Procurement lives on data
Column 18.11.2020
It is a widely recognized fact that a company’s competitive strategy is based on data and understanding of, for example, customer needs and the capabilities and plans of competitors. In procurement, the situation is similar, but often a degree more challenging. Indeed, the potential procurement market is often rather large, even globally, it may have a massive number of players and may be constantly changing, and a thorough understanding of it requires analysis of several dimensions such as prices, market structures, risks, new technologies and regulation.
Procurement market data has been identified by research as one of the key factors in demonstrating its strategic importance: if procurement has extensive and in-depth data of its core responsibility, the procurement market, it is seriously and willingly included in discussions about product development or competitive strategy.
In view of the above, it is interesting that many procurement organisations do not have a systematic way of collecting, processing, sharing and using data on the procurement market (supply market Intelligence, SMI). The reasons are, of course, understandable: procurement often operates under-resourced in a complex environment where it has many items, suppliers, and stakeholders to manage. Systematic collection and processing of data is over run by the daily procurement work, in which case the procurement work is done with the knowledge capital accumulated mainly by the individuals for their own needs.
Because the procurement organization is dependent on individual experts for procurement market knowledge, the accumulated knowledge capital can easily walk out the door. Recently, however, there has been a change, and procurement has increasingly risen to the top management agenda. Thus, in meeting new expectations, data and supporting fact-based decision-making with data and analytics become procurement priorities. However, the cry cannot be answered without even a roughly up-to-date picture of spend, for example.
“Procurement market data” can support a company’s business by understanding how, for example, the innovation potential offered by suppliers can be made available to the company and translated into new and better products. An interesting example of this is Procter & Gamble’s so-called Connect-and-Develop model, in which the company realized that for every talented engineer it employs, there are at least 200 equally talented individuals in other parts of the world employed by other organizations. Therefore, P&G also successfully harnessed these external resources, with the help of its procurement that gathered and effectively utilized information and data on available external innovation resources.
Of course, you do not do everything yourself – and you do not have to. It remains to be seen whether tasks and processes related to procurement market data can be outsourced. Where does external procurement market data come from, and how is it integrated, for example, into the company’s internal data to provide new perspectives and support decision-making? In the future, procurement will be able to run a network from which the best data-related technology solutions and category knowledge will be made available to the company.
An interesting and fairly recent example of a data business solution is the Finnish spend analysis company Sievo’s response to the corona pandemic. Sievo brought a solution to its customers on a fast schedule, in which external data on the local spread of the disease from different countries and regions was integrated into the company’s internal data, giving the company using the solution an up-to-date picture of its supplier base risks. More solutions of the same type are needed in the market to satisfy the huge data need of procurement. Procurement lives on data.
Harri Lorentz
Associate Professor
Turku School of Economics, University of Turku