Why Predictive Analytics is Changing Procurement’s Future

The opportunity for predictive analytics and Big Data in procurement goes well beyond spend.

Predictive Analytics in Procurement

Hackett’s 2016 Procurement Key Issues Study shows that increasing agility is a critical development area for organisations. It also shows that predictive analytics and forecasting tools are identified as having the greatest transformational impact on procurement in the future.

A confluence of high volatility, technology-led innovation, and hyper-competitive market conditions, has accelerated the rate of change in business to unprecedented levels. Agility is the key to success in this environment. In a procurement context this has four attributes:

  • Proactive Decision Making: Leveraging information and predictive analytics to improve the quality and timeliness of decision-making.
  • Value Chain: Industry leadership in digitising their value chain, including supply and demand chains, as well as internal operations.
  • Planning: Customer-centric planning processes and day-to-day business decisions.
  • Operational responsiveness: Permitting swift response to changes in the supply chain, customer preferences, the competitive landscape, and business strategy.

Overcoming Obstacles

However, accessing this data, information and market intelligence is a significant obstacle that must be overcome.

Becoming information-driven should be a primary focus area for procurement. The function must develop the tools and skills that will allow staff to apply market data and intelligence to decisions on spending and sourcing strategies. Creating deep, consultative working relationships with business leaders, demands that procurement bring this valuable expertise to the table.

This level of insight requires high-quality, real-time market intelligence. However, over half of the Key Issues Study respondents lack a formal market intelligence program or are in the very earliest stages of adoption. At the same time, establishing data governance and building a continuous improvement culture for data management and quality, are also tactics increasingly adopted by organisations.

Access to market intelligence, and ensuring that sourcing and supplier relationship management teams are using high-quality category and supplier intelligence, are prerequisites for agility.

Transformative Impact of Predictive Analytics

As procurement’s role matures from transactional facilitator to trusted business advisor, proficiency with the next generation of analytics – a.k.a. “big data” – will be a key enabler. Big data has been a game changer when it comes to customer analytics, offering an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources.

Good examples from the digital world include Google’s insight into customer behaviours and preferences, and Amazon’s ability to anticipate orders and ensure on hand stock to meet demand.

Source: The Hackett Group Key Issues Study 2016
Source: The Hackett Group Key Issues Study 2016

Predictive analytics refers to the use of statistical and mathematical techniques to predict the probability of future events occurring.

The predictive analytics and forecasting use case for procurement can be an increased focus on business outcomes, through greatly enhanced forward looking decision support capability; and automated and real-time information and analysis availability. Both of these are underpinned by greatly improved data quality.

Combining predictive analytics with cognitive tools will allow, for example, upgraded end-user buying experiences and automated sourcing actions to anticipate supplier and market events. It will also allow for forecasting of and acting to mitigate the impact of supply chain disruptions, and reduction of the severity of supplier risk events.

How do we respond?

As procurement leaders this situation poses challenging questions:

  1. What are the business outcomes and specific use cases for predictive analytics?
  2. How can we accelerate the organisation towards a single view of data and segmentation?
  3. Do we need to access new sources of meta and domain data?
  4. What is the value from faster, more frequent and higher quality information and insight?

Taking advantage of advanced analytical tools and methods requires appropriate staff with the skills to use them, as well as new technology roles, aligning business agendas, and elevating the overall level of technology knowledge. Future talent management plans should reflect the importance of training and hiring staff to handle the sophisticated analytical tools and methods, to deliver the full potential of Big Data.

Analytical projects are not without challenges. Procurement leaders who have not already started down this path should use the high-stakes competitive environment of 2016 as a burning platform.

About Hackett’s Procurement Key Issues Study

The results of this annual study are gathered from executives from over 180 large and global companies operating in the US, Europe and rest of the world, with annual revenue of $1 billion or greater. Find out more at the Hackett Group website.

Chris Sawchuk will discuss why procurement needs to be more agile during his keynote address at the Big Ideas Summit on April 21st.

If you’re interested in finding out more, visit www.bigideassummit.com, join our Procurious group, and Tweet your thoughts and Big Ideas to us using #BigIdeas2016.

Don’t miss out on this truly excellent event and the chance to participate in discussions that will shape the future of the procurement profession. Get Involved, register today.