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This is our fourth and final article in the series on how modern data analytics solutions can enable procurement professionals to manage procurement processes with high effectiveness, proactiveness, and agility.
Along the way, we have highlighted how deployment of analytical tools can facilitate measuring and analyzing and reporting the results of procurement activities thus leading to improvements in procurement effectiveness. Based on these reports, we can draw conclusions about the efficiency of procurement processes.
However, once we have such high analytical power available, analyzing the efficiency itself and reporting related KPIs becomes effortless and comprehensive. In this way, procurement efficiency management rises to much higher level.
If we take an overall look at all the procurement processes, we can divide them into three levels:
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Operational (which includes entire procure-to-pay)
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Tactical (tendering, negotiating, contracting)
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Strategic (strategic planning, category management, supplier relationship management)
Business reporting differs on each of these levels in terms of statistics and the KPIs required to be presented. Let’s see how data analytics supports efficiency management level by level …
Procurement Efficiency Reporting – Operational Level
The larger the business organization, the more automated P2P (procure-to-pay) processes need to be implemented. Usually, P2P processes are realized in ERP systems, and often run across procurement platforms. So, those are the two main types of data sources.
In this case, data management may bring less challenges in regard to classification, but the amount of data to be stored and managed is considerably greater. This is because data points refer to transactions entered in the supporting systems at different stages of the P2P processes. When we deal with them and connect data to modern reporting tools, the controlling effect exceeds expectations of the most demanding controllers.
All historical and real-time KPIs regarding processed purchase orders, goods received, three-way-matching, invoices with and w/o POs, time of payments, actual vs. contracted payment terms and many more; can all be reported in detail in integrated and automated reports. Since P2P runs through the areas of procurement and finance, deployment of such advanced reporting brings benefits to both.
Procurement Efficiency Reporting – Tactical Level
The case is a bit different when it comes to tactical processes related to tenders and supplier contracting. These processes are often supported by procurement platforms or dedicated ERP system modules. They may run partially through supporting systems (e.g., electronic tenders finalized with negotiations and conducted face-to-face), or even entirely outside of any system (through e-mails, communicators, face-to-face meetings).
In these cases, only the final result of carried-out actions, in a form of a contract or an order, is entered into the ERP, and the insight into the tender processes takes on the form of managerial queries in regard to the documented activities.
It is relatively easy to use tender data from procurement platforms or ERP systems can be used relatively easily to create analytical reports. When we talk about reporting data kept in documents-files, AI/ML solutions that process human language, with (NLP natural language processing) provide invaluable help.
The higher the variety (formats, languages, alphabets), the exponentially greater the time and human resources – related benefits are. AI/ML solutions are extremely useful when managing contracts stored as PDF or paper documents. After converting them to a machine-readable form, further extracting of data, tagging, and parsing can be done far more efficiently by a machine than by a human. From here on, it is easy path to create reports with modern business reporting tools.
What are the indicators that can be automatically reported here?
Obviously, number one is Savings – the king of all procurement metrics. It is an interesting indicator, as it can determine both the efficiency and effectiveness of the tender and negotiation processes.
What has been problematic so far is the translation of the savings reported by procurement executives to bottom line results for the incoming periods, as well as the distribution of savings to individual budgets, business units, regions, etc.
With today’s business reporting tools, they are all just a click away. In addition to savings, it is equally easy to report indicators regarding the number of tendered suppliers and competitiveness in tenders, the time from opening to closing, unsatisfactory resulted and repeated tenders, tenders ending with and w/o contracts, and finally compliance with internal regulations, as well as detected frauds.
Speaking of the contract management, it is impossible not to mention the most important indicator, which is contract coverage for individual categories, business units as well as all kinds of statistics related to contract usage, expiring dates, and compliance with company applicable terms and conditions.
Procurement Efficiency Reporting – Strategic Level
Reporting the effectiveness of strategic procurement processes is probably the most captivating. It can include selected indicators mentioned earlier in this article, if they relate to the strategic goals set by the company’s top management.
Depending on whether the strategic goals are set, regarding the directions and principles of strategic sourcing, technological changes, risk reduction or increasing internal efficiency; it is possible to select appropriate KPIs and monitor their changes against the expected values.
As we know, strategic initiatives are managed like projects, and therefore reported in accordance with the principles of project management. When progress reports regarding ongoing initiatives are enriched with automatically updated data on the observed indicators and their trends, it facilitates the management of strategic initiatives. The process becomes very precise, more proactive, and flexible, making it in line with today’s rapidly changing business requirements and social relationships.
Summary
To sum up (you can find the previous articles of our series here), we should remember that, like in Formula 1 racing, it is not only the driver who wins the race, but it is always a joint effort of the entire team which must be fully engaged, instantly react to changing circumstances, and take appropriate steps for the next event based on current and past data analyses. This would not be possible without data analytics displayed in the control room during the race and available as reports later on.
The same applies to procurement teams, which now can utilize comprehensive and real-time procurement analytics monitoring dashboards. Continuous monitoring of many procurement performance indicators presented on well-designed managerial dashboards, that are enriched with analysis of historical and extrapolated trends, allows procurement teams to keep on improving and win for the entire enterprise.
