Data and output transparency in medium-sized industrial procurement
published on
11.11.2024
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Procurement in medium-sized industrial companies in particular is characterized by a lack of transparency and increasing complexity due to new regulatory requirements, such as ESG and the Supply Chain Act, global supply chains and trouble spots, and rising raw material prices. In the process, the "big picture" is quickly lost sight of, and strategically relevant key figures get out of hand: procurement volume for categories, suppliers and articles, number of suppliers in categories, delivery times, price developments or CSR-critical suppliers. At the same time, procurement volume could be reduced by just under 3-10% through data transparency and thus have a direct impact on the company's bottom line. A survey of almost 200 people from procurement organizations in the manufacturing medium-sized sector revealed that almost 40% see increasing data and spending transparency as the greatest lever for strengthening strategic procurement.
However, the prevailing situation in medium-sized industrial companies looks different: insufficient master data quality as well as manual and error-prone Excel-based data evaluations. This raises the question: How can I create data transparency in my procurement department, which evaluations are relevant, and what needs to be taken into account?
Data and output transparency to manage the procurement department and unfold strategic procurement
Identify and minimize risks in the supply chain
Identification of adverse price developments, price outliers, unfavorable disposition behavior and possible staggered prices
Master data and procurement activities serve as the basis for meaningful and reliable data evaluations. The first step is to compile the relevant data from the various data sources and systems. Experience has shown that relevant data can be found, for example, in the ERP system, the e-procurement software, and accounts payable. For future data evaluations, it is recommended to record which data sources provide which data.
However, the first challenges often arise when compiling the data:
True to the principle "shit in shit out", the key to success is to maintain a very good data basis and master data quality in order to make evaluations possible in the first place. For this reason, it is immensely important to attach special importance to master data. Regularly point out the importance of data quality within your procurement organization and emphasize the advantages of increased master data quality: reliable master data basis for data evaluations and scalable processes.
Learn more about the topic HERE.
However, even with reliable data quality and very well-maintained master data quality, it is not possible to avoid cleaning and preparing the data following export in accordance with the requirements of data evaluation.
Now that you have carefully sorted, organized, and prepared your data, the next step is to gain valuable insights into the data to derive action.
A good starting point for targeted analyses is your defined goals for the procurement organization. Ask yourself questions like: What do I want to learn from this data? How can I use this information to make better decisions for my company and the procurement organization?
For inspiration, feel free to download our list on the 10 most important metrics for procurement in industrial medium-sized companies.
Based on the questions and objectives pursued, you can now look at the data from different angles. It is important to note that you should not only look at short-term trends, but also long-term trends. You can use these insights to draw conclusions and derive measures. Visualizations in particular have proven to be a great way to better understand trends and communicate the results within the organization.
In practice, the most widespread method is the classic data evaluation with Excel. However, Excel-based evaluations are often error-prone and very time-consuming. In addition to Excel, there are now other e-procurement solutions that contribute to a much more reliable data evaluation and make the process of data evaluation without additional effort. Some software solutions are easy to use and perform analyses automatically, which are then visualized and displayed in the procurement cockpit.
Analytics with Tacto
Tacto's procurement cockpit gives you a transparent overview of all numbers, data and facts for categories, suppliers, articles and prices - without any Excel adventures.
Learn more about Tacto
A widespread misconception is that the analysis of procurement activities relates only to spend analysis. In reality, data analytics affects all activities from strategic sourcing to category management to procure-to-pay processes. Below are some key reasons why analytics is important in various procurement functions.
When data analytics is used effectively in category management, it gives category managers superpowers. With the help of the evaluations, cantegory managers and buyers can identify savings opportunities, segment and prioritize suppliers, identify procurement potential, address supply risks, sustainably develop the supplier portfolio, and improve supplier relationships.
The best business strategies are based on data. In strategic procurement, data and spend visibility helps identify the best times and areas to execute procurement actions and RFPs. In addition, you can identify which suppliers to include in procurement projects based on information about quality and risk positions.
More and more companies are recognizing the value of analytics in assessing sustainability and social issues and associated risks within supply chain and procurement. Analytics can reveal the environmental or social impacts of procurement decisions and identify opportunities for more sustainable alternatives. In addition, new regulatory measures, such as ESG and Supply Chain Act, among others, require companies to be transparent about sustainability criteria.
Learn more about the LkSG and download our Whitepaper here.
Data transparency can help to identify and mitigate risks within the supply chain and procurement. For example, a transparent overview can show which suppliers reliably meet their delivery times, are plausible in their pricing, or are well positioned with regard to sustainability criteria.
Data transparency at supplier level forms the basis for strengthening supplier relationships and developing supplier portfolios in a targeted and sustainable manner. They can indicate when contracts need to be renegotiated or provide all relevant data for supplier negotiations. In addition, analytics can identify unallowable spend to support compliance and improve contract coverage.
Procurement data and spend visibility has the potential to improve operational efficiency across the entire procurement and supplier management lifecycle. Common business objectives for procurement analytics include:
Identifying savings opportunities and measuring the impact of savings projects on the financial bottom line. For example, by identifying adversarial, price developments and price outliers, but also through better terms and conditions, enabled by better supplier meeting preparation or automated RfQs and renegotiations.
Identify opportunities for social responsibility, greater diversity and emissions reduction in the supplier portfolio. For example, by including ESG or LkSG criteria in the supplier evaluation and making my suppliers comparable in this respect.
Identify, measure, and mitigate supplier or market risks within procurement operations. Delivery times, complaint rates and cluster risks can be identified quickly and easily.
Explore new or more strategic ways to manage and consolidate suppliers or categories based on historical sourcing data. For example, adverse price trends can be uncovered, tiered pricing can be realized, or sourcing strategies can be optimized.
Identify opportunities, new market areas, business insights and product/service development potential based on sourcing data, external data and spending trends.
1. everything important at a glance for supplier meeting preparation: In order to have a solid basis for negotiations and achieve the best possible results, it is essential to carry out various evaluations of the supplier. For example, evaluations of procurement volumes and quantities, price trends, delivery reliability and complaint rates can be helpful in achieving better conditions.
2. cluster risk - from single-source to multiple-source strategy: Thanks to the transparent insight into product groups, I can specifically reduce dependencies in product groups and diversify my risk by actively trying to increase the number of suppliers.
3. analysis of individual items at supplier level: At item level, it is possible to quickly identify cases where orders have not been placed optimally and where, for example, adverse price developments have occurred. Differing unit prices for different order quantities, for example, are a signal that graduated prices may not have been used and that there could therefore be potential for savings.
4. total annual invoice and order volume: The purchaser should check whether the total volume determined for all invoices and orders of the Group company corresponds to expectations and experience.
5. annual sales of the 50 largest suppliers: The purchasers from the companies usually know their most important suppliers. For the list of the top 50 suppliers, it must be clarified whether they are in the position assumed in each case and whether the volumes are plausible.
Procurement KPIs provide companies with quantifiable values for measuring performance and for strategic control of the procurement organization. Key figures also serve the purpose of comparability with the procurement of other companies or to show the contribution to the corporate goals.
Although there are widely used and standardized procurement metrics, each procurement organization has different requirements, goals and strategies and therefore different procurement metrics that are relevant to you. It is important that all stakeholders of a company have the same understanding of a KPI and that it is used consistently.
But which metrics are relevant to you and should you track? Here are the 10 most important metrics for world-class procurement organizations in the industrial midmarket:
Download now the list with the 10 most important key figures and metrics in industrial procurement and get more details about each key figure, its calculation and added value!
