7 ways that data and analytics fuel digital transformation in procurement

Digital transformation is one of the most overused and least understood terms in enterprise businesses. One common fallacy is to think that digital transformation is a fast and revolutionary route into automation. In reality, digitalization is a long process that has been going on for decades. Operational functions like procurement haven’t exactly been the pioneers of digitalization, but they are quickly catching up. This article describes the digital transformation of procurement and seven ways in which data and analytics have fueled the process.

Digital transformation in procurement

Digital transformation in procurement relates to the new applications and automation of procurement processes that increase the efficiency, compliance and value of the function.

Algorithms, artificial intelligence (AI), robotic process automation (RPA), and machine learning (ML) are all emerging enablers for improving procurement applications and processes.

But it isn’t just new tools and diverse types of data that are driving digital procurement. Any true enterprise transformation starts with human expertise. Accenture reports that other diverse factors are at play, including shifts in the skills and talents required for procurement, the improvements in intuitive user experience across enterprise software, and the way policies and procedures guide operating models.

Together, these trends are updating and rejuvenating procurement. Because of the wide demand for analyzing and managing spend, a broad field of solutions has emerged to cater to different needs and maturity levels. As the procurement software landscape evolves and builds, procurement is given access to better tools for collaboration, integration and innovation.

The image below illustrates the explosion of data from ERP suites to S2P suites to ecosystems of best-of-breed solutions. Some of the foundations of enterprise and procurement software have reached the respectable age of 50 years in service. Even at Sievo, we recently celebrated reaching adulthood as an 18-year-old startup. While it has taken some time for the procurement software market to mature, it’s clear that the pace of digitalization of procurement has accelerated in recent years. Many new service providers have emerged to meet the broad scope of needs of procurement organizations.

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Evolution of procurement analytics

One area where procurement technology has developed through clear stages of evolution is procurement analytics. At Sievo we’ve been on this journey from the start, and we’ve observed digital transformation happening across defined generations.

Here’s a brief recap of the different generations of procurement analytics:

Generation 1 (1990 – ): Analysis done in Microsoft Excel by consultants or business analysts largely focused on past spend analysis.
Generation 2 (2000 – ): Desktop spend analysis software bought under license with data hosted on-premises or within the company firewall.
Generation 3 (2010 – ): Browser-based spend analytics dashboards providing business-intelligence-level visualizations and usability, licensed or bought as software-as-a-service. These SaaS dashboards offered drill-down capabilities to get more insightful looks at data.
Generation 4 (2015 – ): AI-powered, automated procurement analytics solutions combining many data sources, encrypted and hosted on the cloud, and bought as software-as-a-service. These solutions offer alert-up notifications as well as drill-down capabilities that improve procurement’s vigilance and reactiveness.

Different generations of procurement analytics solutions co-exist to meet the needs of different business domains. Some organizations retain their Excel-based reporting, while others may continue using self-built or configured business-intelligence solutions long into the new decade. Some procurement organizations can skip entire generations through the process of digitization if the procurement leadership has a clear mandate to implement data-driven transformation.

From insights to action

In the early days of procurement analytics, the best that procurement leaders could hope for was annual or semi-annual reviews of performance as part of wider strategic sourcing processes. We simply didn’t have the digital maturity to connect, cleanse and harmonize data quickly enough for regular and expansive analysis. As digital competences and capabilities have improved, we have been able to shift our view from the past to present — and even the future.

Analytics has enabled procurement to shift its focus from cost approvals and reporting into forward-looking forecasts that can influence enterprise spend.

Procurement analytics today is so much more than just a new toolset for cost management. Unleashing the value within procurement data can provide strategic insights for the organization and enable procurement contribution to direction-setting. Procurement can utilize analytics to describe, predict or improve business performance. Analytics touches all activities — from strategic sourcing to category management and procure-to-pay processes.

On a broad level, analytics can fall into four general categories:

Descriptive: What happened in the past?
Diagnostic: Why something happened in the past?
Predictive: What trends and patterns tell us? What will happen?
Prescriptive: What decisions procurement should take?

