To answer these questions it is important to summarize and define Procurement Market Intelligence & Analytics Services, it is also important to summarize typical role of a category manager and KPI’s of an ideal Procurement Organization.
What is procurement intelligence & analytics?
Procurement Intelligence & Analytics is the process of capturing and collecting relevant information from primary and secondary sources through research, this summarized information along with data available from various sources captured during strategic sourcing process or from procurement tools like Spend Tool, Contract Management System is used in supporting decisions during strategic sourcing projects and ongoing category management. This powerful insight can help in achieving reduction in Total Cost of Ownership (TCO) on an ongoing basis.
Role of category manager & KPI’s of an ideal procurement organization
- Continuous cost reduction
- Full utilization of tools
- Increasing spend under management
- Sourcing roadmap
- Exploring LCCS opportunities
- Improving on CSR goals
- Identifying areas to outsource
- Preparing smart goals
Why should procurement organization spend on procurement intelligence & analytics?
Having defined both the above mentioned broad areas, it doesn’t need any further explanation about why procurement organization should spend on procurement intelligence and analytics services. Some of the reasons are:
- Insights gained can significantly help category managers in achieving reduction in total cost of ownership on an ongoing basis.
- Category managers are usually overloaded and skill sets required for research & number crunching are different as compared to their current role.
- Category managers are at a disadvantage as sales representatives are well prepared with all the relevant information and data.
How much should procurement organization spend on procurement intelligence & analytics?
The question that now remains to be answered is about how much to spend. To answer the next part of the title question and to bring some perspective, some of the data points that can be relevant are:
- As per 2013 survey conducted by Frost & Sullivan, on an average companies spend 1% of their revenue on Market Research. (1% for B2B and 0.9% for B2C type of companies).
- As per 2008 study by Corporate Executive Board, 12% of total marketing budget goes towards market research.
The above information points to the fact that companies invest a lot in Market Research. So typically a $10 billion dollar company is investing roughly about $100 million annually. And needless to say the ROI far exceeds what is spent on Market Research. Based on this information it can be estimated that with the same token procurement organizations should spend 1% of their annual spend on Procurement Intelligence & Analytics services.
In reality these numbers are very low. Thus the category managers are always at a disadvantage when interacting with sales representatives for the categories that they handle. Sales Representatives when they meet their counter parts, the category managers, they are prepared and equipped having invested so much. Thus it becomes important to provide support to category managers so that they are at equal footing when interacting. The other option is that category managers should prepare themselves before every meeting and do the research on their own. This latter option is not very practical considering the fact that procurement team members are usually overloaded and the skill sets required are relatively different compared to their roles.
The market research dollar that procurement organizations can save by not hiring a proper procurement business intelligence & analytics service provider may be far more costly than stabbing in the dark with executing strategic sourcing projects, managing categories, renewing contracts or preparing escalation mechanism. Right kind of data and research along with solid number crunching abilities are very crucial for successful execution of any strategic sourcing process and ongoing category management. A case in point here is about corrugated boxes, there are many indexes for kraft liner board, which one is neutral or right is a difficult question to answer. Once the index is decided, the next step is to identify the appropriate conversion mechanism or escalation. These are very important parameters, the impact can be huge in terms of absolute dollar value.
Amount to be spend on Procurement Market Intelligence & Procurement Data Analytics services also depends on multiple factors like:
- industry type,
- number of unique categories and number of categories responsible for 80% of the spend
- number of current suppliers among many other factors.
Hence there is no fixed rule and this number can vary based on the above listed factors.
Leverage Our Procurement Services – One of the Leading Procurement Consulting Company
We at EmpoweringCPO with vast pool of experience, we have plenty of case studies to elaborate on how we were able to transform procurement organization into strategic arm. Our focus on procurement intelligence and procurement analytics have been our two key ingredients to achieve successful results.