What are procurement analytics?
Many entrepreneurs and senior executives in small and medium-sized businesses (SMBs) dismiss “big data”. It’s for big companies, surely? Do we really need a roomful of analysts crunching numbers and telling us what we already know about our customers? After all, SMBs are a lot closer to their customers than giant corporations, which need to be told what is going on because they are so remote from day to day operations.
Well – up to a point. It’s definitely true that SMBs have a very good feel for what’s driving their customers’ buying decisions – they need this to survive. But the principles behind big data, applied with typical SMB common sense, can yield a lot of useful business intelligence for a relatively modest investment.
The key is to decide in advance, what you want to know. For example, you may have a couple of sales people out on the road. One seems to have double the business travel costs than the other, but you just don’t have time to trawl through piles of receipts to find out why. But if you knew, you could possibly reduce your expensive employee’s spending, thus getting more profit from the same spend. Procurement analytics can help with this.
Joining up data
Procurement analytics is really a formal name for knowing where the money is going. With large ticket items, it’s a relatively simple matter to figure out what is being spent and why. The problem comes with the plethora of smaller items that result in an impenetrable blizzard of data.
Let’s return to the business expenses example since expenses can affect cash flow and are difficult to control unless you have the appropriate technology. Most SMBs want to get them under control but lack the business intelligence which would help them do this effectively. That’s where the analytics come in. But don’t start with them. Start with what you need to see.
Start with the end result – a dashboard.
What you need to see is very likely to be a dashboard that allows you to get a grip on spending in the organisation without trawling through detailed financial reports. The vital function here, in terms of saving management time and making a difference, is the drill-down capability. You can see an individual’s pattern of spending, or look at a procurement category that is out of line. With a dashboard, you can drill down to the detail. But only when you think it’s worth it – you aren’t overwhelmed with detail.
Similarly, a dashboard as a front-end to analytics may help you see a spending spike in the third week of the month, or once a quarter and prompt you to investigate. You can see what’s causing spending spikes without trawling through lots of data.
Now it’s easier to implement procurement spend controls.
Once you have a picture of what you want from the data, it’s a much more straightforward matter to put the analytics in place to supply the data and turn it into meaningful information. The real key here is unstructured data that has until now been hard to capture and analyse. Receivables and payables are easy to get from your accounts system. But employee expenses? Far more challenging to analyse.
So the way to get the analytics data from a mountain of receipts, business credit card payments and so on, is to install an expense management system, remembering that it needs a data analytics dashboard. Our system, for example, will collate data from receipts, (even when they only exist as pictures on a smartphone), and will also record all the transactions on our pre-paid company cards.
The magic box in the expense management software does the analytics, and pretty soon you can be looking at the dashboard and discovering where the procurement spend is actually going. That leads to a situation where you can begin to control the spend, for example by exploiting our prepaid business cards. With the Soldo expense management system, these can be loaded with the rules and limits you want in place, customised for each employee.
At last, a meaningful degree of control. And the same procurement analytics dashboard will demonstrate how well your control measures are working, giving you comparisons over selected periods and for different projects or categories of spend.
In addition to the procurement analytics dashboard, it is vital that employees are aware of and understand your company’s spending rules. Spending rules can be defined in an employee expense policy, so staff can understand what is allowed and what isn’t.
Big data may be something of a buzz phrase. But analytics are a vital tool for a business of any size, to keep control over spending and stop expenses eating away at profits.
For further information, check out our prepaid business cards here.