Editor’s Note: This week on CPO Rising, we’re publishing some “best of” 2016 articles as we reflect on the year and prepare for the new year ahead.
In the digital age, organizations as a whole and procurement departments in particular swim in data. It is everywhere, spread across an alphabet soup of internal and external systems – some connected, some not; some refined, some not; some structured, some not. It wasn’t always this way. Twenty-five years ago, the procurement function was manual, paper-based, and transaction-oriented. “Data” was but a character on Star Trek: The Next Generation. All of that has changed in the past 15 years, following the dot.com bubble and the wave of digitization, connectivity, and automation that has swept over the world. Now, data permeates and drives the digital world, and it will only get more intense from here.
Over the past six years, at least since the term “Big Data” emerged as a buzzword and a trend, Chief Procurement Officers (CPOs) and their staff have been spending increasingly more time trying to make sense of all their data – in all of its forms and locations – and then convert it to value. Historically, this has meant poring over spend and supplier data to understand trends, market rates, and performance, and making informed buying and sourcing decisions. Adding to the fray is the “Internet of Things”, an array of connected devices that transmit data from point to point and pool it for users, retailers, manufacturers, and other parties to derive insight and adjust their behaviors.
Digitization and automation, followed by the adoption of “smart devices” and the rise of the “Internet of Things”, are creating endless streams of data from internal and external sources for CPOs and procurement teams that must be managed and analyzed in order to be valuable. With so much data flying about and residing inside and outside of the enterprise, it is a wonder how organizations operated before the age of Big Data. But as the data streams increase, the volume of data swells, and the time to manage, analyze, and consume it all shrinks, CPOs and their teams will have to get better at managing and leveraging data across the source-to-settle process.
The Big Data “Crisis” – Danger, or Opportunity?
It is often said that the Chinese symbol for “crisis” is made up of two smaller symbols – one for “danger” and another for “opportunity.” Although linguists largely consider this a fallacy, the lesson for CPOs and procurement teams is instructive. The Big Data “Crisis” sweeping organizations and procurement teams today, with the right people, processes, technologies, and ultimately with the right attitude, can be an opportunity for CPOs and their teams to transform operations and deliver more value to the enterprise. Technologies exist today that allow procurement to not only manage Big Data up and down the source-to-settle value chain, but leverage it for greater value.
Upstream processes, like strategic sourcing, and downstream processes, like procure-to-pay (P2P) and Accounts Payable (AP), can all benefit from the effective management and channeling of Big Data. Specifically:
- Spend Analysis – reams of internal spend data, like historical spend across categories, regions, and suppliers, can be corralled and then analyzed to improve buying decisions and save the enterprise a lot of money.
- eSourcing – users can pull spend analytics into eSourcing modules to inform supplier analyses and sourcing events, augment market intelligence and analysis, and optimize sourcing and spending decisions.
- Contract Management – structured data, like spend reports, and unstructured data, like contract clauses, expiration dates, and terms and conditions, can be combined to audit internal and external compliance and keep the organization “on track.”
- Supplier Information Management – Suppliers account for loads of structured and unstructured data, like AP, performance, and point of contact information. Keeping it all straight and accessing it when and where it is needed is practically a must, especially for organizations that have hundreds or thousands of suppliers.
- Supplier Performance Management – Enterprises that rate their suppliers and then store that information in a central, accessible location are able to leverage it for future sourcing decisions and optimize their supplier base.
- Supplier Risk Management – There are loads of internal, external, and third-party supplier risk information that, if procurement can effectively categorize and blend it, can provide CPOs and procurement teams with a solid understanding of their risk profile across suppliers, categories, and regions.
- eProcurement – These systems emit loads of unstructured data, such as purchase orders and invoices, that get automatically sent to AP when an item is purchased, closing the traditional gap between AP and procurement and turning “upstream” and “downstream” processes into “onestream.”
- ePayables – Big Data can help to close the loop between what procurement purchases on the front end and what AP remits on the back end by ensuring that unstructured data resident within requisitions, purchase orders, and invoices are electronically and seamlessly transmitted to AP for payment.
Managing and leveraging Big Data for procurement operations does not have to be a scary endeavor. In fact, it can be a very exciting and rewarding experience for those that are willing to embrace change, explore the possibilities, and get connected. Thus, the following series will explore further each of the eight sub processes to illustrate just how Big Data can be managed and leveraged to make procurement’s life easier and extract the most value out of the data residing inside and outside of the enterprise. First up – one of our favorites – spend analysis!