Why We Need to Normalise Data-Driven Procurement

If you’ve been following the New Rules of Procurement Engagement for a while, you’ll know we’ve recently launched Rule 4: Redefine Value Creation.

The overall message of Rule 4 is to step back, take stock, and see the bigger picture. We need to shift our focus from minor details and improvements to the broader perspective. To catch up on related blogs, read

• Rule 4 intro – Procurement in the Age of Intelligence
• Beyond savings: why it’s time for procurement to redefine value creation
• Why Procurement needs to commit to continuous improvement and innovation

In this latest blog, we pull out and examine another vital aspect in delivering more value, namely the need to normalise data-driven procurement.

The benefits of data-driven procurement

Data-driven procurement activities are crucial for maximising value creation and demonstrating return on investment (ROI) to stakeholders.

By leveraging technology for data insights, organisations can enable smarter and faster decision-making, thereby creating a strategic advantage. But first, Procurement needs to get comfortable with using data, really understand it and make it a habitual part of the decision-making process.

“It’s critical that we institutionalise the use of data as our foundation for decisions.” Jacob Gorm Larsen, Digital Procurement Evangelist, Rule 2

“Going back to the days of the early ERP systems, data was very slow to reach the department. It would take three to six months to get data out of the ERP into the front lines and by that time the shelf life had expired. We don’t have that excuse anymore, the technology is seamless. The information is instantaneous. We just don’t know what to do with it.” Jon Hansen, Procurement Commentator, Rule 2

Procurement business intelligence use cases

Spend Analysis “ analyse large datasets to identify areas of opportunity, track spending patterns over time, and pinpoint potential project cost-saving measures. This data-driven approach provides procurement with the insights needed to validate the correct strategies and projects whilst negotiating better deals, optimising supplier selection, and ultimately maximising ROI.

Supplier Performance Monitoring “ monitor supplier performance against pre-defined KPIs, such as on-time deliver y, quality of goods, and compliance with agreements. This evaluation helps identify high-performing suppliers, address potential issues proactively,

Contract Management “ integrate BI tools with contract management systems to monitor contract compliance, track key milestones, and identify potential opportunities and risks. This allows procurement to manage contracts proactively, ensuring favourable terms are met; and competitive tenders are introduced at the right time to minimise potential losses and maximise potential savings and value creation.

Performance Tracking & Reporting “ BI solutions offer robust reporting capabilities that enable procurement professionals to track their performance against strategic objectives. Visualising KPIs such as cost savings, process efficiency, and supplier diversity allows for data-driven performance evaluation, identification of areas for improvement, and demonstration of procurement’s value to stakeholders.

Strategic Planning & Forecasting “ analysing historical data, market trends, and supplier performance allows procurement to anticipate future needs, develop proactive sourcing strategies, and adapt to changing market conditions.

Additionally, developing strategies to showcase Procurement’s contribution to value creation and ROI is essential for highlighting its impact and importance within the organisation today, whilst justifying future investment needs. See next section for examples.

“If we have done a truly data-driven sourcing process, we can present the options to the stakeholders and say, ‘If we do this scenario, this is the cost. If we do this scenario, we can save X and that could be millions of dollars extra. Are you sure you’re not willing to change and adapt if our company can benefit from it in this way?’. So, I don’t think we should underestimate the value of data (internally) when we have dialogue with our stakeholders in operations, business, finance etc.” Jacob Gorm Larsen, Digital Procurement Evangelist, Rule 2

How to demonstrate procurement’s value

6 Strategies for showcasing Procurement’s contribution to value creation and ROI

1. Develop robust business cases: when seeking investments in technology, supply chain enhancements, or other initiatives, Procurement teams should present compelling business cases to all stakeholders, including C-suite, buyers and users. These cases should clearly articulate the ‘why’ behind the initiative, specifying requirements, outlining success metrics, and evaluating potential risks. Emphasise alignment with the company’s strategic vision and demonstrate how the investment will yield a return.

2. Track and communicate value: meticulously track and report cost savings, risk avoidance, supplier innovation and customer experience to showcase their direct impact on the bottom line. Use data and analytics to measure and visualise procurement’s value creation” presenting this information in a clear and compelling manner to stakeholders.

3. Alignment with business goals: connect and demonstrate impact of procurement activities to broader business goals. This involves aligning procurement strategies with key initiatives such as ESG compliance, supplier diversity, customer experience, talent management and innovation.

4. Highlight innovation: contribute to innovation by actively seeking out and partnering with suppliers who offer cutting-edge solutions and technologies. Communicate success stories of how procurement facilitated the adoption of innovative products or services that provided a competitive edge.

5. Leverage data and BI tools: gain actionable insights into spending patterns, supplier performance, and market trends. Employ these insights to make strategic decisions that optimise procurement processes, manage risk, and identify opportunities for value creation.

6. Stakeholder relationships: cultivate strong relationships with internal stakeholders and suppliers. Regularly communicate procurement’s value proposition, addressing concerns and highlighting successes. Demonstrate ways procurement facilitates agility to changing market conditions and business needs. Share the ‘bigger picture’ of how procurement contributes to the strategic vision, moving away from a perceived image of a cost-cutting function to a strategic partner.

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In the next blog, we’ll give tips and advice on how to upskill teams for AI and automation.

Can’t wait…? Download your copy of the Redefine Value Creation eBook now!