurement analytics is the process of collecting and analyzing procurement data to form meaningful insights and aid effective business decision making. Examples range from simple spend analysis reports in Excel to predictive analytics software.

Procurement analysis typically involves collecting data from a number of different source systems, classifying data to standard or use-case specific taxonomies and displaying data in a visualization dashboard or within business intelligence tools.

The need for procurement analytics has developed from many organizations’ desire to get a consolidated view on procurement spend. Initially offered through one-off projects such as spend cubes, procurement analytics has evolved to encompass a number of specialised solutions, dashboards and types of automation software.

What is Procurement Analytics

For many businesses, analytics is about much more than visualization of data. One way to think about procurement analytics is that it’s like refining oil. It’s about collecting, cleansing and enriching large numbers of data from disparate systems to create business value. In procurement analytics, value comes from more timely and accurate insights, and the ability to measure procurement’s contribution to the bottom line.

Procurement organizations can utilize analytics to describe, predict or improve business performance. When utilized effectively, procurement analytics can enable data-driven decision making, where purchasing decisions or supplier relationships are managed more effectively.

 

Types of Procurement Analytics

The field of procurement analytics has emerged from the need to understand past procurement performance and guide future decision making. Common types of analytics in procurement include:

  1. Descriptive Analytics – where procurement data is analyzed to describe what has happened in the past.
  2. Diagnostic Analytics – where procurement data is interpreted to understand why something has happened in the past.
  3. Predictive Analytics – where trends and patterns in data is used to forecast future procurement performance.
  4. Prescriptive Analytics – where predictive models based on procurement data aid decision making.

Types of Procurement Analytics

Historically, procurement analytics has focused on understanding past procurement spend and supplier performance, but increasingly focus is shifting towards automated and prescriptive decision making.

For more information on advanced topics like predictive analytics in procurement, see the popular guide “Beyond Spend Analysis.”

—————————————————————————————————————


—————————————————————————————————————

Value of Analytics in Procurement

Analytics is widely regarded as one of the most important resources and disruptive forces in procurement. According to a recent survey by Deloitte, most Chief Procurement Officers (CPOs) view analytics as the technology area with the most impact on business. What’s more, Ernest and Young identified analytics as the most disruptive force in procurement over the next decade.

Why analytics in procurement

Why is analytics so important for procurement?

A common misconception is that analytics in procurement only relates to spend analysis. In reality, analytics touches all activities from strategic sourcing to category management and procure-to-pay processes. Here are just some key reasons why analytics in important across different procurement functions.

Analytics in category management

When effectively used, analytics give category managers superpowers. Procurement analytics allows category managers to identify savings opportunities, segment and prioritize suppliers, address supply risk opportunities and facilitate innovation.

Analytics in strategic sourcing

The best business strategies are informed by data. In strategic sourcing, analytics helps identify the best times and areas to run sourcing events and requests for proposal. It can identify which suppliers to include in sourcing projects and provide rich information into supplier’s quality and risk positions.

Analytics in contract management

Analytics provide value across contract lifecycle management. It can alert when contracts need to be renegotiated, or provide data for supplier negotiations. What’s more, analytics can identify maverick spend to help compliance and improve contract coverage.

Analytics in procure-to-pay

Procurement analytics can also provide much value in the transactional side of procurement. With analytics, you can measure purchase order cycles and improve payment terms. You can evaluate payment accuracy, identify mistaken payment and reduce fraud.

Analytics in sustainability and CSR

Increasingly, companies are realizing the value of analytics in assessing sustainability and corporate social responsibility within the supply chain and procurement. Analytics can uncover the environmental or social impact of procurement decisions and identify opportunities for more sustainable alternatives.

Sources of Procurement Data

Procurement organizations often face the challenge of heterogenous data landscapes. As many businesses are formed from more than one business unit, financial processes may vary on a regional or international basis. Increasingly, procurement analysts are starting to leverage data from outside of their own procurement organizations, combining the most valuable aspects of internal and external data.

Internal and External Sources of Procurement Data

Internal data assets are hosted or originated within corporate applications. It is common for businesses to utilize more than one transactional database, such as enterprise planning systems (ERPs) or accounting software. Procurement analysts may also utilize data provided directly by suppliers or different business units through Excel, or tap into data from the general ledger or other financial records.

