Can procurement analytics convert your bad apples into KPIs?
I was in Amsterdam not long ago for the Digital Procurement World Conference, where you find everyone who’s anyone in procurement. During the two days, I got fully briefed on what’s new in the digital transformation of procurement, but ironically it was not a procurement expert but a human behaviour specialist, Niro Sivanathan of the London Business School, who stole the show for me. I was struck by his insights on information framing and navigating change.
From my own experience talking with customers about procurement software, I’ve seen first-hand how difficult it is for people to change behaviour, especially when it comes to shifting to digital systems. So, one tagline from Sivanathan’s presentation that stayed with me was: When trying to get others to choose an apple over an orange, introduce a rotten apple.
Back in Finland, we’ve had a record bumper apple crop this year, so I don’t want to give apples a bad rap. But I am still thinking about the idea of rotten apples. In procurement terms one or two bad apples in your procurement history can come at a high cost, even wipe out your whole apple barrel.
Tracking the past to advance the future
Cloudia has just launched a new breakthrough procurement tool, Cloudia Analytics, and it’s my team’s job to get customers as excited about it as we are. The tool’s been designed to help procurement people track and analyse their past performance in ways that compel them to change their future behaviour – and to measure success along the way. Being able to identify, use and share their data in a clear way that can be understood across the organisation is a good first step.
Many procurement people still report data on excel sheets or other disparate forms, collected from departments like finance, sales and HR. They therefore don’t usually see what it is they collectively know, because they can’t ever get a whole picture in front of them. Our new tool can fix this. By combining data from Cloudia’s services with customer data sources like finance and invoicing, we can give a real picture of all the stages of procurement, including which areas are ripe for improvement. Various visual reports include things like the value of purchases per contract; the distribution of purchase invoices per cost unit; the top 10 suppliers based on total purchase invoice values; the anticipated monthly value of contracts; and the number of procurements or average tendering times.
By creating this clear picture of the whole orchard, I believe the bad apples will be easier for our customers to spot and weed out.
Visualizing and analysing your bad apples
Maverick spending is an obvious bad apple, and this kind of clear purchasing history will show if anything inappropriate has been ordered, or which employees have gone rogue by making purchases outside of agreed contracts. In big organisations, this can translate into millions of euro in potential savings.
Bad apples in an organisation’s spend analysis can also come from a high total cost of ownership, versus the actual price tags of goods procured. For example, hidden extra spend from areas like delivery and handling or product lifecycle costs related to storage and inventory levels. How many suppliers there are? Some organisations will see that they’re dealing with far too many suppliers and not getting the best deal from any of them. Bad apples could even show themselves simply as items bought from one supplier for a high price, when another supplier is offering the same quality for a far cheaper price.
But what do you do with your bad apples?
Developing data literacy and seeing and understanding the bad apples is only half the battle. No amount of data tracking or quality analyses is sufficient if it doesn’t lead to solid next steps and changes in future behavior. A Forrester study showed that while 74% of companies confirmed they want to be “data-driven,” only 29% said they were connecting their data analytics to action.
So, if you’re a purchasing manager and life is giving you bad apples, why not gather them up and convert them into good goals. Maybe you want to reduce unnecessary spending, lower costs and accelerate procurement cycles. Leveraging your data analytics can help you set key performance indicators around each goal then track their progress.
Clear measurable targets and a good value-add plan will be a good recipe for success or at least for the business equivalent of a home baked apple pie.