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The importance of Good Data13/10/2015
Blog, Practice guide
Much is being talked and written about the ways data can be used to drive efficiency, reduce costs or acquire and keep customers within an organisation. But there is another way in which data can really help businesses make things better; data of the right sort can radically improve the return on purchasing goods and services.
Good cleansed data can drive a more strategic view of procurement, enabling informed decisions to be made earlier in the procurement lifecycle. Without it a business can, for example, view total spend in a very siloed way but not truly understand the size of cost saving opportunities that exist. Opportunities can include price variance, consolidation, contract terms, payment discounts or duration right through to simple purchase to pay efficiencies. But without accurate and more importantly cleansed granular data, or even the assurance that the data you do have is all it should be in terms of compliance, senior stakeholders will not be able to accurately advise the board on the financial implications of all purchasing decisions.
The devil, as so often, is in the detail and organisation’s biggest challenges lie in data quality, data cleansing, and data classification so that they have genuine, complete spend visibility.
Spend visibility means that organisations get timely, accurate, complete, and detailed data which offers invaluable intelligence and insight on spending patterns, compliance and performance. This insight helps identify savings opportunities, drive compliance, and develop purchasing strategies which reduce cost. Fact based spend data can also arm procurement managers with the information required to both secure budget and transform supplier performance.
Spend intelligence can be achieved through more frequent spend analysis or more automation. Alternatively external specialists that offer services, such as spend analysis, may be able to relieve the organisation of this burden if the specialist has more expertise and can do the work cheaper and more efficiently than if the organisation were to do it themselves. Better still is when procurement teams and external specialists work alongside each other so that knowledge is shared and best practice embedded in the process.
Capita’s procurement team works with Spend360, using artificial intelligence software to offer companies not only cleansed data but true detailed insight into their procurement spend, helping them to reduce costs and manage suppliers. Clients include global corporations in a range of sectors, from automotive and financial to manufacturing and pharmaceutical.
Organisation’s biggest challenges lie in data quality, data cleansing, and data classification so that they have genuine, complete spend visibility.
The software does a number of things, quickly and effectively, that would take weeks or months for procurement teams to do themselves. It ensures that all spend is categorised correctly, rather than by the – often incorrect – way it’s been classified by employees making purchasing choices. It takes a highly forensic and granular approach to this, distinguishing, for example, the different sub classes of office equipment, marketing or janitorial supplies, making it easier to identify where waste is occurring. It also combs through invoices line by line, rather than as a whole so that poor spending decisions masked by good ones can be identified. However this is only part of the story overlaying experience and benchmarking gives a real view of the opportunities that exist. One example we look at for our clients is spend trending – being able to view data and taking a more intelligent view in looking forwards not backwards.
There is an obvious need to identify trends in the spend and supplier market early and to be able to respond to this, but the opposite is also true. As all statisticians will readily support, a great deal of caution must be exercised when declaring a trend. The bedrock is obviously accurate data in itself, but the team also needs to be able to examine the underlying spend ‘events’ that cause the line to be trending in a particular direction.
A trend could be artificially inflated, for example, by short term market conditions and a response that is temporary. When market condition is removed from the analysis, the trend ceases to be visible altogether. So any analysis of spend trending needs not only to be accurate but also to allow the company itself to examine all aspects of its make-up, testing assumptions and seeing only ‘real’ trends by factoring out any anomalies over the time period.
With clean, accurate, detailed data, procurement teams can effectively begin to manage spend but can also play a more effective role in the organisation’s management of risk.
Using such a forensic approach to spend can yield some surprising results; a global financial institution carried out a spend analysis exercise combined with data cleansing (movement of spend into their correct categories) and almost immediately put another $250m under management that had previously been distributed / hidden in incorrect categories - this ranged from IT buried in stationery to FM spend duplication and compliance opportunities (e.g. price or payment term variance).
And, just as accurate decisions cannot be made without accurate data; a risk cannot be assessed without it. With clean, accurate, detailed data, procurement teams can effectively begin to manage spend but can also play a more effective role in the organisation’s management of risk.
We undertake data mapping; understanding the real spend profile, analysing where gaps are, and managing risk by combining cleansed data and the overlay of intelligence. A company not only needs accurate information on what it spends, but also where that spend is originating and why. Spend analysis as an academic exercise, which alone will only result in the ‘what’ element being identified and this can lead to dangerous assumptions.
Most commonly risk exists within the established supply base while the majority of procurement’s focus in on ‘new’ initiatives or demand based activity. The most likely of these supply based risks are contractual compliance issues from incumbent suppliers themselves. The list of possible risks is long and are realised not at the dramatic end but in small granular detail adding up to huge amounts of expenditure. Capita work with suppliers to reduce supply chain risk and ensure continuous supply.
Accurate, up to date data can, for example, warn you if a key supplier is at risk of failing to deliver. This is because procurement teams are then able to identify vulnerabilities in the supply chain – a change of key personnel, the losing of a contract, financial vulnerability or risk. That then allows the business to make more effective and timely decisions when consolidating suppliers, choosing new ones or renegotiating contracts. With one multi –national client, financial risk was tracked and a key supplier went into administration. This was an expected occurrence and a new supply chain had been created without any cost implications or failure of supply.
A further example of where turning data into intelligence can release significant value is within low value, ‘tail’ spend. Taking a consolidated approach and leveraging planning, resources and, above all, data will enable a shift in commercial activity on an organisation’s low value spend from limited value processes to maximising value from these type of transactions. If an organisation embeds an intelligence based low value spend solution then they can expect to see efficiencies of between 10 and 25 per cent overall, split between internal administration or process efficiencies and true 3rd party cost savings.
If you do not have the requisite skills and resource to do this in-house, consider taking advantage of Capita’s analytic solution or health check which takes a wider view on your procurement capabilities. This will enable you to understand your spend at a granular level and help to identify what opportunities may be open to you for dealing effectively with this area and reaping the benefits.
To find out more about the benefits of effective data contact Capita Procurement Solutions.