External data assets are any data sources that come from outside of the companies own financial databases. These may be public systems, such as information on suppliers, commodity prices or currencies readily available on the Internet. External data sources also include 3rd party proprietary sources, such as supplier industry codes, credit ratings or supplier risk profiles.

In the past, independent analysts working with Excel have been limited with the ability to utilize external data sources. Cloud-based procurement analytics software and application programming interfaces (APIs) have enabled more automated, faster and more flexible uses of procurement data.

—————————————————————————————————————


—————————————————————————————————————

Examples of Procurement Analytics

Across different procurement organisations there may be different applications of procurement analytics. Some of the most common examples include:

  • Spend analytics – the analysis of procurement spend data from internal or external data sources.
  • Contract analytics – the analysis of supplier contracts and their meta-data, such as payment terms and expiration dates.
  • Supplier analytics – the analysis of performance of individual suppliers or comparison of supplier performance.
  • Savings lifecycle analytics – the analysis of savings projects and their impact on the financial bottom-line.
  • Spend forecasting – the forward-looking analysis of procurement spend data and its impact on profitability.
  • Procurement benchmarking – the comparison of a procurement organizations’ performance to peer or market benchmarks.
procurement analytics example
Example of procurement analytics – payment term dashboard

 

Business Cases for Procurement Analytics

Procurement analytics has the potential to improve operational efficiency across the entire sourcing and supplier management lifecycle. Common business objectives for procurement analytics include:

  • Cost reduction – identification of savings opportunities and measuring savings projects impact on the financial bottom-line.
  • Risk management – identification and mitigation of supplier or market risks within procurement operations.
  • New opportunity identification – explorations of new or more strategic ways to manage suppliers or categories based on historic procurement data.
  • Improve cash flow – highlight ways to improve operational cash flow, for example, through payment term optimization.

Many organizations recognize that procurement is a critical business contributor. Typically 40 – 70% of all costs are procurement related, and these costs are often a volatile source of competitive advantage. Effective organizations leverage data to more effectively manage supplier relationships, growth and even bring new innovations to life. On the other hand, more data has been created in the last two years than in the previous history of mankind. Advancing analytical technologies accelerate the process from data to insights and unlock new opportunities.

Business cases for procurement analytics

Procurement Metrics and KPIs

Procurement metrics or key performance indicators (KPIs) provide organizations with quantifiable values to measure performance and guide procurement strategies. Metrics can also be used to benchmark procurement’s performance to peers or to prove contribution to company-wide goals and targets.

10 Key Procurement Metrics and KPIs
Examples of procurement metrics and KPIs

The 10 most important procurement metrics and KPIs you should be measuring

Which procurement metrics should you be tracking? Here are the 10 most important ones for best-in-class procurement organizations.

1. Spend under management

Spend under management is the total amount of spend that is actively managed by the procurement organization. This figure can include every region and category that procurement is working with, or can be divided into separate metrics that represents a specific region or category. Spend under management is an important metric for a procurement organization because it reflects maturity and control over spend. Example: “as a procurement team, we’ve increased our spend under management from 60% to 67% over the past 12 months.”

Common tool used: Spend analysis

2. Spend vs. budget

Spend vs. budget tracks the realization of spend in procurement and compares it to the budgeted spend overall or per business unit. Tracking realized spend against budgets is the foundation of spend management and ensures alignment with key stakeholders such as finance. When evaluating spend vs. budget success is not necessarily measured by a decrease in cost, but by budgeting accuracy.

Common tool used: Savings lifecycle

3. Total cost of ownership

Total cost of ownership (TCO) is the cumulative cost of all spend purchases. TCO takes into account every cost that is incurred during a procurement phase, and includes all direct and indirect costs of a product or system. Is not limited to just the purchase price, includes transaction fees, warehousing and other incidental costs. TCO is a valuable metric for procurement because it provides a cost basis for the total economic value of an investment.

4. Cost Savings

Cost savings is measured by the cumulative of amount savings gained. These are then broken down in category for focused measurement. They are followed over a time period to see how cost saving targets are met. The levers used could be through aggregating spend across business units, taking out longer term contracts or introducing more competition, standardizing and rationalizing the spend or using combinations of different levers.

