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Data and spending transparency in SME Procurement
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Procurement in industrial SMEs in particular is characterized by a lack of transparency and increasing complexity due to new regulatory requirements such as ESG and supply chain legislation, global supply chains and hotspots, as well as rising raw material prices. The "big picture" is quickly lost sight of and strategically relevant key figures get out of hand: procurement volumes for Categories, suppliers and articles, number of suppliers in Categories, delivery times, price developments or CSR-critical suppliers. The purchasing volume could be reduced by almost 3-10% through data transparency and thus have a direct impact on the company's results. A survey of almost 200 people from purchasing organizations in the manufacturing SME 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 is different: insufficient master data quality as well as manual and error-prone Excel-based data evaluations. This raises the question: How can I achieve data transparency in my Procurement department, which evaluations are relevant and what needs to be taken into account?
3 steps to data analysis
1. master data and procurement activities as the basis for data evaluations
Master data and procurement activities serve as the basis for meaningful and reliable data evaluations. The first step is to collect the relevant data from the various data sources and systems. Experience has shown that relevant data can be found in the ERP system, e-procurement software and accounts payable, for example. For future data evaluations, it is advisable to record which data sources provide which data.
2. create evaluable procurement data and master data quality
However, the first challenges often arise when compiling the data:
- Data silos in several subsystems and
- Outdated master data
True to the principle of "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 particular importance to master data. Regularly point out the importance of data quality within your purchasing organization and highlight the benefits of increased master data quality: a reliable master data basis for data evaluations and scalable processes.
Find out more about this topic HERE.
However, even with reliable data quality and very well-maintained master data quality, it is not possible to avoid cleansing and preparing the data following export in accordance with the requirements of the data evaluation.
3. analysis of the data
After you have carefully sorted, organized and prepared your data, it is now a matter of gaining valuable insights into the data in order to derive measures.
A good starting point for targeted analyses are your defined goals for the purchasing organization. Ask yourself questions such as: What do I want to learn from this data? How can I use this information to make better decisions for my company and the purchasing organization?
For inspiration, you are welcome to download our list of the 10 most important key figures for Procurement in industrial SMEs.
Based on the questions and objectives pursued, you can now look at the data from different angles. It is important to consider not only short-term but also long-term trends. You can use these findings to draw conclusions and derive measures. Visualizations in particular have proven to be a good way of better understanding trends and communicating the results within the organization.
In practice, the most widely used method is classic data analysis using 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 data evaluation process less time-consuming. Some software solutions are easy to use and perform the analyses automatically in order to visualize and display them in the purchasing cockpit.
Analytics with Tacto
Tacto's purchasing cockpit gives you a transparent overview of all figures, data and facts for Categories, suppliers, articles and prices - without any Excel adventures.
Learn more about Tacto
But which areas are particularly interesting when it comes to data analysis in Procurement ?
A common misconception is that analyzing procurement activities only relates to spend analysis. In reality, data analysis affects all activities from strategic sourcing to category management and procure-to-pay processes. Below are some key reasons why analytics is important in various procurement functions.
Product group management
When data analysis is used effectively in category management, it gives category managers superpowers. With the help of evaluations, category managers and buyers can identify savings opportunities, segment and prioritize suppliers, identify procurement potential, address supply risks, develop the supplier portfolio sustainably and improve supplier relationships.
Strategic procurement
The best business strategies are based on data. In strategic sourcing, data and spend transparency helps to identify the best times and areas to carry out procurement activities and tenders. You can also identify which suppliers to include in procurement projects, taking into account information on quality and risk positions.
Sustainability and corporate social responsibility
More and more companies are recognizing the value of analytics in assessing sustainability and social aspects and the associated risks within the supply chain and procurement. Analytics can reveal the environmental or social impact of sourcing decisions and identify opportunities for more sustainable alternatives. In addition, there are new regulatory measures, such as ESG and LkSG, which oblige companies to make sustainability criteria transparent.
Find out more about the LkSG and download our white paper here.
Risk management
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 in terms of sustainability criteria.
Supplier relationship and development
Data transparency at supplier level forms the basis for strengthening supplier relationships and developing supplier portfolios in a targeted and sustainable manner. They can highlight when contracts need to be renegotiated or provide all relevant data for supplier negotiations. In addition, analytics can identify unacceptable spend to support compliance and improve contract coverage.
Leveraging potential and efficiency in Procurement with data and spending transparency
Data and spend visibility in Procurement has the potential to improve operational efficiency across the entire procurement and supplier management lifecycle. Common business objectives for procurement analytics include:
Cost reduction
Identifying savings opportunities and measuring the impact of savings projects on the financial bottom line. For example, by identifying adverse price developments and price outliers, but also through better conditions, made possible by better supplier discussion preparation or automated price inquiries and renegotiations.
Corporate responsibility
Identification of opportunities for social responsibility, greater diversity and emissions reduction in the supplier portfolio. For example, by incorporating ESG or LkSG criteria into the supplier evaluation and making my suppliers comparable in this respect.
Risk management
Identify, measure and mitigate supplier or market risks within procurement processes. Delivery times, complaint rates and cluster risks can be identified quickly and easily.
Identification of procurement opportunities
Explore new or more strategic ways to manage and consolidate suppliers or categories based on historical sourcing data. For example, you can uncover adverse price trends, implement tiered pricing or optimize sourcing strategies.
Business opportunities
Identify opportunities, new market areas, business insights and product/service development potential based on sourcing data, external data and spending trends.
Usual data evaluations from practice
Practical examples:
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 Categories, I can specifically reduce dependencies in Categories 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.
The 10 most important key figures and metrics for Procurement in industrial SMEs
Procurement KPIs provide companies with quantifiable values for measuring performance and for the strategic management of the purchasing organization. Key figures also serve the purpose of comparability with the procurement of other companies or to show the contribution to corporate goals.
Although there are widely used and standardized procurement KPIs, every purchasing organization has different requirements, goals and strategies and therefore different procurement KPIs that are relevant to you. It is important that all stakeholders in a company have the same understanding of a KPI and that it is used consistently.
But which KPIs are relevant for you and should you be tracking? Here are the 10 most important KPIs for first-class procurement organizations in industrial SMEs:
Expenditure-related key figures
- Managed expenses
- Price development
- Procurement ROI
Cost-based key figures
- Cost savings
- Cost avoidance
Supplier-based key figures
- Number of suppliers and supplier expenditure
- On-time delivery
- Complaint rate
- Supplier evaluation
- Call-off rate from and compliance with the provisions of framework agreements
Download the list of the 10 most important key figures and metrics in industrial Procurement now and get more details on the individual key figures, their calculation and added value!
Data and spend transparency is the lever you need to strategically manage your purchasing department, minimize risks, realize savings potential and develop strategic work in Procurement .
