Jul 31, 2022

The Procurement Analytics Guide

by Arielle Kushner

procurement analytics

The ever-changing landscape of business has forced organizations to find ways to optimize their operations continuously. One area that is ripe for optimization is procurement, and this is where procurement analytics has the potential to play a very important role.

In the past, many organizations have relied on manual and time-consuming processes to manage their purchasing and procurement processes. However, with the advent of big data and advanced analytics, organizations can now more easily implement a procurement analytics process to streamline their operations. 

Information holds great power in this digital age, especially when it comes to managing businesses growth and spending. To grow and succeed, businesses must be able to effectively utilize information to help inform their decisions, whether for better spending on various goods and services or budgeting for future projects. 

So if you want to spare yourself the headache of spending long hours decoding what your data and information say about your business, then procurement analytics solution is your answer. 

What is Procurement Analytics?

Procurement analytics is the process of deriving insights from historical organizational data. These insights can influence decision making, strategy, as well as money-making and saving practices.

Procurement analytics is one of the many ways to help ease the overwhelming process of spending for a business. It does so by providing a better visual of the business and its activities in a more coherent and comprehensible way, rather than just being a perplexing list of figures and data.

Why is Data Analysis Important in Procurement?

In the current business landscape, data analytics has become increasingly important for all types of organizations to make well-informed decisions. The same can be said for procurement, where data analytics can be critical in optimizing an organization’s spending.

Organizations that use procurement analytics typically have access to large amounts of data. This data can be analyzed to help organizations make better decisions about the processes involved in procurement. 

There are several different ways to analyze procurement data. Organizations can use basic statistical analysis, data mining, and machine learning techniques to improve their understanding of the data. 

Basic statistical analysis can be used to understand spending patterns and identify opportunities for cost savings. Data mining can be used to find relationships between different types of data, while machine learning can be used to predict future trends and behaviors. 

Organizations that use procurement analytics typically see improved performance in their process. They can save money, improve supplier relationships, and make better decisions about their processes.

How Analytics Can Be Used in Procurement

Procurement is the process of acquiring goods or services at the best possible price, in the right quantity, and of good quality. It is a strategic process that should align with the organization’s business strategy. 

The procurement function is critical to any organization’s success, yet it can be fraught with inefficiencies and challenges. From maintaining accurate records to managing supplier relationships, there are many moving parts to the procurement process.

One of the biggest challenges faced by organizations is understanding and analyzing their data. Without insights from data, it can be difficult to make informed decisions about the processes involved in procurement. This is where analytics comes in.

Analytics uses data to improve the process. By understanding the data related to their process, organizations can identify inefficiencies and areas for improvement.

There are many different types of data that can be used for procurement analytics. Some common data sources include purchase order data, supplier performance data, and contract management data.

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Stages of the procurement process and how analytics fit in

Procurement analytics can be used at all process stages to improve efficiency and effectiveness. Using data and analytics, organizations can make better decisions about where to spend their money, how to manage contracts, and how to select and manage their suppliers.

The process makes significant use of analytics in the following stages:

  1. Planning and sourcing

Planning is the stage in which an organization determines what products or services it will procure and when it will need them. This planning process can be either formal or informal but must result in a procurement plan that outlines the organization’s needs. 

This plan will be used to guide the buying process and help ensure that the right products or services are procured at the right time.

The next stage of procurement is sourcing, which is the process of identifying and evaluating suppliers. To do this effectively, procurement analysts use data analytics to understand trends in supplier pricing, quality, and delivery time. This information helps them determine which suppliers are the best fit for their company’s needs.

  1. Contract award and management

Contract award and management is the process of awarding a contract to a supplier and then managing it over its term. This includes ensuring that the supplier meets their contractual obligations, monitoring spending against the contract, and renewing or terminating the contract as appropriate.

  1. Supplier performance

Supplier performance management is the process of monitoring and managing supplier performance to ensure that it continues to meet the organization’s needs. This includes setting performance targets, measuring progress against those targets, and taking action to improve performance as needed.

  1. Spend analysis

Spend analytics is the process of understanding how an organization spends its money.  This includes identifying spending patterns, understanding what drives spending, and finding ways to reduce or optimize spending. 

Why is Procurement Analytics Helpful for Businesses?

It is hard for growing companies to operate blindly, without any sense of direction of how they can further improve. Procurement analytics solves this by using data extraction and categorization to provide a baseline and identify opportunities for growth.

Many data types can be used for procurement analytics, including procurement and financial data, invoices, and delivery data. This data can be analyzed to identify trends and patterns that can help improve efficiency and effectiveness, particularly in the following areas:

  • Contracting

Contract negotiation can be improved with the use of analytics. Analytics can be used to understand what types of contracts are being offered by different suppliers, identify areas where there is room for negotiation, and understand the terms and conditions of different contracts.

  • Pricing

Pricing is another area where analytics can be used to improve procurement decisions. Analytics can be used to understand the prices of different suppliers, identify trends, and compare prices across different products.

  • Supplier relationships

In addition to improving procurement decisions, procurement leaders can also use procurement analytics to improve supplier relationships. By understanding spending patterns and trends, businesses can work with suppliers to improve delivery times, quality, and other related aspects.

  • Reduction of business risk

Finally, procurement analytics can also help businesses reduce risk. By analyzing data on past purchases, businesses can identify potential risks and develop strategies for mitigating them.

