In early 2013, I wrote this
article on the applicability of predictive analytics in the world of
sourcing and procurement. In the article I point out that many other
industries are well ahead of sourcing and procurement when it comes to data
modeling and predictive analytics. Sales
and Marketing groups certainly have taken advantage on using data to anticipate
what buyers want. The healthcare industry
is using predictive analytics to increase the accuracy of diagnosis and
hospital readmission rates. The
government even uses it to identify cases of tax fraud. The applications suited for predictive
analytics and appear to be limitless.
But two years later, not much has changed for sourcing and procurement
professionals. The existing tools and
service providers still haven’t come up with any solutions that properly
address the need organizations have to pro-actively ensure that they are buying
on contract, anticipate how changes in raw material prices will impact final
costs, or classify spend in an ongoing and meaningful way for sourcing and
finance to make decisions based on datasets without a lot of manual rework.
Yet these needs do exist – so why aren’t more solutions
available? I believe one primary reason
they have yet to come to fruition for our industry is because we are still
focused (and measured, by the way) on taking cost out of an existing
expenditure (most widely known as savings) versus anticipating costs and
driving it out of future spend (what Finance unfortunately calls cost
avoidance). In other words, if it didn’t
happen, it can’t be called savings.
Think about it. Over
the last five years, sourcing groups focused our procurement transformation
projects on developing category management teams, implementing supplier
relationship management programs (kind of) and creating procurement “Centers of
Excellence” to assist with tools, process and reporting to support our sourcing
managers. Yet to some extent, these are
all reactions to existing needs within our organizations. Yes they allow sourcing to become more efficient
and effective. They allow us to obtain
savings. But they don’t allow us to
predict costs – and pro-actively remove them from the system. And I believe
the primary reason is because we won’t get credit under the antiquated
definition of savings.
Still, the industry continues to evolve and at Source One,
we are evolving with it. Most recently
we hired our first data scientist – a position I hope we will begin to see in
many Procurement COE’s across the industry.
In three years, I believe Procurement Data Scientist should be as common
an occupation as Sourcing Analyst.
Our goal in hiring a data scientist? Our humble objective is simple - to change
the future of spend management. For
years at Source One, we’ve helped client’s increase spend under management,
optimize compliance and utilize index based pricing to pare out costs. But even for us, the process has been manual
and reactive. We understand that simple business
rules and access to the right data can easily change the way sourcing
professionals do their work. And we are embarking
on a journey to develop that solution.
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