What is procurement analytics? And its importance?

What do you understand by Procurement Analytics?

Procurement Analytics is the process of collecting, cleansing, and analyzing the data from procurement for insights and decision-making. Procurement data which is collected from multiple sources and data systems are generally disjointed and distributed across various systems making it difficult to be analyzed. All this data is then stored, effectively cleaned, and classified to be used as per business needs or per-use cases.

Some of the systems which have data are Payment-related data, Supplier data, Sourcing data, Contracts data, Invoicing, and Goods data.

Why is Procurement Analytics important?

Some of the reasons why procurement analytics is important are:

• Processes for purchasing that aren't uniform across business units.
• Lack of integration across various technologies.
• Inconsistency between the metrics to be tracked.
• Lack of uniform data across the enterprise.
• Inefficient cost and payment tracking.

Key Procurement Terms

To effectively understand the value that Procurement Analytics provides it is important to know the following terms:-

Sourcing

The process of sourcing involves recognizing needs, monitoring suppliers, and satisfying the demands in order to cater to the ongoing resource requirements of businesses. It involves strategy, research, and assessment. It focuses more on evaluating, choosing, and managing supplier relationships. Even though it's frequently mistaken for procurement, this might be regarded as a component of total procurement.

Procurement

Procurement is a process that deals with finding the suppliers, managing them, and payment including planning, negotiating, managing inventory, issuing purchase orders, etc. i.e. from sourcing suppliers to payment. Organizations use data from procurement to identify cost-reduction opportunities, evaluate vendors, reduce sourcing time, etc. Procurement can be further divided into strategic and transactional procurement.

Source-to-Pay

Source-to-Pay cycle or S2P cycle is the end-to-end procurement cycle. It includes the entire process right from sourcing the vendors/suppliers to paying them after the delivery of goods is complete. It is further divided into two parts- S2C and P2P cycles.

Source to Contract

Source-to-contract includes functions like sourcing, contract management, supplier management, and category management. It deals with identifying the right suppliers and maintaining a relationship with them.

Purchase to Pay

Purchase-to-Pay includes Purchase order management, invoice management, purchasing, and payment management. This cycle is more about fulfilling the requirements raised by the team when it is needed.

Spend Analytics

Spend analytics or Spend analysis, which is one of the most used procurement analytics examples, refers to the analysis of spending data from multiple sources like invoice analysis per category, purchase order analytics to understand the cycle times or supplier management, and payment term analytics for identifying any deviations or scope for improvement.