What Are the Key Activities in Procurement Analytics?

With the ever-changing landscape of procurement, staying ahead of the curve is essential to success. One way to do this is by utilizing procurement analytics. There are several different ways that procurement analytics can be used to improve decision-making, but it generally includes two key activities:

  1. Analysis of Past Activities

Analysis of past activities involves using past procurement data to identify trends, patterns, and relationships that can be used to make better decisions in the future.

For example, analysts can use historical spending data to identify areas where an organization is overspending or under-utilizing its contracts. They can also use data to benchmark prices and compare them across different suppliers.

  1. Predictive Analytics

Another way that procurement analytics can be used is to predict future trends. This uses predictive analytics techniques to forecast future demand, prices, and other key variables to optimize procurement strategies. 

For example, analysts can use data from past years to predict how prices for certain commodities might fluctuate in the future. This information can then be used to help organizations make more strategic decisions about their procurements.

Both predictive analytics and analysis of past activities can be supported by a range of visualizations, dashboards, and other tools that help users to make sense of the data and identify opportunities for improvement through actionable insights.

Applying Procurement Analytics in Business Operations

When it comes to utilizing procurement analytics, there is no one-size-fits-all solution. The type of data you analyze and how you use procurement analytics will vary depending on your organization’s specific needs.

Some of the most general applications of procurement analytics include the following:

Spend analysis

Spend data analysis is one of the most common and important types of procurement analytics. This analysis looks at an organization’s spending patterns to identify areas of waste and potential savings. 

Moreover, the analysis can help segment spending data by the supplier, category, or other factors to further understand where an organization is overspending.

Contract management

Another important type of procurement analytics is contract management. This involves analyzing data from contracts in order to improve the negotiation process, identify errors or discrepancies, and ensure that the terms of the contract are being met. This, in return, can help an organization save money and time by avoiding costly mistakes.

Supplier performance analysis

Supplier performance analysis is another common application of procurement analytics. This allows you to track performance of suppliers over time and identify any issues that may arise.

This type of analysis looks at data from supplier invoices, orders, and deliveries to identify areas of improvement for the supplier relationship. Furthermore, this analysis can also be used to identify new supplier opportunities which may be more advantageous for the company.

What Does a Procurement Data Analyst Do?

Procurement analytics is a relatively new field, but it is growing in importance as organizations increasingly rely on data to make decisions. As such, procurement analysts must have strong analytical skills and communicate their findings to stakeholders effectively. 

Here are some of the more specific roles of data analysts: 

An analyst is responsible for analyzing and providing insights from data to support the decision-making process of a procurement team which involves evaluating supplier performance, negotiating contracts, and developing strategies to improve the efficiency of the process of procurement. 

A typical day in the life of a procurement data analyst may involve tasks such as reviewing spend data and conducting market analysis.  Essentially,  an analyst’s job will be to help identify trends and areas of improvement within the process. 

Analyze and communicate insights from data

Procurement data analysts will also be responsible for analyzing data to support the organization in making informed decisions on where to source, negotiate, and employ strategies. Analysts should also be able to communicate their findings clearly and effectively as actionable insights.

Analysts will work with large amounts of data from various sources, including spend analytics, contract management, e-sourcing, and supplier performance. This requires analysts to have excellent analytical skills and experience working with spreadsheets and databases.

In fact, one of the most important roles of a procurement analyst includes developing KPIs (Key Performance Indicators) for the procurement department. These KPIs will help measure the department’s success and identify areas that need improvement.

Importance of Analysts in Your Business

The role of a procurement data analyst has become increasingly important in recent years as organizations have come to realize the value of their data assets. This is mainly because procurement teams need access to accurate and up-to-date data to make informed decisions. 

These procurement teams consist of various procurement professionals who are responsible for the strategic sourcing and procurement of goods and services. They work to ensure that the organization gets the best value for its money when purchasing products and services guided by their data.

Procurement professionals thus ensure that this data is available and easy to understand for a more efficient and effective procurement team. This makes a career in procurement analytics very rewarding financially and professionally. 

Procurement teams play a vital role in organizations, and a procurement data analyst’s work can directly impact the bottom line.

The shift to the machine

While the term “procurement analytics” may bring up images of analysts hunched over spreadsheets, the reality is that procurement analytics is also becoming increasingly automated and data-driven. 

Businesses of all sizes have access to various software dedicated to collecting and analyzing data, identifying trends, and making predictions about future needs.

Thus, many different procurement analytics software programs and tools are available to help with business operations. Much of this procurement analytics software is designed to be used by people with little to no experience in analysis. This makes them ideal for organizations that do not have the resources or manpower to employ a full-time analyst.

Investing in Procurement Analytics for Success

Procurement analytics helps companies become more grounded and aware of how they are doing. This is important especially for successful and growing businesses, as procurement analytics prevents them from being complacent with their success. It allows them to have a better understanding of their spending, which in turn allows them to save money. 

In this day and age, it is important for companies to be as cost-effective as possible, and procurement analytics is one way to achieve this goal. Hence, it is evident that procurement analytics is a tool that companies should invest in to become more successful. It not only helps businesses grow but also ensures that this growth is more sustainable.

Interested in implementing a spend management system that simplifies and streamlines your business’s existing process? Check out Approve.com and request a free demo today!

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