How is your procurement department managing big data?
Following my previous post, exploring the importance of social media for procurement, this post aims to address the second topic covered in the Financial Times piece – the impact of ‘big data’ on supplier management practices, and why it is essential that this concept is not ignored.
For those of you who have managed to avoid the buzz surrounding big data until now; big data is defined as – well actually, there is no clear definition. Academics, thought leaders and researchers alike all seem to have a slightly different definition of big data. However, the basic premise appears to be that big data is a collection of data sets that contain a large volume of complex information, often difficult to process with traditional methods.
While big data clearly poses a number of practical challenges; the potential to gain valuable, detailed and competitive insights by effectively utilising big data, leads me to delve deeper into this topic, highlighting the key reasons why big data is increasingly important to procurement:
1. Spend analytics
Forgive me for starting with the obvious – spend analytics is evidently an area where most procurement professionals are well versed. Yet, in an arguably under resourced function, it is easy to see how the concept of using big data to inform spend analytic processes can be a daunting one. While many companies have successfully managed to include big data sources into their spend analysis, there are still many who remain behind the curve. Although most procurement professionals are proficient in their use of some of the more useful spend analysis software available; what is really needed is a specialist data analysis solution (ideally an intuitive one see here for a few examples) that grows and evolves over time, able to adapt to the goals and strategies of the wider business. Implementing a successful data solution – be it technology, hiring in expertise, or outsourcing the function – will enable procurement to use a greater number of data sets, sources and variables, to provide a much more detailed analysis of spend. But, more importantly, this data analysis capability will be able to filter the masses of data into meaningful and actionable insight. The procurement teams who successfully employ this capability gain an advantage in that their spend analysis is able to deliver more than just metrics. They are able to spot trends, improve performance, inform policies, and implement fact based decision making. And this is where the specialist expertise is crucial – collecting the data is one thing; packaging up the information in a way that enables your stakeholders to make informed decisions is entirely another, and one that most procurement functions still struggle to effectively achieve.
2. Supplier management
As the well-known saying goes,”what gets measured gets managed”. Collecting and analysing data from around the business is crucial to effectively managing suppliers and identifying both the best and worst performers. Which supplier provides the most efficient service? Which supplier provides the best quality products? Who brings new and innovative ideas to the table? All this information can be gathered from analysing a number of different internal and external data sets; from non-conformance reports, to point of sale data, to customer complaints, to delivery trackers, the list is endless. The key to making the most out of this data is to put the correct processes in place upfront to collect and analyse this information. No mean feat, but having this information at hand when it comes time to re-tender or re-assess existing contracts could be priceless.
3. Forecasting and predictive analytics
Perhaps one of the greatest opportunities available for procurement from the competent utilisation of big data is that of accurate forecasting – and not just in terms of spend. A comprehensive analysis of the market from widely available data sets could help to accurately predict the direction of certain markets, predict demand for specific resources, and allow procurement to adapt strategies accordingly. “But we do this already” I hear you cry! Well, here’s where big data comes in. Traditional data collection is often just a snapshot of a specific point-in-time (looking backwards) – so the information procurement is basing decisions around is potentially out of date as soon as it is collected. An effective big data solution should enable data to be collected and analysed in real time; meaning that as the market evolves and changes, your dataset changes to reflect this. Forbes wrote a rather interesting article about the impact of fast moving data and its impact on predictive analytics for the Supply Chain that helps to explain this further. Lastly, one of the most encouraging opportunities, in an increasingly externalised business landscape, is the ability for procurement to use big data to identify issues with suppliers before they become a bigger concern. The plethora of internet databases offering financial data, statistics, market analysis and opinions around (potential) suppliers can be harnessed to provide a real-time big data set that, with proper analysis, could warn against those suppliers falling into financial difficulty. Thus, providing procurement with an opportunity to react immediately and work with these suppliers to minimise risks to supply before any impact is felt in the wider supply chain.
It is clear then, from the above, that procurement needs to embrace the concept of big data. The sheer scale of the potential for procurement to make better, more informed decisions when it comes to understanding spend, understanding the market, managing suppliers, and mitigating risks before they happen should be reason enough for big data to pushed to the top of the agenda for procurement.