Common tool used: Savings lifecycle

5. Cost avoidance

Cost avoidance is used to describe any actions help the company avoid absorbing inevitable additional costs. These costs could be due to inflation, shorter payment terms, exchange rate fluctuations, requirements for additional features or services, etc. Negotiating with cost avoidance measures helps in keeping future costs down. Cost avoidance will not be reflected in budget or financial statements, but can be used as a measure for procurement performance.

Common tool used: Savings lifecycle

6. Average payment terms

Average payment terms measure the average time (in days) invoices are paid by, calculated using every single instance of payment term information. Improving payment terms among suppliers is a key way of improving working capital. While the improvement in working capital will not be reflected in financial statements, you can calculate savings based on proxies such as the cost of borrowing. Example: by increasing average payment terms from 30 to 35 days across our managed contracts we were able to save $50,000 in interest charges.

Common tool used: Spend analysis

7. Number of suppliers

The number of suppliers informs how many distinct suppliers are being utilized in the procurement organization, or in a specific category. Reducing the number of overlapping suppliers in a category can result in efficiencies or cost savings. Increasing the number of suppliers in key categories may be advantageous to reduce supply risk.

Common tool used: Spend analysis

8. Contract coverage

Contract coverage measures the amount of spend that is covered by a contract. In contrast, maverick buying highlights the possible loss of value that occurs when buying off-contract. Increasing the amount of spend that is covered by contracts (or procurement approved purchase orders) can result in savings, while also reducing compliance risk.

Common tool used: Contract management

9. Exchange rate exposure

Exchange rate exposure measures the changes currency conversions have in the overall spend. Long-term impact of exchange rates can be measured and isolated from realized savings measurement. Example: Over the last financial term, the procurement team’s contribution of $1,5m spend reduction was offset by an increase of $700K costs from the increasing value of the US dollar.

Common tool used: Spend analysis or Savings lifecycle

10. Vendor accountability

Vendor accountability measures suppliers’ performance and how they are responsible for handling errors and claims. Examples of vendor performance measurement include defect rate, lead time and the cumulative amount of incidents per supplier. The goal of vendor accountability is to ensure that the overall best product or service is delivered and the development of more strategic supplier relationships.

Common tool used: Spend analysis

Once you’ve identified your key procurement metrics it’s time to develop a procurement performance dashboard. One method to utilize procurement metrics is through a balanced scorecard.

—————————————————————————————————————


—————————————————————————————————————

Balanced Scorecard for Procurement

A balanced scorecard is a strategic performance management framework to identify and improve various procurement functions including financial and non-financial metrics developed by Robert S. Kaplan and Dave P. Norton. For procurement, a balanced scorecard helps managers and teams keep track of execution of activities and the consequences arising from these actions.

Procurement Balanced Scorecard

While there are some industry-level best practices, each company is likely to have it’s own scorecard of metrics related to their own business goals. In the balanced scorecard model the key focus areas to include are:

Financial Perspective – a small number of high-level key financial measures for the procurement organization that can be tracked and reported in a way recognized by finance.

Customer Perspective – while procurement doesn’t typically have exteral customers, this could include measures of customer satisfaction or responsiveness to internal stakeholders.

Learning and Growth – assessment and measures of the skills within the procurement organization and how new talents are brought in and retained in the organization.

Internal Processes – measures of the efficiency of the procurement organization. How quickly and accurately tasks are done and how they can be streamlined or automated.

Setting up metrics can be difficult, as the amount of information provided has grown over the years. Some procurement organizations highlight metrics with no actionable value. These so called “vanity metrics” do not provide any identifiable information to highlight how the organization is performing or connection to a businesses measured financial success.

Another mistake encountered is having a large amount of metrics in place. Having too many trackable items can be detrimental as it leads to overanalysis. Overanalysis can lead to loss of meaningful performance, as there is a lack of an overall vision.

The most important element to any procurement scorecard is clear and realistic targets. In other words, not just measure specific metrics but develop clear goals where each metric should be headed. It is a good practice to have ambitious goals, but unrealistic goals may demotivate the procurement organization and hurt the business.

Procurement Analytics solutions are often provided with ready-made templates to track procurement metrics and develop procurement scorecards.

Category Analysis

Category analysis is the process of grouping goods or services into categories for analysis and opportunity identification. Category analysis can be conducted on a high-level view, or through drill-downs into specific categories.

Analytics in category management

In procurement, category analysis is often closely related to category management where an organization’s spend and supplier relationships are managed by a category manager or team of experts.

