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Data and Spend Transparency in Mid-Sized Procurement
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Procurement in mid-sized industrial companies is particularly characterized by a lack of transparency and growing complexity due to new regulatory requirements such as ESG and the Supply Chain Act, global supply chains and crisis hotspots, as well as rising raw material prices. The "big picture" quickly gets lost, and strategically relevant KPIs get out of control: procurement volumes for product categories, suppliers, and items, number of suppliers per category, delivery times, price developments, or CSR-critical suppliers. Yet procurement volume could be reduced by approximately 3-10% through data transparency, directly impacting the bottom line. A survey of nearly 200 individuals from procurement organizations in mid-sized manufacturing companies revealed that approximately 40% see increasing data and spend transparency as the greatest lever for strengthening strategic procurement.
However, the prevailing situation in mid-sized industrial companies looks different: insufficient master data quality and manual, error-prone, Excel-based data analyses. This raises the question: How can I establish data transparency in my procurement, which analyses are relevant, and what should be considered?
3 Steps to Data Analysis
1. Master Data and Procurement Activities as the Foundation for Data Analysis
Master data and procurement activities serve as the foundation for meaningful and reliable data analyses. The first step is to consolidate the relevant data from various data sources and systems. Typically, relevant data resides in the ERP system, e-procurement software, and accounts payable. For future data analyses, it is recommended to document which data comes from which data sources.
2. Creating Analyzable Procurement and Master Data Quality
When consolidating data, the first challenges often arise:
- Data silos across multiple subsystems and
- Outdated master data
Following the principle of "garbage in, garbage out," the key to success is maintaining excellent data foundations and master data quality to make analyses possible in the first place. For this reason, it is immensely important to give master data a special priority. Regularly emphasize the importance of data quality within your procurement organization and highlight the benefits of improved master data quality: a reliable master data foundation for data analyses and scalable processes.
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However, even with reliable data quality and very well-maintained master data quality, it is unavoidable to clean and prepare the data after export according to the requirements of the data analysis.
3. Data Analysis
After you have carefully sorted, organized, and prepared your data, it is now time to gain valuable insights from the data to derive actionable measures.
A good starting point for targeted analyses are your defined goals for the procurement organization. Ask yourself questions such as: What do I want to learn from this data? How can I use this information to make better decisions for my company and the procurement organization?
For inspiration, feel free to download our list of the 10 most important KPIs for procurement in mid-sized industrial companies.
Based on the questions and goals you are pursuing, you can now examine the data from different angles. It is important to consider not only short-term but also long-term trends. You can use these insights to draw conclusions and derive action items. Visualizations in particular have proven effective for better understanding trends and communicating results within the organization.
In practice, the most widespread method is classic data analysis with Excel. However, Excel-based analyses are often error-prone and very time-intensive. Besides Excel, there are now additional e-procurement solutions that contribute to far more reliable data analysis and streamline the analysis process without additional effort. Some software solutions offer easy handling and perform analyses automatically, visualizing and displaying them in a procurement cockpit.
Analytics with Tacto
Tacto's procurement cockpit gives you a transparent overview of all figures, data, and facts across product categories, suppliers, items, and prices – without any Excel adventures.
Learn more about Tacto
Which Areas Are Particularly Interesting for Procurement Data Analysis?
A common misconception is that analyzing procurement activities only refers to spend analysis. In reality, data analysis encompasses all activities from strategic sourcing through category management to procure-to-pay processes. Below are some important reasons why analyses across various procurement functions are important.
Category Management
When data analyses are effectively deployed in category management, they give category managers superpowers. Using the analyses, category managers and buyers can identify savings opportunities, segment and prioritize suppliers, identify sourcing potential, address supply risks, sustainably develop the supplier portfolio, and improve supplier relationships.
Strategic Sourcing
The best business strategies are based on data. In strategic sourcing, data and spend transparency helps identify the best timing and areas for conducting procurement initiatives and tenders. You can also determine which suppliers should be included in sourcing projects, incorporating information about quality and risk positions.
Sustainability and Corporate Social Responsibility
More and more companies recognize the value of analyses in evaluating sustainability and social aspects and the associated risks within the supply chain and procurement. Analyses can reveal the environmental or social impacts of procurement decisions and highlight opportunities for more sustainable alternatives. In addition, new regulatory measures such as ESG and LkSG require companies to make sustainability criteria transparent.
