YOUR CATEGORY MANAGEMENT CONTROL HOW USAGE-LEVEL DATA CAN EXPAND YOUR CAPABILITIES
EXECUTIVE SUMMARY THE PROCUREMENT WORLD recognizes that spend visualization tools are key to generating advanced insights and taking action on cost optimization initiatives. However, it’s clear that obtaining the right tools, and indeed spend analysis itself, can be a perennial uphill battle for businesses. But with the right intelligence analytics, combining usage-level data and high-level category spend, procurement teams will be able to view and control their organizational spend, consolidating streams of spend, and create optimal savings. This whitepaper investigates how we got here - to a moment in time where spend visibility is more critical than ever - but how a new way of thinking - and viewing data - could revolutionize the category management function.
IT’S TIME TO TAKE CONTROL. CATEGORY MANAGEMENT CONTROL.
TANIA SEARY FOUNDER, PROCURIOUS
A NOTE ABOUT THE LEVEL UP SERIES In this new dawn of the Great Procurement Reset, procurement teams are taking stock of what we’ve learned over the past two years, and how to improve business longevity in these turbulent times. That’s why Procurious is launching our Level Up series, the ultimate set of resources to help you enhance your procurement professional development. From Statement of Work and technical strategies, to negotiation skills and career advice, this series is your go-to for all topics procurement.
BLINDSIDED BY INVISIBLE SPEND When it comes to category management, invisible spend remains a thorn in procurement’s side. Specifically, this invisible spend:
COMPROMISES ACTUAL SAVINGS TO THE BOTTOM LINE INCREASES MANUAL, TIMECONSUMING DATA WORK BOTTLENECKS RISK MITIGATION STRATEGIES AFFECTS SUPPLIER BASE VISIBILITY AND OPERATIONAL MANAGEMENT PREVENTS THE IMPLEMENTATION OF LONG-TERM VALUE STRATEGIES The coronavirus pandemic highlighted just how critical this visibility is to mitigating future supply risks and disruptions. 46% of respondents to recent research by Procurious reported that their biggest reality check from the pandemic was the lack of visibility of supplier and geographic risk, while 35% said that they were not equipped with the tools to respond fast enough to rapidly changing circumstances.
GLOBAL DISRUPTIONS ASIDE, OTHER MAJOR FACTORS CONTRIBUTING TO THIS INVISIBLE SPEND APPEAR TO BE INTERNALIZED, AND CYCLICAL.
1 Companies that are falling behind are working with poor-quality data. In fact, procurement’s inability to update and distribute data comes down to a continued reliance on Excel spreadsheets for spend analytics, a tool that, according to SpendHQ’s Managing Director Kirk Poucher, the global supply industry has long outgrown. Moreover, as Chief Operating Officer at SpendHQ Doug Van Wingerden observes, most companies don’t have the procurement expertise to effectively manage a broad range of categories.
2 There still appears to be some reluctance to embrace spend data solutions. As highlighted by SpendHQ in the recent Executive Insight Series, fixing an ineffective data supply chain is an expensive venture, and requires substantial, and seemingly unattainable, organization-wide cooperation. In the 2020 How Now report from Procurious, it was revealed that 33% of organizations were pushing their supply chain and procurement teams to take a deeper dive when analyzing spend, but not investing in technology to help.
3 While the pressure to capitalize on data spend solutions is on, businesses are not always choosing the service that’s right for their needs. In fact, 82% of organizations regret the software decision they made within 12 months of selecting it.
A NEW GLASSES PRESCRIPTION, A NEW WAY OF SEEING The field of procurement analytics is rapidly expanding. An analytics report from Deloitte predicted that procurement teams would increasingly open up their data in a concerted effort to keep up with market competition, and that this “data availability” would give rise to greater supply chain cooperation between businesses. Every organization has their own priorities for category analysis, but when it comes to obtaining enhanced insights, delivering on cost savings and improving operational efficiency, there are strategies that are not being exploited. Specifically, SpendHQ has found that enhanced, actionable insights may be gleaned from combining usage-level - otherwise known as ‘bottom-up’ - data, with overarching top-down data.
WHY IS BOTTOM LEVEL DATA SO USEFUL? If procurement analytics took on the shape and structure of a house, bottom level data would be the floorboards and structural columns. In this light, it is easy to see how critical bottomup data is: a house cannot be built from the roof down, but must start with a solid foundation to support the complexities of the larger structure. Raw data takes many forms, but the most useful kind for category managers is supplier data. But there are two categories of supplier data, with differences to watch out for. ‘Internal’ bottom-up data is readily available within an organization’s AP systems, but the quality is highly variable, depending on the supplier and category. What’s more, its aggregate-level approach is less structured than a top-down approach, and category managers run the risk of focusing
on unnecessary or even inconclusive findings. Meanwhile, ‘external’ bottom-up data is provided directly by suppliers, and tends to be far more accurate and detailed. It reflects the usage of supplier goods and services by a business, and is therefore a more beneficial analytics resource.
WHAT ABOUT THE TOP-DOWN APPROACH? While this data collection method creates an overall picture of company expenditure immediately, it has problems of its own. Insights from Harvard Business Review point out that starting with top-level figures is not necessarily the optimal approach for a broad data strategy, as an overarching architecture makes categorizing and customizing data more difficult and opaque.
