Procurement Must Think "Small" to Unlock "Big Data" Opportunities

Spend Visibility at the most granular level identifies what is being purchased and from whom it is being purchased. Taking spend analytics a step further - to see who is buying, how they are buying and why, and also comparing what an organization is spending as compared to the industry overall, will help leading organizations uncover previously untapped savings opportunities by looking at spending behaviors and identifying new and better ways to proactively influence demand. Today procurement organizations are swimming in data, in fact Capgemini Consulting forecasts that over the next 5 years, the growth of data – both structured and unstructured – is expected to grow at over 650%. So the procurement data is plenty "Big" – the problem is having real analytical visibility to do something with it. As Capgemini points out, most analytics provide aggregate visibility which is not actionable: "Aggregates in isolation provide very little actionable information. Analytics, on the other hand, can tell you what's happening in the business and how well you are servicing it." So to make sense of "Big" Data, first think "Small" by being able to interpret purchasing patterns through transactional level insights, something world-class procurement organizations are much more likely to be able to do than their counterparts. According to Hackett Group benchmarks, 23% more world class procurement organizations had a "significant amount" of spend visibility company-wide than the peer group in 2012, and the gap is getting bigger, more than doubling in 2013 to 47%, when 89% of world-class organizations achieved this mark overall. Procurement organizations will be putting their money where the mouth is by upgrading their investment in analytics during 2014. In a Zycus-sponsored, December 2013 webinar in collaboration with The Hackett Group titled, "Real-time Procurement Benchmarking," 408 procurement executive attendees polled and indicated that after maintaining their existing technology investments in their ERP platforms, their top choice for new investment in procurement enabling technology in 2014 is to "implement business intelligence / analytics applications." To accentuate their advantage in spend data analytics, world-class organizations will start pursuing the following objectives:

  • Improving overall data quality at the source by deploying P2P (Procure-to-Pay) solutions capable of auto-classifying purchase transactions to the correct UNSPSC commodity codes and mapping to associated, valid G/L account codes at the point of requisition – getting real-time, accurate, item-level transactional analysis. Most P2P systems create opportunities for process defects – in Six Sigma parlance – because they leave transaction coding decisions to the discretion of uninformed or disinterested requisitioners. Consider the case of a global, industrial powerhouse that examined its transactional spend data and inexplicably found "Live Plants and Animals" to be its largest spend category. The root cause analysis revealed it was simply the first selectable commodity in a UNSPSC drop-down list that users didn't bother scrolling through to find the proper code, even if they knew what the proper code was in the first place – hence the need for an intelligent, systematized means of auto-classifying transactions.
  • Interpreting buying behaviors of individual requisitioners to spot buying patterns – frequency of purchases, number of products compared before making purchases, product substitutions or bundling, product and supplier preferences, etc. to identify opportunities to more effectively manage and anticipate demand or negotiate more favorable contracts which provide more preferred products.
  • Drilling down to provide analytic feedback where it is most actionable – in the business where spending actually originates. Transactional data can come from multiple source systems. If everything is housed in one place, it can be consolidated, cleansed and harmonized so it is easier to slice and dice data....even to a cost center level.

 

Richard Waugh, Vice President, Corporate Development, Zycus Inc.

Richard Waugh, Vice President, Corporate Development, leads strategic initiatives in the areas of new product introduction, market development, thought leadership, analyst relations and strategic partner development programs at Zycus. Richard has an extensive background in B2B E-Commerce. He helped launch GE's Trading Process Network. He also co-founded B2eMarkets, and later covered the Supply Management market as an Industry Analyst for the Aberdeen Group.