Why your Chief Procurement Officer needs to be adept at using spend analytics?
Twenty years ago, a procurement executive was considered to be a superstar if he or she could just negotiate better “deals” or contracts with suppliers.
Today’s Chief Procurement Officer (CPO) also needs to be adept in analytics. This is essential for any high-performing change agent who seeks to lead a procurement transformation. Procurement is now viewed as a service function within most organizations rather than an organizational police officer to help rein in rogue spend.
Internal customers need to be engaged in ongoing conversations – with regard to the array of goods and services they need to procure. A CPO can achieve substantive savings, better service, and process improvement only if he or she has a crystal-clear sightline into the aggregate spend at a category level.
An array of analytic tools are available to organizations to help track and optimize spend. And it’s no longer the case that only large organizations can afford robust analytics. Data has become a game-changer for CPOs seeking to lead procurement transformation.
A well-integrated spend tool brings an array of benefits to organizations of all sizes.
Spend aggregation
There are many instances in which an organization may have a fragmented approach to procurement—take, for example, SaaS (software as a service). Many internal customers have their own separate Microsoft, Adobe, or Salesforce purchase orders, which are based on the lower volume of usage for a particular department or internal group. If a CPO knows the number of licenses for a given SaaS vendor, the organization can negotiate better rates and achieve better deals with software vendors.
A tool that facilitates collaboration with internal customers
Some internal customers may be resistant to relinquishing control of vendor selection or using blanket orders. Spend analytics can open the door to conversations with the organization as a whole. Many internal customers may make decisions in their own departments based on their own requirement.
When a CPO can present data and analytics to internal customers, then a compelling case is often established for why the organization will be better off in aggregating purchasing activity across the entire enterprise, rather than buying on a fragmented basis. An individual stakeholder may be unaware of the volume usage of a specific service or product across the organization.
The conversation can shift tones; an internal customer might no longer view the procurement organization is a police officer and instead he or she might start to see the procurement leaders as skilled professionals who lead based on data, rather than just negotiating a better deal.
Developing category plans on an annual basis
A well-honed spend analytic tool will enable procurement executives to create calendar plans for various categories of spend. It is far more effective to get quotes based on the true aggregate spend rather than a piecemeal approach by each internal customer or department.
Spend analytics can be linked to vendor performance
A vendor’s performance can be evaluated on the basis of on-time delivery, quality, and ability to meet the specific performance requirements—particularly when the service may be tied to intricate performance standards. When spend analytics are tied to vendor performance, it enables the procurement leadership to address issues of underperformance with vendors and to set up and spell out more fundamental expectations about the service and quality levels.
Internal customers may be more interested in vendor performance over price. When the procurement leaders tie the metrics of vendor performance to spend analytics, internal customers are reassured that service levels need to be factored into vendor selection.
Risk management
Spend management tools can help a CPO evaluate the concentration of a service or product with one supplier. This is particularly important to look at in terms of SaaS requirements. In summary, the benefits of using spend analytics are both qualitative in terms of improving the process side of procurement and qualitative in terms of an analysis of where the organization spends money- which can translate into savings. Today’s CPO can optimize procurement as an organization function only if he or she has the mastery and access to the right tools to work with.
About the Author: Steven Lutzer is the president of Lutzer Global Inc., an executive search firm that specializes in procurement, strategic sourcing and supply chain management. Lutzer had a 20-plus year career in supply chain management and global sourcing before founding Lutzer Global. For more information, please visit www.lutzerglobal.com.