How Your Company Can Use Procurement Data
Last updated: October 6, 2022
Procurement is an essential component for all businesses. A strong procurement strategy helps you acquire materials to sell products and manage business operations. By closely monitoring their procurement process, companies can allocate funds responsibly and stay on track with campaign goals.
Analyzing procurement data is the best way to monitor your procurement strategy. You can use procurement analytics to improve business functions, enhance customer relations and more. Companies should strive to use procurement data to the fullest, so they can take advantage of the valuable insights.
Read on to learn more ways your company can use procurement data.
Important Procurement Data KPIs
Key performance indicators (KPIs) are essential for tracking and evaluating procurement data. These metrics measure specific aspects of the procurement process, such as lead times or vendor performance.
You can use KPIs to make procurement procedures more streamlined. The indicators let you closely monitor procurement methods, and you can use the data to improve processes and meet goals. You can create data-driven goals that improve the quality of products and time spent on orders.
For instance, KPIs might measure overall purchase costs. If the data shows that you've spent more than your intended budget, you can use the details to alter your spending habits.
Here are examples of important KPIs for procurement analytics:
- Number of suppliers: Your procurement team might have numerous suppliers for each of your goods and services. It's important to maintain a healthy balance of vendors. You don't want to be too reliant on a single supplier, but you also want to avoid juggling too many vendors at once. This KPI keeps track of how many vendors you work with and what products each vendor supplies. The metric also lists the contract you hold with each supplier, such as unlisted or contracted.
- Supplier quality rating: This KPI helps you evaluate the quality of your vendor partnerships by providing comprehensive ratings. If a supplier delivers a substandard service or products, the score will be lower. Similarly, if a supplier delivers damaged goods or has unreliable availability, their quality rating would decrease. This rating allows you to analyze partnerships and adapt negotiations for the future.
- Supplier availability: The supplier availability KPI tracks how quickly a vendor replies to urgent situations or requirements. It's typically measured by the ratio between item availability and the total number of orders. The combination of online and in-store channels makes keeping track of supplier availability more challenging. But with this KPI, you can track supplier availability across each channel.
- Purchase order cycle time: Your purchase order cycle time is the total time from purchase initiation to when it transfers to a supplier. The cycle includes order submission and approval, delivery, payment processing and invoice generation. This KPI measures the time it takes to complete this cycle, dividing times into sections like short or long. For example, a purchase order cycle that takes four days or less might be considered a short cycle. You can then use this information to find the best vendors for urgent orders.
- Lead time: Next, lead time is the time it takes for order fulfillment. It is comprised of the initial purchase to the distribution of the product. Procurement departments set expected lead times for specific products, then monitor how well suppliers meet these requirements. The lead time KPI helps you track how well vendors meet lead times while not compromising on quality.
- Purchase costs: Another important KPI is purchase costs. Purchase orders vary by industry, but it typically consists of the total cost from the initial purchase to the final invoice. Procurement teams use this KPI to track purchase costs and ensure they remain on track with spending goals.
Overall, KPIs provide crucial data for companies to use for analysis.
6 Ways Your Company Can Use Procurement Data
KPIs and other sources can provide you with vital procurement data. Companies can gather data from the three different types of procurement:
- Direct spend: Direct spend procurement involves acquiring direct items, such as machinery or raw goods. The business then sells these products for a profit. Companies also engage in this type of procurement when they purchase wholesale materials to produce their own products.
- Indirect spend: Next, companies use indirect spend procurement when they buy goods for business operations. Companies don't sell these items, so they don't contribute to overall revenue. Indirect procurement items could consist of office supplies, hardware systems or marketing tools.
- Services spend: Lastly, services spend procurement refers to buying services for business operations. These services could be internal or external and assist with daily business functions. For instance, services spend procurement could include hiring temporary workers or an advertising seminar for employees.
Your company can use the different types of procurement data to create comprehensive improvement solutions. For instance, using indirect spend procurement data could help you maintain a spending budget for internal expenses.
Here are six ways your business can use procurement data:
1. Improve Vendor Management
Vendor management is integral to successful procurement. From selecting the best-suited vendors to managing deliveries, vendor management allows you to maintain rewarding and productive relationships with your suppliers.
Procurement data can help you enhance your vendor management techniques. KPIs like supplier quality rating and supplier availability can display how well vendors meet your requests. The accurate data also shows how well vendors abide by your initial negotiation. Every partnership begins with a contract outlining the terms of your arrangement. For instance, the contract might state that the vendor must ship items or provide invoices by a specific date.
By analyzing procurement data, you can evaluate vendor performance and decide whether to continue the relationship. Vendors failing to meet your expectations could result in lost revenue for your company. It's important to maintain profitable relationships that improve your distribution processes. Procurement data helps you focus on dependable vendors rather than non-compliant ones.
2. Enhance Request for Proposal (RFP) Process
Companies are constantly looking for ways to improve daily business functions. When they want to invest in a new service or software, they typically write a request for proposal (RFP) for potential vendors. An FRP outlines your business's services and what you expect from a supplier. This document allows you to narrow down suppliers to find the best fit for your needs.
You can also use procurement data to optimize your RFP drafting process. Before you begin writing the document, you should consider your desired traits for suppliers. You should also think about the details of the products or services you need, and how you expect vendors to deliver these requirements. Procurement data allows you to analyze prior supplier relationships and turnaround times. You can use the existing data to optimize your next RFP.
