Friday Rant: When Data Misleads and Becomes Disruptive

If someone pinned me down and asked my opinion about the broadest and most universal trends in procurement in recent years, I'd have to say that organizations of all sizes and sophistication are gaining access to an ever-increasing amount of information to make decisions. That being said, this information may be leading them to make the wrong decisions rather than the right ones. That’s because more information in and of itself isn't necessarily a positive thing. I've seen firsthand numerous examples of data that misleads companies and becomes a negative, disruptive force rather than a positive one. Does this mean that we should all go back to the stone Spend Management ages and continue to make decisions in a vacuum? Absolutely not. We owe it to ourselves, the business, our suppliers, and our shareholders to not only focus on gathering more information, but also to ask ourselves about its integrity, accuracy and how we can best act on it. Consider, for a minute, the following examples of how data can mislead an organization, potentially lending credence to the ignorance-is-bliss argument:

- A procurement organization, through the combination of ETL tools, a performance management dashboard, and related scorecards, begins to collect a range of quantitative pieces of information on its suppliers. Over a period of three months, the data shows that a supplier's quality has suddenly deteriorated. The company mobilizes resources to investigate, only to realize that the problem lies with the fact the sample size of data for the most current period was based on a single truckload shipment (with a single defective part) versus ten defective parts the period before, due to volume declines, order timing, etc. But this information did not show up in the aggregate dashboard roll-up.

- Using a spend visibility toolset, a company analyzes spending data for a common item rolled-up on a category or aggregate level. It finds that the purchase price variance (PPV) for a given part or item shows moderate and rising volatility between periods. But what the system fails to show--and where the organization wastes time spinning its wheels--is that the PPV is nearly all attributed to a single facility supplied by a given supplier who is working with multiple plants, who have not realized the same behavior. What are the potential reasons? It could be that the plant manager has authorized expediting (and freight costs are bundled in) because of particular demand in his region. Or, perhaps volume spikes have outstripped the ability of the plant's ability to source only from a single, preferred supplier. Regardless, from an aggregate perspective without this level of site detail, the procurement organization could find itself chasing a problem it believes is company-wide in scope but in fact is highly targeted. - A company leverages an existing toolset (e.g., supplier portal/supplier management/spend analysis) to use as a foundation to enrich supplier records with risk information in the hopes of gaining early warning to supplier bankruptcies. Per the terms of the agreement with their technology vendor, they are resold D&B, Equifax or other risk enrichment data that is updated on a quarterly basis with their regular refreshes. But the speed with which a supplier's financial and operational situation can go south rapidly outpaces the scheduled updates, leaving the organization with a false sense of assurance that it is actively monitoring its supply base for various risk factors. In other words, the mere presence of this data is at best, a lucky indicator if the timing of the refresh and a supplier change in status coincides with the update schedule or, at worse, a bogus safety blanket if the organization becomes more lax in monitoring other risk factors (e.g., supplier performance trending) because it feels a new sense of security from its risk program.

These examples--and many that are similar that I’ve seen over the years--help prove the point that by merely collecting more information and purchasing tools to help analyze it, we’re not necessarily benefiting our organizations or ourselves. The process by which we decide the granularity, frequency, quality, and depth of the data we consider in our analysis is far more important than just deciding to consider a new information source in the first place. And yes, while analytics, visualization and other front-end tools can help us to drill in and explain information to our peers, leading to specific actions, if we don't stop to think about what types of information we're collecting and how we're doing it, we're apt to create situations where not knowing anything may be preferable to knowing untruths.

Jason Busch

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