Next Generation Analytics, Social Tools Give CPOs a Leg Up

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A study of procurement practices on three continents reveals that companies that leverage analytics and social collaboration tools to manage their supplier networks are more efficient and profitable, with high performers averaging 15% greater profit margins than less technologically nubile firms.

The survey of more than 1,100 chief procurement officers was conducted by the IBM Institute of Business Value and found that, among other things, high-performing firms are more agile in their ability to react to changing market dynamics due to their reliance on strategic partnerships, social tools and Big Data.

As chief procurement officers transition from a “traditional back-office, transaction-oriented role” to one that is more front-facing and interactive, data analytics and enterprise collaboration also are providing new avenues to improve demand forecasts, identify cost-saving opportunities, and manage contracts, analysts say. For instance, according to Accenture, use of analytics has been shown to increase demand accuracy by as much as 55%.

The shift couldn’t have come at a better time for the beleaguered procurement profession. As recently as 2011, two-thirds of CPOs polled by Ardent Partners reported that the skills of their purchasing staff “need improvement” while another 11% referenced a “significant gap” in their sourcing capacity. Respondents lamented low performance in six key metrics: supplier performance, managing supplier risk, supply market knowledge, leveraging of technology to drive business value, cash management and business consulting skills.

Last year, the same firm found that only 32% of enterprises had a standardized their spend-analysis processes; and even fewer reported full “spend visibility.”

Recent data indicate a concerted push is underway to bring procurement and supply chain management into line with other enterprise practices through the use of emerging solutions powered by the cloud. Two-thirds of supply chain executives now report that they are implementing or considering Big Data solutions, according to Eyefortransport’s 2013 Supply Chain Big Data Report, while the market for spend-analysis solutions is forecast to grow at low-double digits through 2015.

The top three desired outcomes according to CPOs are reduced costs, increased efficiency and enabling real-time responsiveness to variable market factors.

In its new analysis, which was released last month, IBM found several standouts that distinguish high-performing CPOs, including the ability to:

• Gain Insight Through Big Data Analytics
• Collaborate Well Within and Beyond the Enterprise
• Adapt to Changing Market Conditions

Visibility into sourcing pipelines and the power to sense evolving conditions are critical to effective procurement management, the report found. A whopping 83% of high-performing CPOs excel at leveraging analytics, and well over three quarters are now using collaborative strategies like crowd sourcing, compared to fewer than half of their low-performing counterparts.

While their use is still limited, the link between high quality procurement and Big Data is now solid, and CPOs are finding they can no longer overlook the writing on the wall.

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