5 Predictions on How Predictive Analytics Will Change Procurement

Gerard Chick, chief knowledge officer at procurement outsourcing experts, Optimum Procurement Group, looks at how predicting the future can stand you in a better position than looking to the past. 

There are five key points that every procurement professional should understand about the potential and realities of predictive analytics. These points represent some real opportunities for driving improvement across a number of organisational areas. And I believe it is those organisations that pursue improvement in these areas that will see results beyond their traditional cost savings focus.

Our predictions:

  1. Spend analytics will become predictive

Looking at where an organisation is going is a lot more important than looking in the rear-view mirror at the past. Most spend management looks at historical spending so, asking the right questions about the data we collect is what is important. While spend analysis can certainly provide one set of insights – it is only a partial view. We need to be able to use this intelligence to provide greater insights into future spending requirements, and enable procurement to provide the business with views that support and inform strategy and generate opinion on what is important going forward.

So, you might want to look at the relationships between economic activity, consumer demand, and demand for your products. There can be several leading indicators of demand including measures of business expectations, availability of funds for corporate activity as well as the long-established macroeconomic indicators.

Using multiple regression models, a predictive forecasting model may be developed which allows users to input data into the model, and develop specific forecasts for different categories of products purchased from overseas suppliers. This type of model can also be used to adjust company revenue and budget growth estimates – and can effectively be used to either curb or expand budgeted growth estimates based on these economic forecasting models.

  1. Incident prediction and workflow management systems will replace supplier risk monitoring on major projects and indirect areas

Incident prediction means understanding what issues are on the horizon, not just your understanding of current risks. To ensure monitoring of current workflow systems, real-time systems will be needed to collect worker feedback from those that are closest to the action.

We will also see the growth of forums for cross-industry collaboration to identify better practices, shared insights, and an opportunity to drive an orthodox approach to what are emerging as very large and complex risks in the global supply chain.

Constant research is needed to capture social media, ‘big data’, qualitative reporting insights, and other non-traditional data to enable predictive insight, and build a shared source of reality for factory and/or supply chain risk.

New insights are needed into risk mitigation practices that go beyond simply avoiding risky production locations when a decision is required, but instead drive better informed business decisions and improved community impacts for sustainable supply.

  1. Corporate Social Responsibility (diversity, environment, labour and human rights) will become an integral part of the sourcing and risk management process

Organisations will focus on creating centres of excellence tasked with creating indices that can provide a quantitative and visual representation of the supply disruption risks that exist in the (global) supply chain, as well as the related financial cost impacts associated with these issues.

These indices should be proactive in nature, and provide an early warning system as well as an estimate of potential financial impact of diversity, environmental, and human labour rights violations to procurement.

These centres of excellence should have the appetite to go beyond the mitigation of risk; and provide early warnings and a dashboard that can be used to alert management and serve as an alarm of possible threats to the supply chain.

  1. Organisations will build stronger modelling capabilities to plan and manage future supply chain talent requirements

The attraction of talent is the key to procurement organisations, yet most organisations don’t think of talent as a critical input. Organisations are finding a critical shortage of talent for many of the roles they are seeking. Talent attraction, deployment and retention should be part of building a procurement transformation initiative, and not an after-thought. In addition, organisations should also consider retention rates for employees.

  1. Post-Award Contract Management will become the best source of sustainable cost reduction

Our existing systems and ways of gathering data and information are adequate for category management or process – the pre-award work. You can tell what is happening in terms of how much you spend in this category, what business unit level spending you have, what you are buying, and you derive information to do strategy work and enough consumption information to negotiate volume tenders around the world.

But eventually the chickens come home to roost. It is the apocryphal moment when you see that your past assumptions and estimates evaporate with the stark realisation that 80%+ of your opportunity for continuous improvement exists –in the brownfield post-award stuff.

The opportunity to drive post-award contract management will grow and the ability to operate with intelligence regarding it will be critical.

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