By Dave Hannon
I can think of no area of the enterprise that can benefit from advanced analytics more than the procurement organization. Because, after all, procurement is all about numbers. But not necessarily the numbers you may be thinking of.
Certainly, spend numbers are what most people associate with procurement. And yes, at the end of the day, the purchasing team's primary job is to manage the company's spend and ensure that what the company spends brings a valuable return. (Note that doesn't automatically mean reduce costs!)
And what better tool to manage spend with than analytics? Chris Salis, SAP's Global Vice President of Procurement Solutions, makes this point in the article How Are You Elevating Procurement’s Role in Your Enterprise? in the latest issue of SAPinsider saying: "The most advanced spend analytics solutions enable the procurement organization to accomplish what used to require an army of consultants."
But successful procurement and strategic sourcing is about more than just spend numbers. The number of suppliers, for example, is another important number for a procurement organization. Often procurement organizations are trying to consolidate spend with fewer supplies to increase leverage. As Carolyn Beal, Senior Manager of Procurement Solution Marketing at SAP, points out in the article 6 Steps to Sourcing Excellence, "Companies are seeking to consolidate spend for better visibility while tracking the savings all the way to the bottom line." And using analytics on top of clean supplier lists can provide the visibility required to perform that consolidation.
However, in other areas, supplier consolidation may not be the goal. In some cases you may find you have too few suppliers. SAP's Frank Suetterlin, Supplier Management Solution Owner in the Procurement Solution Management group, points out in his article The Strategic Supplier Management Mandate, "At the core of mitigating supplier risks is having an understanding of what risks are important. Begin by classifying your risk categories; they may include concerns over suppliers' financial solvency, price volatility, potential natural catastrophes, or having a limited number of suppliers in a particular spend category."
Suetterlin also highlights another set of numbers that is important to procurement: Supplier performance data. Analyzing the percentage of on-time deliveries and suppleir product quality metrics can dramatically improve business results. These are numbers that must improve and what gets measured – through analytics – gets improved.
There’s another less-than-obvious number that more and more procurement organizations are concerned with: The number of disparate procurement processes and systems across a single enterprise. In fact, this number might be a pre-requisite to successful analytics. As SAP's President of Global Solutions Sanjay Poonen points out in the latest insideEdge column, "Consider a large company with numerous business units that each have their own purchasing processes and supplier records. Such a decentralized structure may lead to unauthorized spending, process inefficiencies, and missed opportunities. By consolidating its procurement activities, a company can create one central procurement organization that can leverage tighter controls, enforce standardized processes and policies, and achieve new efficiencies and savings."
But perhaps the most important number for a procurement organization isn't so much a "number" as a calculation: ROI. Just like every organization in the enterprise, the procurement organization must prove its value with hard numbers. By leveraging business analytics in a centralized system, procurement organizations will be able to document savings and prove ROI much more effectively.
There are many many other numbers that procurement orgs are concerned with (supplier ratings, commodity costs, SKUs, contract numbers, etc.) But the message is, if you want to improve your procurement and supplier management operations, take a good hard look at the numbers.
BONUS NUMBER: 3/19
One more number -- okay it's technically a date -- SAP procurement professionals want to keep in mind is 3/19. That's the first day of the Procurement and Supplier Management 2012 conference in Orlando, Florida. If you haven't registered yet, don't wait!