5 Steps to Develop Procurement Data Analytics

How to master the procurement analytics

The evolution from descriptive to prescriptive analytics defines the path to procurement intelligence.

Let's review five steps that would lead us to higher levels of analytical capabilities.

Descriptive, diagnostic, prescriptive, and predictive analytics

Why we failed in analytics.

We have to accept - our analytics is very far good! 

We are still looking backward, trying to describe the status quo and diagnose problems. We benchmark ourselves vs. past period accomplishments and likely peers. We look at the market, which is mediocre at its best, and praise ourselves for overachieving it.

Our predictive and prescriptive capabilities are barely there. 

Perhaps, we are trying to make short-term commodity market predictions, i.e., we are not buying coal in winter and not placing critical orders during the New Year holidays. Our ammunition is limited - Platts, macro-economic forecasts, CPI, Industry Price Index, exchange rates, news headlines. 

Our foresight is primarily based on past failures, which we try to not replicate by avoiding former faulty practices (even that is not entirely successful.) 

5 practical steps we took to develop the procurement data analytics

Upon accepting the problem, we introduced a couple of improvements, some of which worked quite fine:

  1. Established commodity frame agreements with a pool of qualified suppliers who bid on regular e-auctions. The quantity and diversity of those suppliers ensure their appropriate behavior in line with the general market trends. Plus, we can constantly adjust the sourcing levers, e.g., e-auction frequency, size of lots, order timing, rectifying price deviations, or forming cartels.   
  2. Formula pricing is our lifeline. We blended the global market intel data of a commodity index provider with our predictions on the margin fluctuations (differential,) which is the only element of the formula we manage (the rest are commodity index, exchange rates, and duties.) Already using this approach for fuels and metal and intending to extend it onto coal, electricity, natural gas, and copper cables. 
  3. Consistent SRM activities with strategic suppliers enable access to the market intel of your partners. Their insight is golden, as long as your relationship is mutually fair and transparent. To gain the trust of our partners, we had to improve a lot on our payment discipline.
  4. Data cost money, so you would have to invest in new sources of it. Industry analysts, commodity exchanges, trade chambers sell their analytical data and market predictions, which would pay off nicely, as long as you have a working model to feed this data into.
  5. You need to raise a new breed of experts - data analysts. They are 33% computer geeks, 33% data crunching magicians, but still procurement people! The one we got created the BI suite from his smartphone, developed a dozen statistical models, tapped onto Platts and local market intel. Yet, he's a great expert on public procurement leading strategic sourcing projects and drafting contracts.

"The first step toward change is awareness. The second step is acceptance."  
(c) Nathaniel Branden

Comments

Post a Comment

Popular Posts

The Importance of Supply Chain Collaboration

Image
  Why is supply chain collaboration essential? Once, I was asked what makes the supply chain important to a company. Our profession may not be rocket science. Other peers around the company overlap with us in their functions - Technology tends to manage suppliers , Finance owns the demand planning and budgeting , and Sales and Marketing monopolize the end-customer value chain.  These and other colleagues do not always appreciate us; some believe they are even better at our job.  Shadow procurement, supply chain, and logistics have become standards for many companies.  However, some critical differentiators - like collaboration - justify the very existence of our profession!  The supply chain is the most collaborative function in the business.  We find peers everywhere, even behind enemy lines. We welcome any opportunity to form a cross-functional team with anyone who can bring business value through supply chain strategies, sales  and operations pl...
Read more

The National Program of IT as the Alter-Ego of Procurement

Image
" One of the worst and most expensive contracting fiascos in the history of the public sector ." Some real-life cases only require a little reflection to understand that the project was predefined for failure well before its launch. Can we make appropriate conclusions to prevent that from happening again?  The first step is to deepen our study of such cases beyond populistic cliches.    NHS IT System (2001-2011) The national program for IT in the health service is the largest civilian computer project in the world. It was spawned in late 2001 and early 2002.  A far-reaching vision set out a program to transform people's healthcare experiences. Hospital admissions and appointments would be booked online—the choose-and-book system. Pharmacists would no longer struggle with GPs' indecipherable handwriting, and drug prescriptions would be handled electronically. Politicians set the duration of the program at two years and nine months from April 2003 until December 2005...
Read more

My Q&A on Agility for "Trusted Magazine" (December 2023)

Image
The source link . How could you describe your career path in a few words?   I worked in procurement for 22 years - telecom, airline, railways, public infrastructure services and consulting industries, and multiple geographies. I’m a Fellow of CIPS and an author of “ The Technology Procurement Handbook ,” where I tried to share my passion for what we used to call “IT Procurement.” This is where I started digging deeper into the Agile agenda , thinking of finding repercussions with our professional life and blogging on related topics.      How do you think agile practices have transformed companies over the past two years?   I assume that Agile practices in procurement are hyped more than used : many companies still mandate the use of the RFx as the sole answer to any emerging sourcing requirement, many fear or don’t appreciate the demand management, and digital transformation frequently happens without any comprehensive strategy and benefits trac...
Read more