Predictive Analytics Replace Reactive

Leading procurement organizations will increasingly be able to anticipate future spending patterns rather than just analyze historical spending, and will be able to prevent supply risk failures, such as supply chain disruptions, before they occur.

When it comes to analyzing historical spend data, there already exists a major divide between world class and non-world class. Looking at a “significant amount” of spend visibility company-wide, the gap is getting bigger: 23% more world class had this level of spend visibility overall in 2012, and the gap more than doubled in 2013 to 47%, when 89% of world-class organizations achieved this mark overall. Top performing organizations also have better visibility as to how their suppliers are currently performing. In 2013, 80% of world class performers were utilizing a formal, supplier scoring methodology as compared to just 50% of the total peer group, according to Hackett Group benchmarks. Going forward, these leading organizations will seek to further extend their advantage by leveraging spend and supplier analytics in more proactive and predictive ways, for example:

  • Mining historical spend data to anticipate future spending patterns and augmenting internal spend data by tracking external, commodity price indices to inform future contracting strategies such as hedging on key input commodity buying.
  • Tracking supplier performance trend data and assessing macro-economic and geopolitical trends to produce a “risk index” which can predict potential, future points of failure and take advance corrective action planning to prevent them from occurring in the first place.
  • Arming themselves with a holistic, 360 degree perspective of their most critical supplier relationships; for instance, utilizing a single dashboard of a given supplier relationship or spend category, to analyze and interpret key performance indicators across the entire Source-to-Pay spectrum to highlight potential opportunities to leverage future spending, improve supplier performance, accelerate new product innovation, or implement supply chain efficiencies.
  • Restoring the balance of power in supplier negotiations by creating visibility to commodity price indices to capitalize on trends in underlying commodity markets. A Zycus Spend Analysis customer in the Retail Industry related their experience with packaging suppliers routinely requesting price increases for packaging when pulp and paper feedstock prices were on the rise, however, they were conspicuously silent when the reverse was true. By collaborating, they are now able to track the movement of external commodity price indices and capitalize by seeking supplier price reductions during deflationary periods or execute forward buying contracts to lock in the savings for future periods.