Predictive Analytics Leads Procurement Value-add [Research]

A Global Procurement Study by business technology and services provider Xchanging plc recently analysed how technology is transforming procurement (Procurement Technology: Part 3) and identifies three crucial trends:

1. Automation is the future: process enhancement and automation are top investment priorities, to solve major procurement team capacity issues
2. Procurement decision makers expect Predictive Analytics and Internet of Things to have biggest technological impact on the function
3. U.S. leads other regions in terms of technology adoption

Technology Adoption

Savings tracking (77%) and spend analytics (76%) technologies are the most widely implemented, in the context of a tough economic climate where spending cuts and streamlined processes remain top priorities for businesses. This mirrors respondents’ answers about the KPIs on which their procurement functions are measured – the top four all being cost related (47% cite cost savings realised as their most important KPI, 19% revenue impact, 16% cost savings identified and 14% cost avoidance).

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Over half of companies questioned also already have automation (68%), reporting dashboards (68%), contract management (67%), supplier performance management (64%), market intelligence (60%), eSourcing (59%), predictive analytics (54%) and Internet of Things (54%) technologies in place, whereby the organisations most likely to have the above solutions in place were:

• in the U.S.
• 3,000+ employees
• in retail, consumer goods or manufacturing industries
• outsourcing parts of their procurement operations

Supplier performance management software and predictive analytics are the solutions most likely to be implemented in the next two years.s.

Investment Priorities

The top priority technology investments for procurement decision makers are process enhancement (28%), followed by automation (24%) and talent development (22%).

These will presumably address the capacity issues faced: 80% of respondents identified ‘time pressures’ as a challenge, 20% as a major challenge. Technology that automates and enhances processes will ease the pressures and demands currently placed on procurement manpower.

Companies with decentralised procurement operations were more likely to consider process enhancement a top investment priority (32%) than those with centralised operations (25%).

Technology Impact

Predictive analytics and the Internet of Things (IoT) are seen as revolutionary technologies for supply chain operations, with eight in 10 respondents (80%/79% respectively) stating they will have an impact, and nearly a quarter (23%/24%) expecting them to have a major impact.

A report issued by DHL and Cisco in April this year estimated that by 2020, 50 billion devices will be connected to the internet – an increase of more than 300% from today's 15 billion – and that IoT will generate $1.9 trillion across the supply chain and logistics operations industry, with warehousing and freight benefitting the most.

Technology and Procurement Skillsets

Despite the growing importance of technology within the supply chain, ‘aptitude for technology’ was surprisingly only ranked as the sixth most important skill, and just 17% claimed there was a technology skills gap in their procurement department.

This also contradicts the fact that ‘talent development’ was cited as the third most important technology investment priority (outlined earlier). It suggests that when procurement professionals look at technology as a whole, they recognise the importance of developing talent and skills in this area for successful implementation. Yet when they look at the desired skills of the procurement function in isolation, technology skills are overlooked.

Need to Delve Deeper

"When analysing the data, it is key that we consider how ‘technology’ is being interpreted by respondents. It’s surprising that over half of all companies surveyed said they already have the majority of the listed technology solutions," says Luke Spikes, Xchanging’s Procurement Technology spokesperson.

"A notable 76% reported having spend analytics technology, but we need to question what technology they are actually using. Are they really utilising a solution that analyses all spend data – how much is spent, on what, with whom and by whom – and transforms this data into actionable business intelligence? Or are they simply using Excel spreadsheets?"

There is a big difference between having the technologies in place, and using them to their full advantage, he explains: "There needs to be a drive on education around technology applications for them to deliver real benefits."

Another opportunity is presented by predictive analytics, which is expected to drive a more strategic approach to sourcing, for example, enabling hedging on the price of raw materials to become a daily part of the procurement process, as well as creating further opportunities for automation to increase accuracy and efficiency, says Spikes.

"Procurement leaders ignore technology-driven progress at their peril. If they don’t seize the opportunity, they will quickly fall behind their competitors."