Third-Party Market Intelligence Can Supercharge Procurement

Timely, accurate data has become more important than ever across every part of the business, and purchasing departments are no different.

When making procurement decisions, however, it can be especially difficult to source data that is often heavily related to factors external to the business, including the state and quality of suppliers and sub-suppliers and prices for materials that can change in response to competitors negotiating new contracts, geopolitical factors, and even natural or manmade disasters.

We’ve previously discussed monitoring and managing some of these risks in a previous Spend Matters article on Resilinc’s Eventwatch, but what’s the best way for your department to get in front of these challenges and opportunities while increasing credibility and buy-in from internal and external stakeholders?

According to a recent report from ProcurementIQ (“IBISWorld Procurement” before a 2018 name change), third-party market intelligence can provide the accurate, up-to-date information alongside tools and support to substantially enhance the strategic capabilities of procurement functions, offering a host of short and long-term benefits to an organization.

The single greatest benefit derived from the support of a great market intelligence provider is the credibility gained from professionally collected and managed data on the array of external factors that affect procurement decisions at every level. Such data allows purchasing professionals to address topics like total cost of ownership and indirect spend more effectively by showing empirically how changes can be made that before may have seemed like little more than conjecture.

In the past a substantial amount of pricing and other data has come directly from suppliers, creating the potential for bias or outdated information and making it more difficult to effectively consider the long-term benefits of choosing one relationship over another. While gathering all this data independently might seem like a clever way to cut costs even further, most businesses likely don’t have the resources to collect data on macroeconomic trends or regarding supplies with whom they don’t have an existing relationship, let alone keep such a repository up to date for thousands or millions of purchasing decisions under their management.

Market intelligence has the potential to improve key factors of any procurement department’s charged duties, with some standing out as particularly impactful.

Price benchmarks that are easy to track down for some commodities can be difficult or impossible to understand reliably without a dedicated source of research. Tracking up the supply chain even further, factors that drive these price changes like raw material costs, changes in demand, and shifts in administrative expenses owing to regulatory or social changes can all offer big improvements to the bottom line when skilfully monitored — and big risks if left unchecked.

Reliable, high quality data also lends a view to the future when strategically managed, allowing cost controllers to generate price forecasts used in deeper considerations about vital services like hiring and retaining legal counsel and inventory levels that were formerly opaque and wereacquired “on-demand.”

Costs associated with many procurement decisions also go beyond the initial purchase of complex machinery and ongoing services, and in these situations good data is absolutely essential and often difficult or impossible to come by without dedicated resources. The total cost of ownership for such purchases can include maintenance, training, replacement parts and add-on services that in many cases can drastically alter the realized cost over the lifetime of the purchase, often in ways not anticipated by purchasing professionals not armed with sufficient knowledge.

Perhaps most valuable of all is the effect all of these factors combined have on negotiations with suppliers and other stakeholders.

Whether entering a new relationship or re-negotiating an existing one, arriving prepared with data on upfront costs, long-term costs, market conditions, potential alternatives, and expectations for the future greatly increases the prospect of a firm and fair dialogue that leaves all parties involved satisfied that they deliberated in good faith and have appropriate expectations going forward, building a strong and lasting relationship with few surprises and consistently amicable interactions.

While improving basic procurement KPIs and relationships with external suppliers, market intelligence can also improve the quality and influence of   purchasing departments within their organizations. Armed with extensive data about prices and trends outside direct material costs including indirect spend and administrative materials, it’s easier than ever for purchasing professionals to back up their initiatives to increase spend under management with hard data and offer proactive solutions instead of appearing as an impediment to the flow of business as usual.

Addressing maverick spending using such data has already been shown to have huge potential for making the business more efficient and effective. In turn, such credibility can cause executive decision makers to take notice and involve procurement professionals earlier and more deeply in the strategic planning process, allowing them to guide the business toward even greater savings through supplier selection and strategies for controlling costs while ensuring all functions have the resources they need to get the job done.