Here learn more about the LkSG and download our whitepaper.
Risk Management
Data transparency can help identify and mitigate risks within the supply chain and procurement. A transparent overview can show, for example, which suppliers reliably meet their delivery times, are plausible in their pricing, or are well-positioned regarding sustainability criteria.
Supplier Relationship and Development
Data transparency at the supplier level forms the foundation for strengthening supplier relationships and developing supplier portfolios in a targeted and sustainable manner. It can indicate when contracts need to be renegotiated or compile all relevant data for supplier negotiations. Furthermore, analyses can identify unauthorized spending to support regulatory compliance and improve contract coverage.
Unlocking Potential and Efficiencies in Procurement Through Data and Spend Transparency
Data and spend transparency in procurement has the potential to improve operational efficiency across the entire procurement and supplier management lifecycle. Common business objectives for procurement analytics include:
Cost Reduction
Identification of savings opportunities and measurement of the impact of savings projects on the financial bottom line. For example, through the identification of adverse price developments and price outliers, but also through better terms enabled by improved supplier meeting preparation or automated price requests and renegotiations.
Corporate Responsibility
Identification of opportunities for social responsibility, greater diversity, and emissions reduction in the supplier portfolio. For example, by incorporating ESG or LkSG criteria into supplier evaluation and making suppliers comparable in this regard.
Risk Management
Identification, measurement, and mitigation of supplier or market risks within procurement operations. Delivery times, complaint rates, and concentration risks can be quickly and easily identified.
Identification of Sourcing Opportunities
Exploring new or more strategic ways to manage and consolidate suppliers or categories based on historical procurement data. For example, adverse price developments can be uncovered, volume discounts realized, or sourcing strategies optimized.
Business Opportunities
Identification of opportunities, new market areas, business insights, and product/service development potentials based on procurement data, external data, and spending trends.
Common Data Analyses from Practice
Practical Examples:
1. Everything important at a glance for supplier meeting preparation: To have a solid negotiation basis and achieve the best possible results, it is essential to conduct various analyses on the supplier. For example, analyses of procurement volume and quantities, price developments, delivery reliability, and complaint rates can be helpful in achieving better terms.
2. Concentration risk – from single-source to multiple-source strategy: Through transparent insight into product categories, I can specifically reduce dependencies in categories and diversify my risk by actively trying to increase the number of suppliers.
3. Analysis of individual items at the supplier level: At the item level, it quickly becomes apparent where ordering was not optimal and where, for example, adverse price developments have occurred. Deviating unit prices at different order quantities are, for example, a signal that volume discounts may not have been utilized and savings potential may exist.
4. Total annual invoice and order volume: The buyer should verify whether the determined total volume across all invoices or orders of the company entity meets expectations or experience.
5. Annual revenues of the 50 largest suppliers: Buyers from the entities generally know their most important suppliers. With the list of the top 50 suppliers, it should be clarified whether they are at their respective expected position and whether the volumes are plausible.
The 10 Most Important KPIs and Metrics for Procurement in Mid-Sized Industrial Companies
Procurement KPIs provide companies with quantifiable values for measuring performance and strategically managing the procurement organization. KPIs also serve the purpose of benchmarking against other companies' procurement or demonstrating the contribution to corporate objectives.
While there are widely used and standardized procurement KPIs, each procurement organization has different requirements, goals, and strategies and therefore different procurement KPIs that are relevant to them. It is important that all stakeholders in a company have the same understanding of a KPI and use it consistently.
But which KPIs are relevant to you and should you track? Here are the 10 most important KPIs for best-in-class procurement organizations in mid-sized industrial companies:
Spend-Related KPIs
- Managed Spend
- Price Development
- Procurement ROI
Cost-Based KPIs
- Cost Savings
- Cost Avoidance
Supplier-Based KPIs
- Number of Suppliers and Supplier Spend
- On-Time Delivery
- Complaint Rate
- Supplier Evaluation
- Call-Off Rate from and Compliance with Framework Agreement Terms
Download the list of the 10 most important KPIs and metrics in industrial procurement now and get more details on each KPI, their calculation, and added value!
Data and spend transparency is the lever to strategically manage your procurement department, minimize risks, realize savings potential, and unlock strategic work in procurement.
