A March 2021 survey by Logic Source and Sourcing Industry Group revealed some important insights for procurement decision-makers – one of which is that buyers still need to solve their data quality challenges when it comes to spend.
The survey also found that 66% of respondents know they need to improve the quality of their data, while 34% of leaders surveyed said their data is not accurate or up-to-date. Finally, 28% of respondents do not have tools or processes in place to analyze spending and purchasing.
Now is an opportune time to address data quality issues related to purchasing. After the work carried out by the Purchasing area during the pandemic – which required building the necessary resilience to overcome challenges – which included shortages of raw materials, steep price increases and decreases, among others – it is now necessary to use all this data to understand the past context, plan for the future and, above all, train the team in terms of data analysis.
Expense analysis: responsibility of Finance or Purchasing?
A McKinsey report published in August 2020 indicates that spend analysis will play a critical role not only in helping leaders monitor and improve money and costs, but also in transforming and improving existing practices to create a more resilient future. This may mean that the Procurement function will have to take responsibility for implementing formal initiatives to analyze the organization’s spend in the coming years. Now, Procurement departments are looking for ways to understand purchasing spend and, more importantly, how to control it.
Another point that the McKinsy report points out is that leadership must improve and transform its internal structure to support expense management, gaining agility in times of crisis. As a result, the path will be to implement a process to maintain data on the organization's expenses vs. market prices – with the aim of understanding the points that need to be corrected in the organization's strategy regarding Purchasing.
Implementing a new process
The change process begins in a granular way, and the first step is to clean up existing information, with the aim of creating a categorization and normalization of information that serves as a basis for establishing business rules.
Second, you need to decide what data you want to track for information enrichment opportunities. Determine which products/services or commodities you will start tracking and which information will need support from partners. Here are some questions you can use to evaluate this process:
- Do we have transparency into our spending beyond supplier data?
- Are our data categorization, normalization, and enrichment mature enough to support our team’s ability to trust spend data and discover strategic sourcing projects?
- Can we easily track and report on parent-child relationships between suppliers?
In addition to this critical analysis of information, it is necessary to have tools that can help companies understand the fluctuation of market prices in various products, finished or not, creating an external parameter for evaluating expenses with current suppliers.
As we figure out our path out of the pandemic, the first half of 2021 is an opportune time to focus and invest in building a mature spend analytics function. This process will play a critical role in not only helping the company manage and improve cash and spend, but will also enable procurement to improve easy access to actionable, accurate, and timely supplier recommendations and decision-making.