Spend Matters welcomes a guest post from Doug Macdonald, Procurement Product Marketing Leader at IBM.
The world's ability to generate and store data has roughly doubled every three years since the 1980s. By 2020, analysts estimate that we will have 300 times more data than we do today.
Of course, that data will do little to enhance our lives or help our businesses unless we can effectively capture, manage, and analyze it. Despite the explosion in data – and greater access to that data – one in three business leaders say they don’t trust the information they use to make business decisions.
That may explain the buzz around Big Data.
What exactly is Big Data? Well, the definition can change based on whom you are talking to, but a broad definition of Big Data is the collection and management of data sets so large and complex that it is difficult to process and analyze them using traditional systems and technologies. It is information of extreme size, diversity, and complexity.
Big Data’s promise is to address a multitude of business problems – and create a multitude of business opportunities. The insights gleaned from Big Data can help businesses deepen customer engagement, optimize operations, mitigate risks, and capitalize on new sources of revenue.
That has business leaders buzzing – as well as planning and investing. According to the Wall Street Journal, nearly two-thirds of businesses have already invested in Big Data technology or plan to begin doing so within the next year.
So how does that promise translate to spend and supplier management?
IBM’s Institute for Business Value (IBV) recently conducted one of the largest known surveys of procurement organizations at global companies for its 2013 Chief Procurement Officer Study. The goal of the study was to understand the links between procurement and business performance and profitability. The study found an extremely strong correlation between performance and technology: 94 percent of top performing procurement organizations are highly effective in their use of procurement technologies, as compared to just 44 percent of average or below average performing organizations.
The study also detailed specific programs and actions that enable procurement organizations to achieve greater results than their peers. One of the notable areas was Big Data and data analytics. Among high-performing companies, 83 percent excel at leveraging analytics.
Procurement and supplier management are really ideal grounds for the application of Big Data programs and technologies. They are critical to the business – with more than 50 percent of the value of a company’s products being derived from suppliers and outsourced service providers, according to ISM. They are, of course, very complex operations – with complex objectives, variables, and processes. They produce massive amounts of data. And that data is often widely dispersed across disparate systems.
Important data. Lots of data. Complex data. Disparate data. That’s a Big Data challenge.
Big Data in procurement offers the promise to consolidate, cleanse, and connect spend and supplier data across the global enterprise. It promises to provide visibility and unlock insights that can help reduce costs, drive compliance, mitigate risks, improve business intelligence, and manage and develop suppliers.
Big Data makes the higher level value propositions in procurement possible – from tackling complex spend categories to proactively mitigating supplier risks to monitoring the performance of suppliers.
Technology solutions that can effectively and comprehensively consolidate and connect all forms of supplier data across a global organization are quickly becoming a core area of technology investment for procurement organizations. Spend Matters calls this emerging area “Supplier Information Management,” and analysts expect investments in it to grow three times faster than any other supply technology through 2015.
That’s understandable, considering what some leading procurement organizations have already accomplished:
- A Global 2000 mining company sought to more effectively identify savings opportunities and leverage its economies of scale. The company recognized that its main challenge was that the procurement organization could not rely on its spend and supplier data. The company established a centralized system for spend and supplier data – integrated with 18 different ERP systems. The platform and resulting business intelligence drove the company toward $1 billion in savings.
- A Global 2000 consumer packaged goods (CPG) company that had grown through acquisition sought to engineer more efficient procurement operations and consolidate its supply base and spending. It recognized a challenge to a global procurement goals in its diverse legacy systems employed by business units and heritage companies around the world. The company established a single, global platform for spend and supplier information and, as a result, significantly consolidated its supply base and put $3.5 billion under active spend management. With its improved supplier intelligence and visibility, the company was able to save up to 20 to 50 percent on key spend categories.
- A leading global auto parts manufacturer sought to improve visibility into the financial health of its core suppliers in the wake of the global recession and financial crisis. Supplier components represented, on average, 60 to 80 percent of the value of its end products. As many as 30 of its core suppliers actually became insolvent during the crisis, with most of these insolvencies directly impacting the company’s production. The company implemented an end-to-end solution to automate and manage all the data and business processes associated with supplier management. The result is deep visibility into global supply base that is used to mitigate risk and develop suppliers. In the first year alone, the company reduced suppliers with financial difficulties by 35 percent and proactively screened 1,500 core suppliers for financial health.
Of course, every business’s challenges are different – and every company’s systems are different. But what is universal is the desire for greater spend and supplier visibility and control. That starts with getting better visibility and control over your data. And from there, the opportunities are endless.