After the eastern coast of the United States experienced the hurricane Sandy, it was completely devastated. Almost half the growth percentage from the fourth quarter was shaved up according to the predictions by the economists who researched on this part. Major warehouses along the New Jersey and New York submerged and the marine terminals were closed due to the storm. People lost their lives, businesses were affected, and most importantly the storm had a ripple effect on the suppliers who were expecting to ship the manufactured products during the holiday season.
A lesson learned was that there will be uncertainty and it is almost impossible to deal with natural calamities. Therefore, business organizations need to stay cautious all the time and need to have well-structured plans and tools in place to deal with such difficulties to the maximum.
With a rapid increase in the degree of unpredictability, the procurement and supply chain bases having gone global, and with enhanced disruption resultants, organizations are looking to rethink the procurement strategies. In order to deal with the uncertainties, businesses are thinking about focusing on the key drivers that impact procurement strategies. These may range from focusing more on the cost reduction principles to alternating the supplier base to involving procurement intelligence tools to form the strategy. Regardless of the strategies being applied, one has to keep in mind that volatility is the new norm, be it a natural calamity, political, or geographical. The majority of CPOs believe that incorporating digital procurement strategy with volatility will deliver immense value in the upcoming years. Therefore, driving the procurement strategies with the newest drivers is the most sought-after concept in the procurement community.
In this context, you will learn about the key drivers that drive procurement strategy.
Clear Visibility Into Procurement Strategy Through Spend Analysis
For the majority of organizations spend analysis starts with gathering relevant data and analyzing the spend data. Any organization’s biggest priority is to understand how much and where the money is being spent. Spend analysis tools allow organizations to gain insights into the effective cost areas, such as expensive suppliers, cost of materials, and other procedures. Through spend analysis, maverick spend can also be controlled and sometimes eliminated.
When it comes to maximizing the profit margin and reducing spend, there is no better tool than spend analysis tools. These procurement intelligence tools allow organizations to gain traceability to supplier profiles and spending patterns. Owners can switch to preferred suppliers and realize the savings by reducing waste and negotiating volume discounts.
Spend analysis also allows owners to monitor the supplier behavior and production status on a regular basis. Understanding their behavior helps owners to mitigate various risks associated with manufacturing faulty products and untimely deliveries. These analysis tools also allow owners to understand the reliance on specific suppliers through the degree of dealings, and therefore, help them keep a track of the credit score and annual revenue.
Supplier And Market Intelligence
Supplier intelligence makes reference to supplier stability information. This information includes various parameters, starting with supplier performance status, if the suppliers are able to deliver the products on time if the products delivered are of the desired quality, if supplier manufacturing standards align with the buyer’s standard, supplier’s industry trends, events that take place in supplier environment, supplier’s competitive position legal information about the supplier, and the compliance and regulatory reports of the suppliers. With the help of supplier intelligence tools, buyers can keep a track of supplier’s moves and monitor everything mentioned above.
Market intelligence makes reference to commodity’s real-time prices. Depending on the market volatility, the price of commodities keeps fluctuating. Market intelligence tools can be put in place to integrate intelligence information with spend data to arrive at an appropriate solution. This can be beneficial for the organizations in terms of adding value to the procurement strategies through relevant and informed decision-making procedures. For example, if the iron price goes down after the contract has been signed, the buyers can demand the next stock at a reduced price, therefore, reducing the commodity cost.
Organizations can collate supplier intelligence with market intelligence through the implementation of procurement intelligence tools and break free through the existing procurement strategies and create a new one to weather any unpredictable storm.
Determine Business Needs And Assess Market Conditions
The existing procurement strategy requires a change to cope with modern-day issues. To make this happen, business organizations need to structure a procurement strategy that understands the organization’s needs clearly, while providing the best value. This fact-based analysis will help organizations to prioritize and align with the procurement strategies across business and function goals. Owners can challenge a simple status question and quo to discuss the obvious that will disclose many saving opportunities. Owners can take help from tools, including the category positioning matrix, and recognize the business needs that will contribute to designing a new procurement strategy.
One can use artificial intelligence tools to drive procurement strategy. If you have been worried about assessing the various processes of supply chain management and procurement operations, and it is becoming extremely difficult for you to manage it, try leaving it upon the artificial intelligence tools. These tools are capable of providing unmatched analysis and detection of these performances. These tools provide a basic outlook of the external side of things, such as supply markets and their conditions. Three main technologies, including reinforcement learning, supervised learning, and unsupervised learning is adept in providing any information related to the analysis of supply chain operations. These sophisticated technologies can make informed decisions, provide predictions, make real-time decisions, and identify any fraud within the system with ease.
Unleashing the power of automation in designing a procurement strategy will help challenge the status quo and shed light on new approaches. This will in turn help process the efficiencies and deliver cost savings. The procurement intelligence tools like supplier market intelligence, supplier intelligence, artificial intelligence tools, and spend data analysis tools, when combined together or even when used separately will help organizations to shift from a reactive stage to a proactive stage.