Category managers can utilize procurement analytics reports to review spend or supplier trends over time, or to identify new opportunities to improve category performance.

Category level metrics can include:

  • managed spend per category
  • number of suppliers in category
  • average payment time per category
  • how many suppliers manage 80% of category spend

Example of Category Analysis

Procurement teams can also map out a high-level category analysis to identify which categories of spend to prioritize based on quantitive and qualitative metrics.

Below is an example of a category analysis based on a subjective analysis of spend per category. The size of the ball relates to the total managed procurement spend per category.

Category Analysis in Procurement

In this example, the organization is most likely more focused on direct sourcing activities. For this reason, raw materials, finished goods and components are analysed as strategic categories with more detailed granularity. For this manufacturer, indirect categories such as travel, marketing and professional services are likely to be less strategic categories requiring less data granularity.

Whether they are manufacturers or service companies, each organization will have their own priorities for category analysis.

 

Three Steps of Procurement Analytics

Procurement analytics bring visibility into spend and supplier performance, and help untap the potential savings and opportunities. But even though spend data exists in the systems, getting sense of it is often far from straightforward. It requires three steps before it uncovers the data insights on hand. Think about it like oil. It comes from crude oil, raw and unfiltered. The only way to see its potential is to filter and refine it until it becomes gasoline, which is a usable product that powers the whole world as we know it.

Three Steps of Procurement Analytics

 

Step 1 – Data Extraction

It starts with extracting the data from all possible sources, and consolidating it into one central database. Once it gets extracted, it is ready to be enriched and cleansed. Data extraction is the process that makes outdated and messy sources of information into a clean and consolidated format that can be easily understood and ready for analysis.

Step 2 – Data cleansing, categorization and enrichment

Next, data has to be classified into clear and defined categories. To make spend analysis effective, a precise data classification is needed, as it makes the heterogeneous spend data easier to address and manage across the organization. This process harmonizes all purchasing transactions to a single taxonomy in order to enable customers to gain visibility of global spending.

Step 3 – Reporting and analysis

After the data has been classified, it is now ready to be analyzed. Spend Analysis gives you the needed spend visibility to deliver insightful analysis for accelerated opportunity identification, smarter sourcing decisions, and full control on your spending. An access to an accurate spend analysis is the key for massive savings and potentially realizing the opportunities.

To get a better understanding, we’ve invited product specialists to cover each step in more detail.

—————————————————————————————————————


—————————————————————————————————————

Deep Dive: Data Extraction

This deep dive was contributed by a subject matter expert with deep experience in procurement software development.

We all know that data is everything nowadays. In fact, most efforts are focused on harvesting the data, but without much understanding on which data has the most significance. No matter how important it is, unless you can extract the right data for your analysis purposes, you will get garbage in and garbage out. Pulling out large amounts of data out of a myriad of sources without a standard interface can be quite a tedious task.

Let me give you some insights into how data extraction works here at Sievo – one of the leading procurement analytics software solution providers.

Procurement Analytics Data Extraction

 

In many large companies, data extraction is a challenging task, which requires tremendous human and capital investment. On top of that, most software systems weren’t built for the intensive load an extract will put on them, especially internal databases that need to continue serving users during the data pull. Because of the unexpected amount of stress put on the servers, considerably big performance problems can occur during the process. The amount of data to extract and the amount of maintenance required result to pulling out data records out of systems longer than the time it is expected to. The good news is, there’s always a better way to do things. At Sievo, we’ve built our own automated data extractor capable of collecting data from over 100 different source systems. The Sievo Data Extractor is designed to connect and extract the most complicated and extensive procurement data from all kinds of data sources and deliver it for further analytical processing.

Here are 5 things on how the Sievo Data Extractor works its magic:

1. Even if extraction can be done in-house, using the Data Extractor incredibly shortens the lead time as it takes away the erroneous manual work. It has a pre-configured template for extraction to take the correct data with a possibility of additional data fields. The challenge of spend data extraction lies in the fact that you need to collect data from multiple modules of an ERP, in a way that you get a coherent view on spend. Building this logic is trickier than it seems at the outset, but luckily Data Extractor has pre-built capabilities of doing this for most ERPs. Because the tool cuts away a significant amount of time and effort, there is no need to involve too many people in the whole process. If, for example, functions like internal IT would be heavily involved, it would generally mean longer lead times.