For example, you might have outlined your ideal delivery schedule and implementation timeline in a previous RFP. However, a prior vendor might have failed to uphold the delivery timeline because it wasn't specific enough. You can then enhance your next RFP to feature a more detailed schedule and emphasize the importance of delivery times to potential vendors.
3. Optimize Productivity
Next, you can use procurement data to improve your company's productivity. The data can display areas of your procurement process that decrease efficiency. Then, you can analyze inefficiencies and work to reduce them for future plans. For example, procurement data might identify slowed productivity between product acquisition and distribution to consumers. You could evaluate employee performance and packaging strategies to find inefficiencies, then alter your methods to increase productivity.
Procurement data can also assist with inventory management. Your inventory organization plays a large role in overall efficiency. If you fail to keep track of existing stock, you could lower customer satisfaction and lose revenue. Procurement data provides details on what items you purchase and how long they remain in your inventory.
For instance, if you notice you bought too much of one item or that a specific product hasn't been selling well, you can consider lowering future orders. In turn, you can focus on popular products and maintain the inventory levels that will optimize your order fulfillment strategies.
4. Meet Customer Demands
Procurement analysis can also help you meet changing consumer trends. The data can identify new customer requirements and help you predict upcoming supply and demand trends for a wide range of industries. You can use the new data to optimize your existing strategies and increase customer satisfaction.
Fluctuations in customer demands are common, especially after the rise of online shopping methods. With procurement data, you can pinpoint the latest trends and order sufficient stock to meet demands. Then, you could use customer feedback and reviews to examine how well you met expectations.
Procurement data can also help with these aspects of customer relationships:
- Customer service: Strong customer service helps you enhance your brand image. You can create lasting connections with your consumers, building a solid customer base. Procurement data can help you analyze customer communication and find the best way to answer questions and resolve concerns.
- Distribution times: Data analytics provides detailed records of your entire fulfillment process. You can identify errors in your methods, such as overordering. By eliminating these errors, you can quickly deliver purchases to customers and improve their satisfaction with your brand.
5. Analyze Unstructured Data
All companies receive massive amounts of data each day, from customer behaviors to revenue statistics. A significant portion of this data is more challenging to analyze than spend data. For instance, customer engagement through emails and social media is considered unstructured data. It isn't arranged in a pre-defined data model, but it still has many valuable insights for your business.
You can use procurement data to evaluate unstructured data. For example, you can visualize social media data related to specific suppliers and evaluate customer responses. These predictive analytics can help you adapt current strategies to meet customer interests.
6. Examine Spending Habits
Lastly, procurement information can help you evaluate your purchasing habits. The data displays how much you spend on supplies, products, services and all other areas of the procurement process. You can examine your typical spending habits throughout the year and identify discrepancies.
For example, you might find spending mistakes like:
- Duplication: Detailed procurement reports can help you find redundancies within your buying patterns. For instance, two separate company departments might pay for a similar service, leading to a waste of money each month. You could use procurement data to evaluate each service and choose the best one for your needs, eliminating the second cost.
- Overordering: Without realizing it, you might order too much of a product each month. Many companies use automatic reordering methods to streamline purchases for supplies and products. However, changes in demand or consumer interests might cause demand to drop. If you rely on automatic reorders without examining procurement data, you could overstock your inventory and waste products.
- Automatic renewals: Your business likely has many contracts with vendors, from software services to product suppliers. Many of these contracts automatically renew at the end of subscriptions. You might no longer need the service or product but continue to pay for it because you forgot to cancel.
You can use procurement data to solve these spending problems and identify other inefficiencies. The data can show you every procurement expense, allowing you to eliminate spending redundancies. You can also find ways to save money.
For instance, the data can display ordering patterns. You might find that a particular product has risen in price but fails to meet your needs overall. You might have to return items due to damages or deal with late delivery times. By identifying these issues, you can search for alternatives that save you money and meet your needs more effectively.
Contact Dryden Group Today
Overall, procurement analysis is beneficial for a wide range of business functions. You can use procurement data to improve spending habits, customer relations and future campaigns. The data updates in real-time, allowing you to alter your existing strategies continuously. In turn, you can better meet company and consumer needs even as demands shift.
At Dryden, we seek to help companies and procurement organizations optimize their procurement processes to meet operational goals. We help you increase procurement performance, giving you a competitive edge over others in your industry. Our innovative and comprehensive consultations can identify areas for improvement and foster growth for future projects.
We offer a wide range of procurement services, including:
- Contract negotiations: Dryden Group uses thorough research to study the current supply chain and how it will impact your vendor relationships. We can help your procurement team create negotiations that mutually benefit you and your supplier.
- Procurement consultations: Our procurement consultations can focus on any type of procurement. We can use indirect spend procurement data to identify extraneous spending and keep costs low. We can also help with many other areas of procurement, helping you craft a tailored solution for your procurement strategy.
- RFP services: RFPs are essential for building your company's services and products. A well-crafted RFP can set you apart and increase vendor responses. Dryden Group can help you draft an optimized RFP that finds you an optimal supplier.
To get started with any of Dryden Group's services, contact us today.