Procurement Analytics: Driving Strategic Sourcing Decisions 

Procurement no longer exists just to purchase goods and services at the lowest price. Recent changes to the global economy have forced businesses to rethink how they buy and from whom. Now, they have two options: source strategically or watch external factors eat away at margins. Procurement has a crucial role to play, but to rise to the challenge, the function must start with procurement analytics.  

What is procurement analytics? 

Procurement analytics is the process of consolidating raw purchasing data into a holistic view of the organization’s sourcing behavior. This perspective helps Procurement find improvement opportunities and proactively manage categories, mitigate risk, capitalize on ESG opportunities, and secure greater cost savings. 

The importance of procurement data analytics 

Foundational, enabling, crucial.  

With the complexity of Procurement’s responsibilities, there’s no way to manually keep up with all the details involved in just maintaining the status quo, much less improving it. Raw data or an incomplete picture of spend will keep your most impactful opportunities hidden and open the door to serious risk.  

But by turning raw data into trends and insights, procurement analytics makes problems, opportunities, and categories easy to see. Instead of digging through data, your team can focus on executing strategic initiatives. 

Here are a few specific ways procurement data analytics increases Procurement’s value: 

• See trends of all types early and proactively prevent issues 
• Accomplish more with fewer resources and save on talent investments 
• Deliver more value and spread impact to new areas of the business 
• Monitor and fix savings leakages fast and with less manual monitoring effort 
• Make environmental, social, and governance (ESG) strategy a regular area of value delivery 
• Quickly spot process inefficiencies and their causes  
• Proactively manage supplier relationships and contracts 
• Find complex, far-reaching opportunities that manual data science won’t uncover 
• Understand and manage third-party risk in the supply chain 

Key benefits of using analytics in Procurement 

Analytics doesn’t just reveal opportunities and help teams avoid disasters. It also changes everything about how Procurement works, allowing the function to move from “cost cutter” to organizational enabler. Below we outline a few examples of how analytics provide immense value to procurement teams.  

Data-driven decision-making 

With so many responsibilities, procurement leaders need to focus their teams on the initiatives that will contribute the most value to business goals. However, doing so can be difficult when there are endless projects that a team could be working on.  

Analytics makes these decisions easy and data-driven. By looking at the consolidated data, you can gauge where a project will impact the business and how much value it should bring. In many cases, procurement analytics will  help prioritize work projects without requiring any additional analysis. Then, you can assign different project roadmaps to different sections of your team so that both your project selections and divisions of labor are informed by data. 

Cost savings 

It’s true that Procurement can cut costs without analytics; many organizations have been doing it for years. But procurement analytics allows teams to: 

• Find more opportunities 
• Identify projects in new areas of the business 
• Execute faster 
• Identify the best options, not just better ones 

Whether you’re negotiating with suppliers, rethinking scope and technical requirements, or simply managing category spend, analytics allows you to do more of it with greater results. Combine that data with trends over time, automated alerts, and customizable dashboards and Procurement no longer looks anything like the legacy cost cutter it’s been known as in the past. 

Enhanced supplier relationships 

Supplier relationship management may be one of the most complicated facets of procurement. A few years ago, it was a matter of vendor availability and quality, but now procurement has to manage a full set of considerations that affect regulatory compliance and even reputation with consumers.  

Evaluating all these factors together for a single supplier involves a tremendous amount of data, making procurement analytics a requirement for managing supplier relationships across a full supply chain.  

Using centralized procurement data analytics, you can:  

• Gain a holistic understanding of supplier performance 
• Stay up to date with supply chain developments month over month 
• Address issues and negotiate contracts with data in-hand 
• Confidently pick new suppliers  
• Proactively mitigate risk in all its forms  
• Keep stakeholders and relevant business units informed 

See our joint paper with Market Dojo: Reimagining Supplier Relationships. As part of their New Rules Series, we explored the non-negotiables of SRM in today’s environment. 

Risk management 

Risk management is quickly becoming one of Procurement’s most important responsibilities. Today’s risk concerns extend far beyond supply chain breakdowns and inventory shortages, although the past five years have shown that these concerns are growing in importance as well.  

Now, Procurement is inheriting many aspects of third-party risk management (TPRM). This involves cyber risk—GDPR violations can result in heavy fines, even if the data breach didn’t come from your company. Likewise, vendor financial risk is a real concern in today’s inflationary and lay-off heavy environment.  

Finally, procurement teams can’t forget about risk associated with ESG and corporate social responsibility (CSR). Modern slavery and human trafficking, waste and pollution, scope-3 emissions—much of it happens in the supply chain. New European laws make companies responsible for the behavior of their suppliers, and consumer consciousness has already made this responsibility clear for years.  

Procurement leaders must understand how their supply chains expose the business to each of these kinds of risk; analytics enriched with TPRM data is the only way to stay ahead of developing problems.  

Tools and technologies for procurement analytics 

Most procurement tools on the market today claim to offer some level of procurement analytics. But given the essential nature of analytics, your team needs more than “some level.” Below, we’ve outlined the factors and capabilities you that will define the success of your spend analytics software. 

100% spend visibility 

If you can only see a portion of your spend, you’re missing crucial context that impacts  the accuracy of any insights gleaned. At best, you’ll have a slightly boosted, but still incomplete, impact. At worst, a small portion of the full picture will lead you to bad decisions.  

On the flip side, comprehensive visibility allows you to: 

• See the full story of organizational spending and its development over time 
• Prioritize initiatives and projects based on their impact 
• Fill gaps in your strategy  
• Pivot your strategy based on what’s really happening, not what you think is happening 

Data enrichment options 

Spend data is much more than a dollar amount. If you can only see the financial side of your spend, you’re missing a significant amount of context and strategic opportunities, specifically related to ESG and risk. When choosing a procurement analytics  platform, be sure to evaluate the third-party data enrichment options that come with it. 

Regular refreshes 

Procurement data constantly changing. So, if your analytics are static or difficult to refresh, you won’t be able to take an agile approach to management and value creation. And like comprehensive data, refreshes ensure you have the full picture. It’s important to choose a solution that allows you to easily refresh data at least quarterly, if not more often. 

Project management 

Insights and opportunities mean little if you can’t manage them. Your analytics solution should offer a transparent project pipeline that makes it easy to see all activity at a glance, coordinate your full team, and track relevant information at a project and organizational level. 

Easy validations 

You’re probably no stranger to having your reports picked apart by Finance and other stakeholders. You can avoid these situations by choosing an analytics and performance management solution that integrates with your ERPs, e-sourcing solutions, and suites. These integrations provide a flow of realized financial data that you can use to easily present and defend your entire pipeline from idea to results. 

SpendHQ: Procurement analytics in action 

SpendHQ’s platform has helped over 500 procurement organizations around the world gain a comprehensive, holistic perspective on their opportunities and then do something about them. With 97% spend visibility, 40+ data and platform integrations, intuitive workflows, and a cutting-edge performance management module, SpendHQ takes analytics from opportunity finder to impact enabler.