Spend Analysis: Past, Present and Future
A reflection on spend analysis past, present and future.
As the foundation of any digital procurement strategy, perhaps no technology area has greater immediate impact than spend analytics. But maximizing that impact still requires you to get the basics right.
Spend analysis technology is not new and has long been acknowledged as a cornerstone of procurement excellence. Analysts (including me) have long touted this fact. A recent study from Ardent Partners shows that best-in-class procurement departments are almost 2.5 times more likely to have enterprise-level spend visibility serving as evidence that spend analysis is still the foundation upon which operational excellence within procurement is built.
A basis for the “best-in-class” differentiation often lies in the usability of the technology. As a veteran of the world of supply management, I’ve participated in the rapid evolution of procurement technology, and have personally witnessed how it has caught up with wider enterprise solutions. Starting with the move to the cloud/SaaS solutions, today’s consumer B2C-driven models (e.g., Amazon, Alibaba and eBay) have pushed B2B technologies in areas like procurement to be 100% focused on the end user.
What this translates into is the development of technology that was purpose-built for the end user. While procurement is going through a massive wave of M&A through platform suites, AT Kearney correctly points out that successful procurement technology still has one job: “To provide a robust yet easy-to-use system for transforming needed goods and services into value for a company so it can excel at its own business.”
But to the end user of procurement technology, what constitutes “usability” varies depending on where one sits in the organization. For upstream procurement (that is, those processes focused on spend analysis and strategic sourcing), usability means putting advanced tools in the hands of the sourcing practitioners who need to easily identify and optimize spend opportunities and execute strategies with suppliers based on key spend categories. For downstream procurement users, focused on purchase-to-pay, usability is all about processes that engender efficiency through guided buying approaches. But upstream or down, the goal is to enable business users that help procurement realize its identified savings by improving spend compliance.
Moreover, as organizations looks to undertake and expand digital efforts, big data and advanced spend and procurement analytic approaches are expected to have a profound impact on procurement’s ability to generate new insights for executing a digital procurement strategy, and is seen as key for future improvements in procurement performance. In this regard, a recent McKinsey survey asked participants to quantify the likely near-term impact of their digital procurement programs. On average, their expectations included a 40 percent increase in annual savings, 30 to 50 percent less time spent on transactional sourcing, and a 50 percent reduction in value leakage. Since data has become the new currency in a digital world, the importance of spend analytics has only increased as a discipline within procurement.
While the trends in artificial intelligence (AI) and cognitive computing are in their early stages, spend analysis is going through a profound transformation that will be accelerated by advancements in machine learning (ML) and natural language processing (NLP). The evolution of these technologies will only hasten insights from spend analysis activities based on the interpretation of internal and external data sources (both structured and unstructured), the visualization of descriptive and predictive outputs, and even the cognitive interaction with analytics (think Alexa, Cortana or Siri). But these elements will only improve with established approaches to spend analytics and spend visibility that will still require human insights to interpret and act.
As I most recently researched and talked about digital procurement trends as the head of Procurement Research at The Hackett Group, I now will look to put these strategies in motion. Based on the digital transformation that lies ahead with spend analytics, I am excited to join the SpendHQ team and the wider Insight Sourcing Group family. In a world of digital hype, procurement has been pulled into the myriad of discussions on how to align its digital strategies with the wider enterprise. Built on the premise that services and technology must deliver positive results, this experienced group of professionals is fervent in its commitment to applying the best combination of technical innovation with a human approach to procurement execution and transformation.
Let the journey begin!