2. The tool represents an easy way to extract data from multiple systems with complete data security. Many companies like to have a full control over sensitive data, but this tool guarantees a secured way of extracting data, delivering it for further processing with a possibility for customers to still keep control.

3. Installed to a client’s computer within minutes and with its compatibility to practically any ERP, procurement and finance systems, it seamlessly captures all the data and pushes it to the Sievo cloud. Correct extraction paves the way for conducting quick data cleansing and analysis.

4. The tool allows us to monitor all processes, in cases of exceptions. We have all the tools to proactively fix the issues, and our unrelenting experience allows us to know how to react to errors such as connections not working or only partial data sets extracted. This results to more reliable processes and up-to-date reports with less support needed from the customer.

5. Once the data gets extracted, it is now ready to get enriched and cleansed. After the transformation logic, what you’re left with is a clean, consolidated and filtered format which then makes the rest of the process easier and faster.

In a nutshell, with its trusted and ready-made plug and play templates, the Sievo Data Extractor Tool does the heavy lifting. With massive amounts of data on hand, the best chance of success is to work with the company who not only has the technical expertise, but also understands the procurement data and has perfected this process. In addition, Sievo systems have the ability to deal with all kinds of idiosyncrasies and challenges that make the extraordinarily dirty data and outdated and messy sources of information into an easy-to-comprehend format ready for analysis.

You may, of course, also deliver the data to us, but why opt for that when we’d be happy to take them from you. With the powerful tool in our hands, all this can be done without compromising security.

This chapter was contributed by a subject matter expert with deep experience in procurement software development.

PASI VILJANEN
Head of Big Data

—————————————————————————————————————


—————————————————————————————————————

Deep Dive: Classification

This deep dive was contributed by a subject matter expert with deep experience in procurement software development.

Effective procurement analytics is not possible without precise data classification. Without classification, everything is cluttered and un-organized. Many of the large enterprises Sievo works with have many ERP’s, each having its own structure, material numbers, accounts and a lot more. Let’s take the example of a laptop. In a larger organization, this one item can be called differently depending on how it has been sourced in tens of different ways, it can be Dell X260, Power Laptop, or perhaps Ordenador in Spanish.

Procurement Analytics Spend Data

Unifying heterogeneous spend data into clearly defined categories makes them easier to address and manage across the whole organization. Even with the example of the pen, knowing exactly how many pens are bought by different departments and subsidiaries of a company and at what price gives procurement the upper hand in negotiations with new vendors. So, in essence, classification is about harmonizing all purchasing transactions to a single taxonomy enabling customers to gain visibility to the global spending in order to make better sourcing decisions.

Once you’ve properly classified your data, results are presented in intuitive reports and dashboards right away. The harmonized data can then show potential savings and opportunities.

The answer to accurate classification is not a black box

Complex data classification solutions are not always simple to implement, but they can be improved over time. What stands out with Sievo’s data classification tool is that it’s not a black box—it is transparent. Customers can see how information has been classified and make exceptions to the classifications where they feel necessary. For example, if one category is classified wrongly, it can be changed effectively as needed. Sievo empowers users to add data categorization based on their own business logic and they can easily classify data through intuitive add-ons and different levels of categorization. They can slice and dice data to smaller manageable junks on any attribute. Hierarchical classification decisions enable them to manage and pinpoint exceptions both at scale and in detail.

The visibility for the customers makes the whole process collaborative as the customers can freely participate and make exceptions if necessary. Once classified, the information goes standard across the organization and users can see what data characteristics the classification has been based on.

 

The key to success is collaborative classification

According to Spend Matters, Sievo’s collaborative classification engine is one of the most distinct spend classification platforms in the market today. Not only does it break down spend into categories and sub-categories, the classification can also be assigned to customer category experts. This results in expert system implementation where the knowledge of the expert is capitalized in ensuring deeper level classification within a category or sub-category and resulting to higher level of accuracy.

For organizations with billions of dollars of spend, this level of collaboration is revolutionary. No one person can be expected to know the full organization’s spend inside-out, but individual category managers can contribute to a more accurate level of classification, and the end result can be ground-breaking. The best practice in spend classification suggests at least 90% accuracy to identify spend opportunities, however reaching 95% or better accuracy level is crucial for savings tracking and management. As the further breakdown occurs for a deeper level reporting and tracking management, Sievo’s collaborative classification approach allows spend to be mapped down to the last dimension 100% error free.

