July 15, 2019 | 5 min read
We are in the era of Big Data, but are we getting any real insights from all of those data points? A study conducted by Capgemini and EMC makes it sound like business has become very good at collecting data, but using it has become the new challenge. Of the 1,000 companies surveyed, 45% admitted that their current internal IT development is not keeping up with their requirements for new business analytics based on the data they are collecting. Over half don’t think they have the infrastructure to address the problem.
It’s not that these companies don’t know they have a problem. 65% of these companies admitted they fear their companies will become irrelevant and uncompetitive if they don’t learn how to leverage their data collections for competitive advantage.
According to Prashant Tyagi, director of analytics platforms at GE Software, and Haluk Demirkan, professor of Service Innovation and Business Analytics at the University of Washington-Tacoma, when we talk about Big Data, we’re talking about data that is so large it’s difficult or impossible to deal with by hand. Writing at analytics-magazine.org, they define Big Data as having the following evaluation criteria:
Volume, or the sheer size of the collected data.
Velocity, referring to the high speed at which your system captures data.
Variety, or the number of different forms the data comprises in your current collection. Everything from video clips to emails can be part of the data pool.
Veracity, or the important quality of knowing and trusting the data sources.
Variability, or the differing ways in which we can interpret all of this data.
Value, in terms of how important a particular piece of data is in finding the answer to our questions.
Spend data makes up much of the big data collections of most businesses, but without proper spend data analysis, all that data collection has no impact on the business units.
Learning to extract more value from the procurement process and your spend analysis software is key to competing in a global supply chain. This analysis also makes it easier to adapt past workflows to current challenges, giving procurement professionals a solid grasp of key metrics they will need to monitor in new relationships and supplier management for more savings opportunities and improving compliance.
Make sure you have the right data before you begin your spend analysis. To get the right data, you often need to start by asking the right questions. As Pablo Picasso famously said, “Computers are useless. They can only give you answers.” In this time of dawning artificial intelligence, this is even more accurate. Without the proper questions, all the answers you get may not be worth much more than the pile of data you started with.
Your best questions will need to be specific to the problem you are trying to solve, or the process where you are trying to get more insight. But there are some basic questions that you should ask at the start of any spend analytics project, and we’ve got four of them here to get you on the path to taming your Big Data Monster.
This question is obvious, but are you even collecting the data you should collect? Do you have digital access to invoices, purchase orders, contracts, product data and all the other information you need to evaluate how your suppliers are fulfilling your contracts with them? Many customers find that they spread this data over various places in several departments. Using an e-procurement solution to manage your complete purchase cycle time is an excellent way to get a digital net around all these various pieces in a way that you can collate it into a meaningful state.
Here’s where you need to use your human insight and “gut” to tell you things about your data that your computer can’t. The UN Procurement Practitioner’s Handbook even lists this as the first question to ask when preparing any spend analysis. They recommend asking questions about your past data collection in terms of its overall relevance to real-time normal operations.
For instance, were there special events in the past that skewed the data, such as slow deliveries because of a hurricane or a freak ice storm? Are you expecting events that would differ from your past operations, changing the inventory management procedures? A new product launch or new strategic sourcing direction that will require different functions than past operations would be an example of future change? Analysis of this process will give you important outliers to consider, accounting for spend under management and indirect spend.
This is the time when you come up with the specific questions you want to answer in your company. Sit down with management from several areas of your company, and you’ll get several perspectives on what they would like to learn from your spend analysis data. By assembling this input, you may come up with many key questions that will help all parts of your company gain an edge over your competition or work more efficiently with your vendors.
Once you know what you’re trying to learn from your spend analysis data, you can zero in on the best key performance indicators, or KPIs, that would give you the answers you hope to find.
A good place to start is to go back to your department managers and ask what data they track regularly. Most will have numbers that they keep at hand. Why are these numbers important to them, and how do they relate to the key questions you’re hoping to answer?
With your informed decisions, go back to your spend data and isolate some of these KPIs. Run some test reports and get feedback from other company executives. With enough human input, you’ll zero in on the perfect measuring stick to evaluate your spend patterns and performance from a strategic angle.
For case studies of how we have helped similar organizations get a handle on their sourcing strategy and spend data for better insights, contact our team of procurement specialists today. Check out our website for more information on our spend analysis solutions.