For decades, procurement was seen as a back-office function focused on cost-cutting and supplier management. But that view is changing as supply chain disruptions and fluctuating consumer behavior ripple across the economy. Savvy leaders now understand procurement’s potential to deliver unprecedented levels of efficiency, insights, and strategic capability across the business.
However, tapping into procurement’s potential for generating value requires mastering the diverse needs of today’s global and hybrid businesses, navigating an increasingly complex supplier ecosystem, and wrangling the vast volumes of data generated by a rapidly digitalizing supply chain. Advanced procurement tools and technologies can support all three.
Purchasing the products and services a company needs to support its daily operations aggregates thousands of individual decisions, from a remote worker selecting a computer keyboard to a materials expert contracting with suppliers. Keeping the business running requires procurement processes and policies set by a chief procurement officer (CPO) and team who “align their decisions with company goals, react to changes with speed, and are agile enough to ensure a company has the right products at the right time,” says Rajiv Bhatnagar, director of product and technology at Amazon Business.
At the same time, he says, the digitalization of the supply chain has created “a jungle of data,” challenging procurement to “glean insights, identify trends, and detect anomalies” with record speed. The good news is advanced analytics tools can tackle these obstacles, and establish a data-driven, streamlined approach to procurement. Aggregating the copious data produced by enterprise procurement—and empowering procurement teams to recognize and act on patterns in that data—enables speed, agility, and smarter decision-making.
Today’s executives increasingly look to data and analytics to enable better decision-making in a challenging and fast-changing business climate. Procurement teams are no exception. In fact, 65% of procurement professionals report having an initiative aimed at improving data and analytics, according to The Hackett Group’s 2023 CPO Agenda report.
And for good reason—analytics can significantly enhance supply chain visibility, improve buying behavior, strengthen supply chain partnerships, and drive productivity and sustainability. Here’s how.
Gaining full visibility into purchasing activity
Just getting the full view of a large organization’s procurement is a challenge. “People involved in the procurement process at different levels with different goals need insight into the entire process,” says Bhatnagar. But that’s not easy given the layers upon layers of data being managed by procurement teams, from individual invoice details to fluctuating supplier pricing. Complicating matters further is the fact that this data exists both within and outside of the procurement organization.
Fortunately, analytics tools deliver greater visibility into procurement by consolidating data from myriad sources. This allows procurement teams to mine the most comprehensive set of procurement information for “opportunities for optimization,” says Bhatnagar. For instance, procurement teams with a clear view of their organization’s data may discover an opportunity to reduce complexity by consolidating suppliers or shifting from making repeated small orders to more cost-efficient bulk purchasing.
Identifying patterns—and responding quickly
When carefully integrated and analyzed over time, procurement data can reveal meaningful patterns—indications of evolving buying behaviors and emerging trends. These patterns can help to identify categories of products with higher-than-normal spending, missed targets for meeting supplier commitments, or a pattern of delays for an essential business supply. The result, says Bhatnagar, is information that can improve budget management by allowing procurement professionals to “control rogue spend” and modify a company’s buying behavior.
In addition to highlighting unwieldy spending, procurement data can provide a glimpse into the future. These days, the world moves at a rapid clip, requiring organizations to react quickly to changing business circumstances. Yet only 25% of firms say they are able to identify and predict supply disruptions in a timely manner “to a large extent,” according to Deloitte’s 2023 Global CPO survey.
“Machine learning-based analytics can look for patterns much faster,” says Bhatnagar. “Once you have detected a pattern, you can take action.” By detecting patterns in procurement data that could indicate supply chain interruptions, looming price increases, or new cost drivers, procurement teams can proactively account for market changes. For example, a team might enable automatic reordering of an essential product that is likely to be impacted by a supply chain bottleneck.
Sharing across the partner ecosystem
Data analysis allows procurement teams to “see some of the challenges and react to them in real-time,” says Bhatnagar. But in an era of interconnectedness, no one organization acts alone. Instead, today’s supplier ecosystems are deeply interconnected networks of supply-chain partners with complex interdependencies.
For this reason, sharing data-driven insights with suppliers helps organizations better pinpoint causes for delays or inaccurate orders and work collaboratively to overcome obstacles. Such “discipline and control” over data, says Bhatnagar, not only creates a single source of truth for all supply-chain partners, but helps eliminate finger-pointing while also empowering procurement teams to negotiate mutually beneficial terms with suppliers.
Improving employee productivity and satisfaction
Searching for savings opportunities, negotiating with suppliers, and responding to supply-chain disruptions—these time-consuming activities can negatively impact a procurement team’s productivity. However, by relying on analytics to discover and share meaningful patterns in data, procurement teams can shift focus from low-value tasks to business-critical decision-making.
Shifting procurement teams to higher-impact work results in a better overall employee experience. “Using analytics, employees feel more productive and know that they’re bringing more value to their job,” says Bhatnagar.
Another upside of heightening employee morale is improved talent retention. After all, workers with a sense of value and purpose are likelier to stay with an employer. This is a huge benefit in a time when nearly half (46%) of CPOs cite the loss of critical talent as a high or moderate risk, according to Deloitte’s 2023 Global CPO survey.
Meeting compliance metrics and organizational goals
Procurement analytics can also deliver on a broader commitment to changing how products and services are purchased.
According to a McKinsey Global Survey on environmental, social, and governance (ESG) issues, more than nine in ten organizations say ESG is on their agenda. Yet 40% of CPOs in the Deloitte survey report their procurement organizations need to define or measure their own set of relevant ESG factors.
Procurement tools can bridge this gap by allowing procurement teams to search for vendor or product certifications and generate credentials reports to help them shape their organization’s purchases toward financial, policy, or ESG goals. They can develop flexible yet robust spending approval workflows, designate restricted and out-of-policy purchases, and encourage the selection of sustainable products or preference for local or minority-owned suppliers.
“A credentials report can really allow organizations to improve their visibility into sustainability [initiatives] when they’re looking for seller credentials or compliant credentials,” says Bhatnagar. “They can track all of their spending from diverse sellers or small sellers—whatever their goals are for the organization.”
Delivering the procurement of tomorrow
Advanced analytics can free procurement teams to glean meaningful insights from their data—information that can drive tangible business results, including a more robust supplier ecosystem, improved employee productivity, and a greener planet.
As supply chains become increasingly complex and the ecosystem increasingly digital, data-driven procurement will become critical. In the face of growing economic instability, talent shortages, and technological disruption, advanced analytics capabilities will enable the next generation of procurement.
This content was produced by Insights, the custom content arm of MIT Technology Review. It was not written by MIT Technology Review’s editorial staff.
Learn how Amazon Business is leveraging AI/ML to offer procurement professionals more efficient processes, a greater understanding of smart business buying habits and, ultimately, reduced prices.