This year’s CPO Rising 2017 Summit featured exciting roundtable sessions where attendees got to exchange ideas and talk about innovative strategies to help improve the performance of their procurement department. In this article series, we look to our roundtable hosts, who captured thoughts and insights from the roundtable sessions they each hosted at the Summit.
Today we have a guest post from Alex Saric, Chief Marketing Officer at Ivalua, who hosted the “Enabling Smarter Procurement: Leveraging Data to Drive Greater Value” roundtable at the Summit. This exciting discussion looked to help attendees enable smarter procurement by answering two key questions: “Where can actionable data provide the greatest value?” and; “What people, processes, and technologies are needed?”
Enabling Smarter Procurement – Back to Basics
When it comes to enabling smarter Procurement, two things are clear. First is that success is critical if Procurement is to realize its full potential as a strategic value driver and continue to meet increasing expectations. After all, how can Procurement effectively manage risk without deep and timely insight into supplier and market dynamics? Or effectively balance cost control and other objectives without broad knowledge of the potential supply base and prioritization of opportunities? Or optimize any other objective for that matter? Procurement must become smarter, more informed.
Second, Procurement has a long way to go in this area. Despite their best efforts, companies have made far less progress here than in other areas. Effective spend analysis, where solutions have existed for well over a decade, remains a challenge at many companies. Companies have made gains in leveraging 3rd party data to help assess and monitor risk, but few have truly comprehensive approaches that effectively leverage the wealth of information that must be considered. Recent research has shown that the technology area CPOs believe will have the most impact in the next two years is analytics. There seems to be clear consensus on the importance of being smarter and the current shortfall.
What continues to surprise me is the disconnect between the market conversation and what is needed today. Virtually all I read focuses on latest technologies, particularly artificial intelligence (AI) / machine learning. I truly believe that clever applications of these technological innovations will drive tremendous value for Procurement. The ability for AI to filter through the mass quantity of data being generated and derive actionable insights (e.g., fraud, price variance, budget abuse) will significantly help Procurement make better decisions and drive greater value. We are not quite there yet in most cases, but we will be soon. But the focus is squarely on the nifty algorithms. As this is where the latest technologies really come into effect, it is understandable. But that is only part of the answer, and not where the pain lies at most organizations today.
When I speak with practitioners, as I recently had the opportunity to do while leading a series of roundtables on the topic at the CPO Rising Summit, the core challenge becomes clear. Most companies have yet to establish the core building blocks that will enable smarter procurement. Data quality remains poor, system integration is lacking, and visibility across the full Source-to-Pay process is limited. Without these fundamentals in place, the ability for any technology to derive actionable insights or the brightest analyst to conduct effective analysis is greatly constrained.
The dirty secret about those innovative technologies with their algorithms is that they are only as good as the base data. If data is dirty or incomplete, the ability to derive insights is highly limited. The same is true if data resides in silos. Certain applications of AI (e.g., to classify unstructured spend data) can certainly improve data quality, but that is insufficient and reactive. The ability to identify opportunities that span broad processes and systems (e.g., non-compliance or budget abuse) depends on being able to access the relevant data from each step of the process and the corresponding systems.
Fortunately, the same approach will both improve decision-making today and position your company to realize the full potential of upcoming innovations. Address the core issues:
- Implement effective master data management systems to clean and synchronize your vendor and item masters
- Digitize your complete Source-to-Pay process, with systems that are seamlessly integrated (with themselves and your back-end systems) and leverage a unified data model
- Implement user-friendly tail spend management systems that drive transactions through your systems, with the rich data that provides
- Ensure you have or can support seamless integration to external content providers whose data will need to be combined with your own for the best insights
- Develop the analytical skills on your team, with training and/or recruitment
By addressing the core issues of data quality, system integration, and analytics skills, companies can start reaping the benefits today and be prepared to maximize the potential that coming innovations will make possible.
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