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Emergence of AI and Procurement Analytics
Procurement analytics is the
process of using quantitative methods to derive actionable insights and
outcomes from data. It captures and uses the obtained data to support
fact-based decision making and gain a competitive advantage. It reports
typically on what has happened in the past and creates an estimate, using the
predictive analytics based on historical data to guess what will happen in the
future.
The massive growth of data is
enabling managers in making decisions that can give companies a cutting- edge.
At the same time, making sense of this influx depends on the ability to analyze
data at speed, volume, and complexity that is too vast for humans, or for
previous technical solutions. Organizations are challenged with not only
surpassing their competitors but making decisions to optimize their own
business activities and workflows.
Extracting insights from data has
the potential to transform companies’ internal processes and minimize costs. A
crucial area where this transformation has a major business impact is the
optimization of procurement processes. While the procurement process is
ongoing, some companies may spend more than two-thirds of revenue buying goods
and services, which means that even a modest reduction in purchasing costs can
have a significant effect on profit. From this perception, procurement—out of
all business activities—is a significant element in achieving cost reduction.
Predictive Analytics in Procurement
Predictive Analytics in
Procurement is the utilization of available expense, catalog, supplier and
materials data in order to perform analytics that determines patterns and
predicts future outcomes and trends. Predictive analytics is relatively a new
term which has been introduced in procurement.
Predictive analytics in
procurement is being done to understand the importance and scope of the
purchase with the help of some statistical methods. This process can be helpful
in knowing different causes and interdependencies of an increase in the price
trends. To address this purpose, different statistical and mathematical methods
are employed to deliver comprehensive results. Predictive analytics in
procurement is essential to understand and forecast the future price trends,
potential risks to manage and the possibilities required with the help of a
proper analysis on the basis of previously procured data.
Why do we need Procurement Analytics?
Procurement departments are still
in the early stages of adopting procurement analytics technology in order to
measure and improve their processes and spend KPIs. Rapid advances in
technology, digital innovation, and robust cloud infrastructure have increased
the need for data-driven solutions for enterprises to aid them in better
decision-making.
Analytics thus plays a critical
role in the enterprises that enable them, to minimize the capital and
operational expenditure and increases the return on investments (ROI)
significantly. Procurement analytics provide comprehensive information about
the historical data and with the help of predictive analytical tools enables
enterprises to forecast future trends. These quantitative data allows
enterprises with data-driven decision-making to gain a competitive advantage in
the market. Moreover, implementing analytics in the procurement process, allows
enterprises to achieve better visibility and control over expenses.
Where do we see the major applications of Procurement Analytics?
·
Demand
Forecasting
Demand forecasting is the process
by which the possible requirement of any product or service can be estimated.
Delivering the suppliers with a heads-up on the demand prediction helps in
matching the demand and supply and also in reducing the system-wide inventory.
Demand forecasting facilitates critical business activities like budgeting,
sales, financial planning, marketing plans, raw material planning, production
planning, risk assessment, and formulating mitigation plans.
·
Contract
Management
Contract management is a critical
part of the procurement process. A contract management plan helps contract
managers to efficiently manage contracts by addressing transition management,
performance monitoring and by helping in ensuring the fulfillment of contracts
pertaining to their commercial and contractual commitments. Contract management
plans are developed for all medium to high-risk contracts. A public authority
must ensure that contracts are managed in accord with the contract management
plan and that plans are kept current.
·
Vendor
Management
Vendor management is a structured
program for managing suppliers and improving their impact on the buyer’s
business. It includes managing vendor deliverables, working in collaboration to
co-develop new processes, managing compliance and payment of invoices. It is
critical for organizations because it can have a huge business impact and
create a financial loss. This eventually makes it an effective supplier
management practice, which is essential for the procurement function.
What’s making a trend and what’s going down in the market?
The procurement industry is
undergoing an exponential transformation. Advanced technology, business
practices, and consumer demands are influencing this change and changing
procurement as we know it. The mission-critical function of procurement has
remained the same: helping reduce costs by getting the best price and quality
for goods and services.
AI will persist as a major
procurement trend in the coming years with more and more organizations going to
adopt in their processes. Procurement teams will design and deliver intelligent
bots for completing most run-of-the-mill procurement tasks with least human
intervention. From negotiating with suppliers for low-value items to updating
inventory lists, from managing large-volume of orders to running repetitive
sourcing events, AI is set to undertake all these activities along with putting
mundane tasks on auto-pilot mode.
Most retailers do not possess the
appropriate competencies or skills to effectively carry out analytics processes
and would need an IT professional to manage the retail analytics solutions;
thereby increasing the cost. To tackle such issues, retail giants are
partnering with managed service providers to help them with the implementation
and functioning of the software. The 80-90% data accuracy often leads companies
to make improper strategic decisions rather than providing sufficient
information needed to get the job done.
The procurement analytics market is
gaining traction, as the developing economies are witnessing an increasing
demand for cloud-driven analytical solutions, resulting in higher investments
and technological advancements in various industry verticals. Small and
medium-sized as well as large size organizations in the Asian region have
become more aware of procurement analytics solutions and services and have
started adopting them to enhance their supply chain, the organization spends,
reporting and other procurement processes. Also, the Global Procurement
Analytics Market is projected to emerge at a growth rate of 19.6% CAGR over the
forecast period.