The future is human + machine collaboration

Even when category experts can improve classification close to the 100% error free level, there is still the question of prioritization. How many hours of an expert’s time is worth spending improving the classification of less strategic, long tail spend?

The answer to this comes from a relatively new field of computer science called machine learning.

Procurement Analytics Spend Classification

At Sievo, we’re developing an approach of human + machine collaboration, where the advanced knowledge of procurement experts is complemented by our own proprietary machine learning solutions. In practice, we continuously train computers to learn and adapt the classification techniques performed by humans. The more data computers see classified, the more they learn. This approach is currently tested with a limited number of clients, but we believe in the future we can reach even greater levels of precision on data classification by using the best skills of both humans and computers – the next stage in a truly collaborative classification experience for procurement organizations.

This chapter was contributed by a subject matter expert with deep experience in procurement software development.

JANNE SAKKO
Senior Product Owner

—————————————————————————————————————


—————————————————————————————————————

Deep Dive: Data Analysis

This deep dive was contributed by a subject matter expert with deep experience in procurement software development.

You’ve probably heard that data is the new oil. So has your CPO. Congratulations! Your company has realized the great value that your data storages bring. Be it supplier rationalization, identifying key vendors, product order coverage, or supplier performance, your organization has endless possibilities in unleashing the potential value contained in your data.
When we talk about analytics, we think about examining detailed data and applying proper statistical methods to unravel new insights that support decision-making.

Perhaps you have heard about “data-driven decision making”. During your data analysis project, the extracted data is refined like oil, as it is standardized, cleaned and properly categorized with your provider’s collaborative classification process. When the data has been refined, you are ready to fuel up the analysis engine to navigate towards valuable insights. After all, refined oil is used to fuel up the combustion engines and, in this case, our combustion engine is the analytics.

To steer the engine into the right direction, here are 8 key analytics insights that are key for competitive procurement success.

 

 

Spend overview

Viewing the spend overview gives you a summary of how your spend is performing compared to other points in time, such as last year, last quarter and so on. What are the trends and are mavericks causing our spend to be higher than usual?

To know how you are spending and for what reasons is to know how much cost you are incurring, both in indirect and direct categories. The basis of all spend analytics is seeing how your spend compares to particular time frames. This basic function has its roots in the stock markets, but it has also found use in procurement analytics. KPI Visualizations indicate the trends of your spend and are dynamic, responding to your drill-downs and data slice-and-dice operations.

Example of Procurement Analytics Data

Spend distribution by supplier

The Pareto principle, created by Vilfredo Pareto, is a cornerstone representation on how to represent spend. The Pareto principle shows you how much your suppliers have an effect on your spend and if certain categories are in the hands of a few, or one, supplier. The effect that a sole supplier can have on a category is immense as it can take out all the leverage from negotiations. Relying on one supplier in a category has to be carefully thought out, as it can remove your advantage from negotiations.

Example of Procurement Supplier Analytics

Having a solution that offers you analytics capabilities that offer a view to categories, geography and time-periods is crucial. Creating this type of analysis from scratch is time consuming, but fortunately out-of-the-box solutions exist in the market.

Visualizing the spend-flow

Procurement analytics come in many shapes, sizes and forms. The amount of dimensions open up different possibilities to get insights on how your organization is performing with its spend function. However, this is not an easy task to execute correctly, as the visualization options make the possibility of presenting data too easy.

Procurement Analytics Spend Flow

This usually ends up in a table and chart heavy dashboard, that can be hard to decipher unless you are a seasoned data analyst. The best way to get this information out is to create a visualized spend process. A flow-process allows you to present your data story in a way that is easily understandable outside your data analyst team.

Price opportunities

Procurement analytics is an art form that helps your company to unlock hidden potential lying in your data. A big potential lies in the pricing of your direct spend materials. Diversifying the purchasing to multiple suppliers produces pricing data that enables you to benchmark giving you information on where the best supplier price is. This can be taken into even more detail with peer bench marking, where your spend data is compared with data from your supplier, expanding your possible spend saving opportunities.

Using price alone is not the best metric, so any opportunity related reports should be completed with other factors like on-time delivery, quality and opportunity fill rate.

