No construction business wants leakage from supplier agreement and payments.
The answer? E-procurement.
When managing your procurement through a digital—e-procurement—platform, you can avoid many of the risks and headaches of receipts failing to match, which leads to arbitration, litigation, and settlements.
So, what exactly is e-procurement? It is simply the digitization of procurement procedures. It enables the streamlining of regular procurement processes, such as purchases, approvals, and invoicing, and can be integrated into enterprise solutions. This makes it easier to share information between procurement and other business systems, such as accounting.
E-procurement is more than just purchases. It includes activities, such as:
- Supplier management
- Catalog management
- Purchase order integration
- Order status
- Shipping notice
Think of it this way: By digitizing the procurement process, you can automate simple and repetitive tasks. This saves time, reduces errors, and increases the speed at which tasks are completed. The faster invoices go out, the faster your company gets paid, the greater your cash flow.
With the time saved from not having to complete simple and repetitive tasks or look for or fix errors, procurement officers can examine procurement data with the aim of optimizing cash flow. Now, you can manage cost, track quality, increase compliance and measure supplier performance.
4 Types of Analytics to Track
Data for its own sake is useless. Without an objective or a lens through which the data is to be analyzed, data is just disconnected and chaotic information, which can come across as noise. Organizing the data converts the noise into communication.
Analysis of the data leads to deeper understanding of past and future actions. Procurement officers can analyze data to describe, predict, or improve business performance.
As detailed by Accenture—the global professional services company—the four types of analytics used in e-procurement include:
1. Descriptive Analytics—Procurement data is analyzed to describe what has happened. Example: How many bricks did your company purchase?
2. Diagnostic Analytics—Procurement data is analyzed to determine why something has happened. Example: Why did your company buy that many bricks?
3. Predictive Analytics—Procurement data is organized into trends and patterns to forecast what will happen. Example: How many bricks will your company purchase?
4. Prescriptive Analytics—Procurement data is fed into predictive models to aid in decision making. Example: How many bricks should your company purchase?
Historically, procurement analytics has focused on understanding past business performance, but increasingly companies are shifting focus towards prescriptive decision making.
Where do you get the data to analyze?
For starters, a lot of data will come from your own procurement system. Some will come from other systems within your company. These are forms of internal data.
External data includes information from suppliers about themselves and third-party data about suppliers and other important information.
7 Procurement Segments to Analyze
You may initially think that spend management is the most critical aspect of e-procurement analytics. But there are other avenues that can be analyzed that will—if acted upon—add value to your company and improve your cash flow.
Here are the seven procurement segments you should be analyzing:
1. Category Management
By categorizing items or actions, procurement managers can segment and prioritize a whole host of business activities, deliverables, or inventory to find patterns and opportunities for change. Discover which activities or items in those categories are the best/worst performers based on key, pre-determined metrics.
When you discover which elements within a category are the best/worst performers, it allows your company to double-down on those segments that are the best performers while reconsidering, scaling back, or eliminating
2. Strategic Sourcing
As SAP Ariba—the U.S. software and information technology services company—explains, strategic sourcing refers to the process that connects data collection, spend analysis, market research, negotiation, and contracting.
Procurement managers examine data to determine the best times to run RFPs (requests for proposals), identify which suppliers to include when sourcing for projects, and determine a supplier’s quality and risk potential.
By only including the most optimal supplier and reducing risk, you will get better supplies and service, while decreasing time examining proposals from suppliers. By decreasing risk, you decrease the chances of a negative and financially costly event interfering with your company’s desired cash flow.
3. Contract Management
Analyze contracts to determine which contracts need to soon be renewed, which should be renegotiated, and which offer the best/least value.
With this data, procurement managers can save time by automating some functions and increase cash flow by renegotiating some contracts and dropping some suppliers.
4. Accounts Receivable
Measure purchase order cycles with the aim of improving payment terms, which then improves cash flow. Evaluate payment accuracy, reduce errors and fraud, and discover rebate opportunities by analyzing payment data.
A more accurate portrait of your incoming payments will lead to more accurate and consistent payments, which makes more money in your bank account sooner and more frequently.
5. Supplier Management
Examine supplier data to determine which suppliers offer the most value to your company. Segment suppliers according to important categories, such as average annual spend, total spent, frequency of purchases, order turnaround time, or delivery rate. Identify which suppliers are strategic to your company, which ones are important, and which ones are merely transactional.
By identifying which suppliers are the most strategic to you, you can plan to put more resources toward building relationships with them. By identifying suppliers that are transactional in nature, you can source for competitive suppliers with the sole purpose of cost savings and reliability.
6. Catalog Management
If your company has an inventory, such as a building materials manufacturer, performing an analysis on your company’s catalogue can improve your cash flow by helping to identify which are selling well/poorly, which pieces customers want right away, and which ones they’re willing to wait longer to receive. They can also see how much is sold throughout the year.
With this data, procurement officers can determine how much of their catalogue should be kept in stock throughout the year, which reduces overstock and frees up cash.
7. Spend History
The analysis of a company’s spending data will allow for decisions that produce cost savings and drive performance improvement.
Ultimately, less money going out translates into a healthier cash flow.
Become More Strategic with Your Cash Flow
When you closely examine your procurement data, your procurement process becomes more strategic than operational—adding even more value to your business.
Even better—your business can benchmark their procurement data to the procurement data of other companies or markets to find even more ways to further improve procurement operations and improve cash flow.
Want to learn more the benefits of e-Procurement for your business? Get started now.
Nathan Medcalf writes about technology, heavy equipment, and construction for numerous clients and has been published in more than 30 trade publications since 2006.
4 minute read
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