HOW TO GENERATE ‘PERFECT’ DATA: COMBINE ‘EXTERNAL’ BOTTOM UP AND ‘INTERNAL’ TOP DOWN APPROACHES Data culmination and analysis usually follows either the bottom-up or top-down approach but there is newfound scope for combining the two sets of data for a new, expanded vision. These worldclass data capabilities generate ‘perfect’ usage data, which in turn leads to newfound category management expertise and can lead to improving category outcomes, rather than simply functioning as a reporting tool. But how can this collaboration be fostered and lead to actionable insight?
I CAN SEE CLEARLY NOW… WITH GROUND-LEVEL DATA In today’s climate, procurement has no use for static data that does not translate into spend insight and extend to useful analysis. But there’s a secret sauce to success: combining perfect data with category intelligence and analytics. This can be achieved by linking granular usage-level data with top-level data architecture, which will allow for the creation of a comprehensive system of reporting for CMOs and management teams. What’s more, this hybrid approach will have a ripple effect to wider operations, impacting the spend visibility and evaluation of areas including personnel hire, supplier identification, and rectifying maverick spend. Realizing this model on practical terms comes down to implementing the right technology. Intelligence solutions are emerging as the leading industry tools for obtaining sky-high visions of company spend, with the agility to understand and develop the role of granular data. Procurement is all too aware of the potential cost savings and spend visibility digital tools provide, especially after the knock-off effects of the pandemic and recent lockdowns: spend visibility goes hand-in-hand with risk management and preparing for unforeseen global disruptions. 50% of survey respondents in the What Next? research report indicated their rising interest in Artificial Intelligence and machine learning, while 57% said that predictive analytics had the most promise for mitigating future supply chain disruptions.
WHAT DOES THIS MEAN FOR CATEGORY MANAGEMENT? Combining these sets of data will allow CMOs and their team to both unlock and scale the value and savings across all buying channels, according to Joe Bellofiore, Regional General Manager APC at ExceleratedS2P. The major business benefits are threefold:
COMPLETE DATA SETS Having clear cut, comprehensive data at the fingertips of category managers allows their team to analyze areas where business strategy and spend is being optimized, and other areas where it needs improving.
“THE CURRENCY OF PROCUREMENT INFLUENCE IS DRIVEN BY DATA AND INSIGHTS” Doug Van Wingerden, Chief Operating Officer, SpendHQ
The competitive advantage of procurement teams with this kind of data visibility is crystal clear, both internally and externally: •
Internally, category management teams are able to develop better relationships with their CFO and other C-suite executives. After all, it’s essential to have data to support an overall category strategy.
“IF YOU WANT TO HAVE A COMPELLING CONVERSATION WITH YOUR CFO, YOU BETTER COME PREPARED WITH THE FACTS. WITHOUT DATA, YOU’RE JUMPING INTO THAT CREEK WITHOUT A PADDLE.” Joe Bellofiore, Regional General Manager APC at ExceleratedS2P
•
Externally, these teams excel beyond their peers who are trapped by outdated, manual spreadsheet systems, and strengthen their relationships with suppliers.
“If Category Managers had gained more spend visibility through an analytics solution before the start of the COVID-19 pandemic, the result would have been better business outcomes,”
says Doug Van Wingerden. “That, and better long-term supplier relationships.”
SPEND CONTROL Category Management teams with intelligent spend solutions will have the ability to get sourcing savings to materialize on the bottom-line. World class category management takes both an offensive and defensive function: it tracks and capitalizes on the savings it makes, and is ready to prevent sales leakages at a moment’s notice. Gartner’s recent survey of CEOs and senior supply chain executives revealed that cost optimization is the number 1 priority for CSCOs, followed by supply chain resilience. It’s clear, the offensive and defensive function of top category management is at the top of everyone’s minds.
SUSTAINABLE TRANSFORMATION The right data solution will equip Category Managers to drive incremental value to their organization. And procurement is already seeing this today: for example, a recent SpendHQ client was looking to further optimize their small parcel shipping costs following a successful sourcing event. By combining perfect usage level data with AI-powered category intelligence, SpendHQ was able to identify numerous opportunities to consolidate shipments, reduce assessorial changes, and optimize services levels. As a result, the client was able to realize an additional $14.5 million of spend savings, as well as an enormous CO2 emissions reduction of 47%!
THE PRINCIPLES OF SPEND ANALYSIS BEST PRACTICE So, if you’re a Category Manager looking to streamline and advance your spend analysis processes, what are the best practices? We’ve got the top industry tips from Doug Van Wingerden:
SECURE DATA RIGHTS FOR YOUR USAGE DATA FROM SUPPLIERS; “Do this at times when you have the most leverage,” Doug advises. “Sourcing events and contract renewals are ideal - even if you are not actively managing the category, taking this step will benefit you in the long run, at the next event. It’s worth it.”
SET TARGETS FOR ONGOING OPTIMIZATION AFTER YOUR SOURCING EVENTS; “Having post-sourcing targets helps you keep your eye on the ball,” says Doug, “and clearly demonstrates value for category management to your executive team.”
FIND THE RIGHT TECH SOLUTION FOR YOU. “The right solution will free you from doing all the pick-and-shovel data analytics work,” says Doug, “and generate category insights that enable you to take action!”
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SpendHQ is a procurement analysis solution that provides rapid, accurate, and detailed visibility into enterprise spend data. Built by sourcing professionals for sourcing professionals, this full-service SaaS spend analytics solution delivers actionable insight for every stakeholder. The SpendHQ platform and solutions team serves all industries, and clients include some of the world’s largest organizations. SpendHQ has been recognized as an industry leader by Spend Matters’ SolutionMap, Ardent Partners’ Key Solution Providers, and Procurement Leaders’ World Procurement Awards.