Procurement Analytics Opportunities

Using the information provided by the system helps you in negotiating with sub-optimal suppliers so it is possible to match the best supplier price without sacrificing other supplier KPIs.

Everybody loves a waterfall

Communicating your cost reductions that stem from your savings program implementation is a key aspect of analyzing your spend. If your cost reductions can be tied to your executed savings plans, it provides great benefits for your business. The cost reductions do not always bring benefits, however, as they can be tied into changes in the seasonality, price fluctuation and currency shifts. Knowing where to attribute the spend change gives you a chance to do a gap analysis, making way for a powerful way of explaining the results to your stakeholders. The best way to do this is using the waterfall chart.

Procurement Analytics Savings Bridge

Purchasing is usually tied to a process, but how many are actually adhering to it? The first step is to compare the spend and how it ties to the process. If a particular invoice has been paid and you can see it linked to a particular purchase order, then that spend is in control. This is not a deep enough coverage, as many organizations tie their Purchase Orders to just one field.

It is better to figure out if the PO is matched properly to an invoice. This way, you can be assured that your process is stable and does not have any blind spots. You are able to identify maverick spending and address it correctly as this information can be sliced and diced to category, business unit and even supplier level.

Supplier segmentation

The variety of suppliers creates a need for optimization, so segmenting the suppliers by different variables is the key on going forward. One example is looking at your biggest suppliers and their growth in spending and comparing it to the previous year, showing you a matrix of high-low growth and high-low spend. This data can then be cross referenced with your category data.

Procurement Analytics Spend Development

Geo-spatial analytics

Although a lot of analytics providers offer a geo-spatial analysis capability, very few of them offer actual value to the user. A quick improvement for creating value would be using different colors and data point sizes when mapping the data. It could be, for example, the supplier location spend value (size) and then spend growth for supplier compared to the previous year (color). This gives you a way to instantly show where a problematic spend is occurring. You could also do an analysis by a particular material and see where the material is sourced from and consider different supply chain optimizations.

Procurement Analytics Supplier Identification

These are just a few ways on how to create insight driven analytics, and practice has proven that there are a ton of more ways to analyze the data. Remember, the more you simplify your approach, the more effective you will be in communicating the insights found in your procurement data. The moment you deliver simplified and palatable analytics insights for the purpose of aiding stakeholders in making decisions, is the key moment when your procurement function gains competitive advantage. Data is being produced in vasts amount daily and it can be easy to get buried in all of that. The variety of spend analytics vendors offer you many different ways of getting insights, but only a few can deliver the insights that precisely work for the user groups in your organization.

With Sievo, you can be assured that the data is in good hands. Sievo helps you view and understand your procurement data.

This chapter was contributed by a subject matter expert with deep experience in procurement software development.

Heta Ruikka

Team Lead, Analytics

 

—————————————————————————————————————


—————————————————————————————————————

About Sievo

This guide is regularly updated by a team of procurement analytics enthusiasts at Sievo. You can see why we’re passionate about the topic in the video below.

We’d love to hear what you think about this guide and how we can improve it in the future. You can find us on LinkedIn and Twitter or reach out to us through this website.

Sievo in brief

Sievo helps businesses turn procurement data into dollars. By consolidating all procurement related data under one platform, Sievo uncovers hidden value and provides insights for data-driven decisions. With AI-driven classification and data-driven external benchmarking, Sievo provides the leading procurement analytics solution powering procurement organizations worldwide.

 

Our solution is used by thousands of users in best-in-class procurement organizations, such as Deutsche Telekom, ISS and Kellogg’s. With our clients, we don’t stop at backward-looking reporting but deliver more by creating forward-looking forecasts and comprehensive analytics. We combine internal information with external data sources. With Sievo, human input and machine learning technologies are integrated together. In short, we translate procurement data into dollars.

Since our founding in 2003, we have experienced rapid, profitable and self-financed growth. Currently we employ more than 180 professionals and have offices in Europe and US.

SIEVO GLOBAL HEADQUARTERS
Sievo
Mikonkatu 15 A FU-00100 Helsinki Finland
General inquiries:
+358 207 890 340
contact@sievo.com
sievo.com

SIEVO US HEADQUARTERS
Sievo
20 W Kinzie St Chicago, IL 60654 US
General inquiries:
+1 (312) 489 8271
contactUS@sievo.com
sievo.com