Emergence of AI and Procurement Analytics- KBV Research

Posted by KBV Research on July 2nd, 2019

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.

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KBV Research
Joined: January 15th, 2019
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