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The procurement department is a key business segment for most companies and the backbone of many organizations. They are involved in decisions that impact the cost of carrying out an activity, buying goods or services, and building strategic relationships with stakeholders and suppliers. Their role plays an important part in driving the profitability of an organization by helping to streamline processes, negotiating to reduce material costs, and to identify better supply sources.
In the software industry, theProcure to Pay (P2P) cycle is a common way to track the end-to-end procurement process—from raising a purchase requisition right up until the payment to the suppliers. The P2P cycle has a series of stages as we can see from a standard diagram below. What we have shown below is a standard process. Depending on the business, this process has many variations.
As procurement is an essential business function, there are many Key Performance Indicators (KPI) used by various industries to track their procurement department's performance. Broadly, they are categorized into three groups according to their primary purposes: Reduce Spendings/Costs, Improve Quality, and Deliver Quickly. One needs to balance the KPIs in these three goals for procurement to achieve results. If you want more details about these indicators, check out Deltabid's Procurement KPI article.
Apart from these procurement KPIs, there are other KPIs that are shared by different business functions that provide a holistic view of an organization's financial performance such as:
Advanced analytics are required to improve and optimize the procurement function. It equips professionals working in procurement with substantial information to support them in doing their jobs better. Analytics can help them reduce costs by identifying instances where they have unnecessary spending, monitor suppliers by their deliveries and negotiate for better deals, quickly identify exchange frauds and let intelligent machines manage manual tasks like quotation creation and supplier scoring.
Deloitte predicts Procurement in 2020 will look very different than it does today. This future world will alter existing assumptions and introduce emerging hazards. It will require additional skills, knowledge, and tools to address entirely new challenges while solving current ones more creatively. So, it is extremely important to take advantage of the new technological advancements such as IoT and digitalization. Advanced analytics is important to convert the big data from all these new sources into smart data for smart procurement.
Below are few advanced analytics exercises which can benefit a procurement team:
1) Spend Analytics: Spend visibility is necessary to understand how much, where, and with whom organizations are spending money. This can help to identify potential opportunities to reduce expenditures. Reducing the spend is a fantastic way to increase ROI. Decreasing spend is complex, but once you do it, it directly affects the bottom line. Big Data has changed the definition of spend analytics. What makes analyzing spending complex is the decentralized amounts of messy data from different systems, where maverick transactions can carry out through different mediums such as purchase cards, wire transfers, purchasing platforms not integrated to payables, and multiple procurement/sourcing systems. Business Process Analytics: Let's think of an organization where they want to optimize
2) Internet of Things (IoT) Analytics: IoT is going to change the way procurement is done.