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Procurement Analytics vs Procurement Performance Software

April 11, 2024

Procurement analytics software and procurement performance management software are often confused as being the same thing.

They’re definitely not. Each one has its own distinctive unique selling point. In fact, they can be used together, and should not be viewed in a “should I buy one vs. the other” debate. The case can easily be made that analytics software actually can feed and assist the results that are obtained in procurement tracking software.

So, let’s dive in and look at the differences, as well as how both of these software solutions can work together simultaneously to deliver a bigger overall benefit.


What is procurement analytics?

Procurement analytics is all about gathering, cleaning and displaying different aspects of procurement data. This is usually then presented in a visually pleasing format which is easily digestible for business analysis and decision-making purposes.

In short, you should not need to be a data analyst in order to understand the reports and visuals being presented as procurement analytics.

I feel that this extract from an article from enterprise procurement data analytics software provider Sievo sums this up very well:

“Procurement analytics typically involves collecting data from various source systems and ERPs. Data is then classified into standard or use-case-specific taxonomies. After classification, the data is presented in a visualization dashboard or within business intelligence tools.

Examples range from historic procurement spend analysis reports to advanced analytics which inform future budgeting decisions.”

Analytics started off as being predominantly used to analyse spend data. However, in recent years, it has gone beyond this and can now be used to look at different aspects of procurement and supply chain data.

How can software help to analyse purchase data?


Software can assist this process by using technology such as machine learning algorithms to classify spend. It does this through learning to allocate purchase orders containing certain text or descriptions, or supplier names to be allocated into the appropriate material groups and taxonomies.

The advantage of this is that it avoids the need to manually classify tens of thousands of line items of data. Previously, this would have taken a team of consultants several weeks. Nowadays, the latest technology can do this in minutes.

There will always be a need to perform manual checks and to reclassify some of the data. AI should be seenas an enabler rather than something that replaces the intuition and know-how of an experienced procurement professional.

Nonetheless, market leading tools now claim to perform spend categorisation for example at accuracy rates of above 90%.


What are the different types of procurement analysis?


Let’s look beyond just spend data though. What other types of procurement analysis are out there, and how can procurement technology help us to analyse these?

I’ll divide this simply into two. Performing analytics on historical data was always the most common use case, with spend analytics being the most common application for analysing procurement data. But increasingly, there is a growing trend towards analytics to predict future business performance.

If we stay on spend as an example, this would be able to determine spend patterns based on operational planning, commodity prices, inflation, and more broadly geopolitical trends in general.

What else can be brought into procurement analytics, aside from spend?

·        Days payable outstanding (DPO) and early payment discounts

·        Sustainability i.e.analysing present and future Scope 3 CO2 emissions

·        Energy costs

·        Production uptime

·        Material usage optimisation

·        Inventory

While not all of these could be considered pure procurement analytics, they all fit into how procurement can deliver wider value to the business, which is what procurement performance management and tracking of wider procurement KPIs is all about.


How do you build a procurement analytics dashboard?


This leads nicely onto the question of how to build an analytics dashboard.

Investing in a good analytics software provider will help you here. Many of the more user-friendly options will have built-in drag-and-drop functionality and templates which can easily be customised.

Business Intelligence (BI) products from ERP providers, on the other hand, are usually not so user-friendly. You’ll need a significant investment in training and maybe even some customisation to get the most out of them.

Whether you spend money on some external procurement data analytics software, or on training for your team to become super-users for power BI is really down to your organisation’s philosophy.

Can you do it in Excel and Power Point?

Sure, but it will take you 10 times longer, and require constant manual updates.


How is procurement perfomance different?


So, now we have a good foundation of what procurement analytics and analytics software can do, it’s time to look at how procurement performance or tracking software is fundamentally different.

It tackles a completely different challenge. Namely, reporting on procurement performance and some of the deliverables of how this contributes towards business objectives.

The data that is obtained from procurement analytics software can drive the ideation for the projects that are ultimately tracked through procurement performance management software.

It then acts as a complete 360º management tool of any projects that deliver top line or bottom line impact to a business through the actions of strategic sourcing and supplier management. This also includes those projects where the impact or contribution from Procurement is somewhat more difficult to measure.

Procurement tracking and performance management software can, for example, track all of these:

·        Performance management

·        Savings reporting

·        Cost avoidance and mitigation

·        Added valuedrivers

·        Material and energy consumption

·        Improvement projects ideation from suppliers and operational stakeholders

·        As well as more general project collaboration and management enablement outside of email and spreadsheets


What is the importance of procurement tracking?


It’s important to have a visible and openly accessible procurement tracking tool to be able to demonstrate the value that is being delivered to the wider business.

If this is being tracked in Excel, and only Procurement and Finance ever gets to see it, then how is this good marketing for the procurement function? How are you going to easily communicate the benefits that you drive for the organisation as a whole?

While everyone agrees that tracking procurement performance is important, not many organisations seemingly have caught onto the value of presenting this in real time, outside of Excel and PowerPoint.

Storing this on some forgotten corner of your company intranet or distributing a file on email also doesn’t really count.

If this data is not front and centre of everyone’s mind in their daily operations, then it’s always going tobe an up-hill battle. Do you yearn to be seen as an integral part of any project team, budgeting process or business unit leadership team? Then you need a more open way of presenting and visualising your data.

Nobody is reading your email with a spreadsheet or PowerPoint attached. Busy executives receive 200+ emails a day. Yours isn’t going to be top of their list to digest. That’s the reality.


What is procurement performance management?

Procurement performance management is a recent term, which speaks to the need to elevate our internal communication efforts around the value that Procurement can deliver to the business.

Part of this is capturing all the work that we do in one space, beyond just the purchase price savings that are recognised by Finance as contribution to the bottom line.

In simple terms, this is everything that we do to avoid and mitigate costs, alongside our contribution to working capital and top line revenue goals. These are rarely acknowledged or tracked beyond our own internal spreadsheets or reporting.

By having a more formal procurement performance management structure, this can raise awareness to ourstakeholders. However, more importantly, it also gives operations and the supply base a common framework from which they can collaborate on projects together.


The benefits of procurement tracking applications


How can a procurement tracking application drive value?

It’s an open application that suppliers, stakeholders and procurement can collaborate within. Finance and Executive Leadership can also access and view dashboards, with just a few clicks.

No need to take data from other sources and no need to spend hours on busy work, creating slides to tell the story.

It’s all online and in the cloud.

What’s more, it gives Procurement and Finance a respected, single source of truth from which to have a civilised discussion to align on what is considered as a “saving”, and what is to be considered as a contribution towards broader, aligned business goals.

Having one source of data,which all parties can access, collaborate on and actively update or initiate projects inside, can help towards the goal of building trust and fostering collaboration. Creating gated files or databases which only Procurement and Finance has access to is the antithesis of this.


Why not just use a procurement tracking Excel template?


Of course, trying to do this in spreadsheets or on SharePoint has its challenges.

Can it be done? Yes.

Is it the most modern and progressive way to track this? Definitely not.

Will the investment into software ultimately pay back through increased visibility and engagement from the wider business?

Well, we have some interesting data on this from our customers who use Provalido.

75% of our customers see an increase in savings after using the tool, with the average increase being inthe 18-24% range. Interestingly, the other 25% probably see a reduction due to the tool bringing in some more standardisation in their reporting methodology, which also results in less spurious savings claims.

Either way, this type of transparency would not be possible using a more traditional spreadsheet-based approach.

If this has peaked your curiosity, then drop us a line and we’d love to show you how we can help you!

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