Big data and technology have changed Procurement’s responsibilities and priorities, so the attitude of “going with your gut;” is being replaced by the reality of “going with the data.”
Last year, the Hackett Group published a report discussing how Procurement was redefining its role within a company. One of the main themes of the report was how cost reduction/ avoidance, once the #1 issue for procurement, had taken a back seat to expanding procurement’s spend influence throughout the enterprise. Second to that was the need to provide innovation and product/service support. But, according to Spend Matters, what’s really driving this move is the changing role of the Chief Procurement Officer (CPO). In a research paper, Changing Roles of Procurement Leaders – The Analytical CPO, Spend Matters Managing Director Peter Smith discusses the skills necessary to succeed in a business world dominated by technology and Big Data.
Rather than just being a skilled negotiator and manager, today’s procurement leaders need to be increasingly analytical. The days of “going with your gut” are being replaced by “going with the data.” Although negotiating expertise and judgment are still essential components of the position, success in the future will depend on the ability to use data to make the appropriate decisions. The report also states that CPOs need to place:
- Less focus on process and more on strategic relationships
- Less focus on doing deals and more on business drivers and creating value
- Less focus on feelings and instinct and more on data and analysis
It’s not just that data has increased that makes the ability to understand that data so essential…it’s that the information that’s readily available has exploded! CPOs need to be able to know what they are looking for and where to look for it. They must know how to utilize technology to help analyze all of the data gathered. And then they must know how to use that data for the overall benefit of the enterprise.
The report lists seven areas where data can propel Procurement into the forefront of success. Here are four of those areas and some of the questions you should be asking:
- Spend analytics – How effective is your spend? Are you focused too heavily in one area while sacrificing another? Can you reduce spend overall without jeopardizing the bottom line?
- Market analysis – Is your target market changing? What about globally? Do the demographics mean you should be looking at other or additional options? What are your competitors doing that you’re not?
- Negotiation – Do you know your company’s history of usage and pricing? Are there regulatory or environmental issues that may affect pricing and availability? Do you need to frontload inventory or can you wait?
- Sourcing and supplier selection – Are you using the right criteria to evaluate suppliers? Can you be sure that your suppliers are compliant with existing and upcoming regulations? Are you balancing cost and –non-cost factors?
Although this may seem daunting, the report does point out that much of the hard analytical work can be automated. The tools do exist to gather and analyze all of the existing data so CPOs don’t have to go back to school to get a PhD in math. They should, however, have a more analytical leaning and they should strive to recruit people with that same trait. The future is a numbers game…and those that know how to interpret the numbers will win.