Procurement and data-driven decision making

As big data gets bigger, and procurement climbs the ladder to board-level, data-driven decision making is becoming central to procurement as a function.

Data and Procurement

Data-driven decision making in procurement, is akin to knowledge-driven decision making in everyday life. It allows for foresight, and hindsight, which - as Nietzsche once wrote - are the necessary ingredients, for insight.

It can, by endowing the practitioner with the right vision, also help businesses to reduce costs, as well as improve supplier relationships.

It can also promote sustainability, since, by being able to see further and deeper into procurement sources and channels - those ambiguous and slightly nebulous borders where procurement functions begin to merge with supply chains - it can open up vistas that allow for eco-conscious commitments.

To return to threadbare descriptions: Data-driven decision making in procurement, simply involves the collection, analysis and use of data to inform procurement decisions.

But this data, includes everything from analysing supplier performance, to optimising inventory levels.

And by using data to make informed decisions, businesses can reduce risks, improve efficiencies and create once-obscured value for their stakeholders.

Supplier Relationships

One of the key benefits of data-driven decision making in procurement is the ability to optimise supplier relationships.

With data analysis, businesses can identify suppliers that are consistently delivering high-quality products and services at competitive prices.

This can help to build stronger supplier relationships, reduce the risk of supply chain disruptions and identify suppliers that may not be meeting performance targets, allowing businesses to take corrective action or find new suppliers that can better meet their needs.

This of course, feeds into compliance and D&I considerations which are becoming increasingly important in the world of procurement; important enough, that a day may come where companies who fail to comply, are unable to do business altogether.

Sustainability

Another key benefit of data-driven decision making in procurement is the ability to promote sustainability.

By analysing data on supplier sustainability performance, for example, businesses can identify opportunities to reduce their environmental impact and promote sustainable practices throughout their supply chains.

Data analysis can help businesses to identify suppliers that are using environmentally friendly production methods or are committed to reducing their carbon footprints.

Inventory and costs

Data analysis can also help businesses to optimise inventory levels and reduce costs. By analysing data on demand patterns, inventory levels and lead times, businesses can discern opportunities to reduce inventory holding costs while ensuring that they have the right products in stock when they are needed.

This can help businesses to optimise their cash flow and reduce waste, and assumes a new level of importance following the pandemic and the war in Ukraine.

The Challenges of data-driven decision making

Data-driven decision making in procurement is not without its challenges. Just having access to data isn't enough. One of the main challenges is the need for accurate and reliable data.

Inaccurate or incomplete data can lead to poor decision making and wasted resources.

The decisive factor is not gathering as much data as possible - although many procurement professionals may think so - but about collecting the right data, the relevant data, pertinent, significant, serviceable data, and once gathered - knowing what to do with it.

A sushi chef probably need not know the numerical dimensions of their knives or the musical key in which their soy sauce may resonate if dripped into water - it would not make for better sushi, and would probably obscure the task at hand. A slightly quaint metaphor - but serviceable.

You have to understand what you are looking for, and if you're erudite - to question what is being looked for.

Data Analytics - What does it all mean?

Another challenge is the need for skilled data analysts who can interpret and analyse the data.

This requires a combination of technical expertise, business acumen, and creative vision.

Businesses must invest in the training and development of their procurement teams to ensure that they have the skills and knowledge needed to effectively use data in their decision making processes, but as said earlier, what is being looked for, will change as itself procurement evolves.

While there are challenges to implementing data-driven decision making, businesses that invest in the necessary resources and skills can reap significant benefits in terms of efficiency, effectiveness and competitiveness, and for procurement - it's essential.

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