And ... Action!

The E-Sourcing Forum has a couple of interesting posts this week. This one discusses expenditure analysis, reviewing an article in European Leader in Procurement. Here’s a quote from E-Sourcing.

“As the author explains, the future of spend intelligence lies in dealing with historic data and system issues by enriching source data and providing flexible on-demand reporting for all aspects of P2P.”

I agree in the value of expenditure analysis, in 2006 I led a team that needed to understand $20 billion in purchasing across over 100 organizations. It will come as no surprise to anyone in procurement that among the very first things we did was start grabbing data to build an expenditure database, and then started mining that database to understand both micro and macro purchasing behaviours.

So when I say I don’t entirely agree with author that the future lies in historic data, it is with respect for the thought process and outcomes he is driving towards. My belief is that the future of spend intelligence, and really in the procurement function is to move from a passive role to that of an active participant in procurement transactions.

Much has been and will continue to be written about the sometimes desire and sometimes success of the procurement function to move from being a transaction processing function to being a strategic business partner. What that means to me is that procurement needs to take an active role in deciding when and how a firm spends money and other resources. Procurement teams can and should be able to contribute to corporate risk management discussions, not simply supply risk mitigation. Procurement needs to view their function as a market, and execute strategies and plans to capture larger and more “profitable” market shares.

When one then considers the future of expenditure analysis, we should start by understanding that there are pretty decent tools, processes, and technologies to enable us to do very good analysis of historic data, and to create flexible on-demand reporting. This type of analysis is great and it supports, but doesn’t replace “strategic procurement”.

What I want is the ability to do it right now, in real time. Procurement should have the ability capture, analyse, and impact each purchasing transaction as it is happening. Notice I changed language, procurement to purchasing. I’m using procurement to signify the “strategic” role and purchasing to denote the transactional role. Here’s the thing, as “Procurement” or “Supply Management”, becomes successful in evolving to a strategic business rather than an operational support role, it can’t forget the transactional purchasing role. There are two main reasons not to forget that role. First, and most obvious, is that much of the rest of the business expects it. If we can’t do our job, then forget about playing in the big leagues.

Second, it’s where “power” lies. Procurement function performs some of our more strategic functions based on analysis; moving volume, substituting products, aggregating deliveries, eliminating redundant payments (duplicative insurance for example), constraining or shaping demand, updating specifications, lowering supplier input costs, and so on. Now do it in real time. Some businesses can accept that procurement needs a fiscal quarter to understand what happened. Many businesses need procurement to help guide what’s happening today, to ensure next quarter’s fiscal results meet expectations.

To me, that’s the future of expenditure analysis.

Cheers,

David Rotor