Procurement Analytics for Category Managers

A procurement category manager’s core responsibility is to gain a comprehensive overview of a designated category to drive value. This includes understanding key suppliers, existing contracts and available data pertinent to the category.

Responsibilities

Daily activities involve contract renewals, preparing RFP and collaborating with strategic or tactical buyers within the category, says IBM business process outsourcing (BPO) representative Dávid Pap, who oversees the travel and fleet category for an external client.

A critical annual activity is a strategic boot camp. “(It’s) where we set up a project timeline for the entire financial year, defining start and end dates for various projects and tenders within the category,” Pap says. “The category manager then assigns these projects to the buyers and ensures follow-up to track progress.”

Data planning is an important element of the strategic boot camp — and the ability to leverage procurement analytics tools with frequent data refreshes and integration of various data sources directly impacts the category’s planning and spending control. Pap believes data planning and visualization will continue to play a crucial role in procurement, enabling category managers to optimize spending, identify opportunities for consolidation and ensure policy compliance.

How Can Analytics Aid Category Managers? 

To develop effective long-term procurement strategies, it is critical for category managers to have visibility and understanding into current spending patterns and supplier management details.

Managing and maintaining accurate spend records have historically been a challenge, as procurement organizations can be complex and fragmented. Fragmentation can be due to decentralization (different procurement departments acting in a silo, with minimal communication and alignment across). It also can be exacerbated by the fragmentation of data — for example, where there are multiple ERP systems, data being housed in multiple supplier contracts, contract variations (paper versus digital) or multiple expense card extracts.

However, the adoption of data and data-based tools for procurement analytics has helped address this challenge. Such tools offer an efficient method for analyzing historical spend patterns and predicting future ones.

Successful category management requires both spend visibility and behavior management. Using his role as an example, Pap says, “in categories like travel and fleet, where policies aim to prevent abusive spending behaviors, data-driven insights play a pivotal role in shaping our strategies and plans.”

Historical Spend Data

The first level of data analysis for category managers is historical spend analytics, which includes all information related to an organization’s purchases, like invoice and PO numbers, text descriptions of goods and services, and payment and supplier information.

Depending on the data that is available and tracked by a company, numerous analyses are possible:

Supplier standardization. Evaluate your supplier base for different names of a supplier and standardize the listing under one formal name. This analysis allows you to identify the full picture of spend your organization has with a supplier — potentially leading to improved supplier management and increased leverage during negotiations for volume discounts and favorable payment terms.

Tail spend investigation. Typically, 20 percent of an organization’s supplier base accounts for 80 percent of total spend. The remaining bottom 20 percent of spend, also known as the tail spend, is then spread over 80 percent of the supplier base. Identifying “tail” suppliers enables supplier consolidation by shifting low value spend to more strategic suppliers.

Geographical analyses. Buying teams segmented across different regions can utilize different suppliers and buying strategies. By exploring spending across locations, category managers can identify any outliers by geography and ensure a more cohesive and connected global/national category strategy is in place.

Contract management. Having visibility to contracted spend can help identify opportunities to add value and decrease risk by moving spend with non-contracted critical suppliers under contract.

Other factors, including analyzing historical data based on payment term, unit of measure and key term analyses.

A Greater Impact

Historical spend analysis can be made even more impactful when connecting data to market and industry intelligence metrics, as this facilitates both the identification and understanding of spending patterns.

Critical market metrics:  

• Market trends. Understanding pricing and industry trends, identifying new innovations and emerging technologies in the market, monitoring changes to corporate regulations, and tracking changes in the growth rates of organizations and industries can impact how category managers curate their category’s overarching strategy. 
• Regulatory compliance data. Understanding existing country or commodity regulations — like the General Data Protection Regulations (GDPR) in the IT category — as well as tracking new regulations or updates to existing one, is critical for category managers to ensure strategy and buying compliance.
• Risk assessment data. Evaluating current and future changes in risk areas that directly impact categories, such as economic policies, weather patterns, geo/political movements, shipping lane issues and individual supplier’s practices, allows category managers to best plan for and mitigate potential risks.
• Diversity and sustainability. An important element of a socially responsible corporate strategy is the suppliers an organization chooses to partner with. Accurate tracking of diverse and sustainable suppliers and supplier practices can better inform the supplier selection process and ensure company policies around diverse and sustainable suppliers are being met. Certification standards (self-reported versus independently certified) are also important to track as organizations may have different requirements dependent on this provision.

Data Tools

While comprehensive spend and market data is available, this data may not always be in an easily accessible format. A variety of tools are available to address this and provide key information in an easily ingestible way.

Business intelligence tools focused on visualization can help display internal data in a way that is easily understood and navigated. These visualizations can be tailored to highlight specific attributes of the data that can help facilitate the identification of insights, as well as track important performance metrics.

Market intelligence tools offer a similar value but focus on external market data. Other data-based tools that can aid category managers include compliance monitoring software, supplier performance evaluation tools, collaboration and communication tools (for managing relationships with suppliers), and risk management software. 

Pap emphasizes the importance of specialized data tools that can address each categories unique needs. “For example, travel spend typically comes from credit card transactions and reports from travel agencies, rather than POs or invoices,” he says. “These tools help us consolidate and analyze this data effectively, enabling us to make informed decisions and optimize spending.”

Driving Value for the Organization   

How category managers use the data and visualization tools available to them is just as important as ensuring they are available in the first place.

At the core of any procurement strategy is an emphasis on improving overall savings. Procurement analytics helps to highlight underperforming/successful areas, enabling category managers to achieve cost reduction and savings through a variety of methods.

Enhanced decision-making is another priority, and accurate tracking of historical spending and real-time market changes allows category managers to make better-informed, data-backed decisions.

Data and visualization tools can also improve KPI tracking: Not only can category managers observe more accurate estimates of overall savings, but they can tie changes back to specific improvements. Additionally, category managers are better placed to evaluate the overall success of the current strategy, noting when savings decrease, and changes are needed.

Other ways to drive value: 

• Working capital optimization. Identifying and improving cash flow opportunities enables category managers to increase their organization’s working capital, keep cash on hand for longer, and invest back into the organization.
• Improved supplier management. Tracking supplier performance, risk and satisfaction enables organizations to better identify strategic suppliers and shift spend away from non-strategic and high-risk suppliers. Additionally, identification and tracking of diverse and sustainable suppliers can aid an organization’s overall corporate social responsibility (CSR) strategy, ensuring the maintenance of ethical partnerships.
• Increased procurement organization efficiency. Implementation of procurement analytics helps to bridge organizational gaps by bringing relevant data together in an easily ingestible form. Not only does this aggregation enable the quick identification of actionable insights, but it also reduces the possibility of human error and inaccuracies in data reporting and record maintenance. Further, reduction of manual efforts allows category managers to focus their attention on strategic activities.

Data analytics has transformed the way businesses operate, and the procurement organization is no exception. Procurement analytics is a powerful tool that enables category managers to develop a more robust and informed category strategy based on data-driven insights, contributing to the overall efficiency of the procurement process. 

As technology continues to advance, as shown by artificial intelligence (AI)-driven analytics, the value provided will only grow as these tools become an integral part of the procurement world. According to Pap, “With advancements in technology, such as AI-driven analytics, we can expect even more sophisticated tools that streamline decision-making and drive value within the procurement organization.”

(Photo credit: Getty Images/Gorodenkoff)