Traditionally, procurement analytics have focused on understanding past procurement spend and supplier performance, but increasingly the focus is shifting toward AI-driven prescriptive decision-making. This reflects an evolution from “descriptive” analytics to “prescriptive” analytics.

7 applications of procurement transformed by analytics

Analytics is a great example of digital transformation because you can easily identify concrete examples of the jobs and tasks that are being transformed. Analytics by itself is only an enabler, but in the hands of procurement professionals, it becomes a power tool for improvement.

Advancements in the software landscape have shown that procurement loves its data — and that there are a lot of opportunities that analytics provide in the field. Here are seven common applications of analytics in procurement:

Analytics in category management: Procurement analytics allows category managers to identify savings opportunities, segment and prioritize suppliers, address risks and facilitate innovation. Systematic discovery of opportunities and risks can be only understood when datasets previously held in silos can be analyzed together.
Analytics in strategic sourcing: In strategic sourcing, analytics helps identify the best times and areas to run sourcing events and requests for proposal. It can identify which suppliers to include in sourcing projects and provide rich information into supplier’s quality and risk positions.
Analytics in contract management: Analytics provides value across contract lifecycle management (CLM). It can alert when contracts need to be renegotiated or provide data for supplier negotiations. Analytics can identify maverick spend to help compliance and improve contract coverage. It can help in harnessing the benefits of scale and scope.
Analytics in procure-to-pay: Procurement analytics also can provide much value in the transactional and financial side of procurement. With analytics, you can measure purchase order cycles and improve payment terms. You can evaluate payment accuracy, discover rebate opportunities, benefit from currency fluctuations, identify mistaken payments and reduce fraud. You also can forecast and run scenarios on commodity price changes.
Analytics in sustainability and CSR: Analytics can aid in assessing sustainability and corporate social responsibility (CSR) within the supply chain and procurement. Analytics can uncover the environmental or social impact of procurement decisions and identify opportunities for more sustainable alternatives and improvement.
Analytics in risk management: Analytics can aid in identifying and mitigating risk within the supply chain and procurement. Analytics can unravel the complex relationships between supply, price, the environment, CSR initiatives and risk, while identifying opportunities for mitigation.
Analytics in performance measurement: Procurement analytics is classically used to identify savings realized, which is directly relevant for profit and loss (P&L) reporting for finance.

Next stage in the transformation: Procurement data hubs

There has never been a better time to be a procurement leader driving digital transformation. Through decades of progress, we have more data and software solutions available than ever before. As the pace of development is accelerating, one area of opportunity in analytics is the concept of a procurement data hub.

In the past, procurement analysts have been limited in their ability to utilize data from outside of the enterprise IT landscape. For many, it has been challenging enough to combine data from various ERP or transactional source systems. Cloud-based procurement analytics software and APIs enable more automated and flexible uses of data coming from both internal and external data systems. You can view all of this from the perspective of a procurement data hub — where information can flow as naturally as flights arriving and departing from a busy airport.

Today’s analytics software can safely coordinate this flow of data in real time like a control tower. What remains is for the procurement leaders to decide the most valuable routes for data to flow based on their own organization’s goals. Take, for instance, the example of supplier risk and sustainability. You can now effectively connect your internal data about key suppliers, contracts and categories of spend with third-party supply chain risk, diversity or sustainability data providers.

There was a time when spend analysis and supplier risk evaluations happened in different stages over a long process, but advances in digital transformation have enabled us to reach the real speed of business.

Let’s reach a conclusion, as you’re probably anxious to set your own course and build your transformation vision.

Remember, digital transformation is a journey and not an end-goal. Data and analytics enthusiasts like myself have seen digital procurement turn from a spark of opportunity to a vision of interconnected data hubs. We’ve seen the fear of data turn into love. Now, join the transformation movement and enjoy the ride!

About the author

Sammeli Sammalkorpi is one of the two original co-founders who established Sievo in 2003. Hailing from the very north of Finland, his parents had hopes he would become a reindeer farmer but instead he turned into a software entrepreneur and procurement advocate. Sammeli founded Sievo after gaining experience in management consulting and enterprise information technology and is now the CEO of Sievo.

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