How analytics turns procurement into a strategic advantage

Profile picture for user Tom Anthony By Tom Anthony August 13, 2021 Audio mode
Summary:
Reducing supply chain risk is an important focus for procurement leaders - Tom Anthony of Oracle explores the ways analytics can be a critical risk management tool.

Business using tablet and world map with logistic network and city background, transport concept © Somkid Thongdee - Shutterstock
(© Somkid Thongdee - Shutterstock)

The pandemic-driven shutdowns of factories worldwide brought the weak links of global supply chains into the spotlight. Businesses faced critical component and raw material shortages, and sudden surges in demand sent prices into the stratosphere. Some suppliers were unable to maintain manufacturing operations, while others found they were unable to fill orders due to labor and logistics constraints.

All of this has propelled supply chain risks to a board-level concern — and put the procurement function on the front line. Beyond navigating the kinds of supply disruptions we saw in the last year, procurement professionals also need to ensure that suppliers in their ecosystem are reliable, financially sound, maintain regulatory certifications, and adhere to environmental, labor, and ethical standards.

But periodic assessments of these areas may no longer be enough. Emerging issues can leave an organization without necessary supplies, or exposed to potential damage to its brand. Many organizations are seeking solutions that enable them to thoroughly assess their suppliers' capabilities, production capacity, and a range of other factors to mitigate risk and ensure an uninterrupted supply flow.

Fortunately, advanced technologies are now available to usher procurement into a new era.

Better supplier insight

Before even contracting with a supplier for a project, procurement professionals now have tools to tap a range of data sources to get deeper insight into each supplier and assess their capabilities and risk mitigation measures. Once onboarded, analytics can consolidate all of that information on an intuitive dashboard.

Some of the insight can come from internal data — such as whether the vendor has a track record of delivering on time, living up to their contractual terms, and manufacturing products that meet required quality standards. Other critical emerging information can be gleaned from external sources, including press releases, news stories, government filings, and more.

Of course, organizations are increasingly at risk for failing to address the environmental cost of their products or operations, so it’s also critical that procurement teams ensure that any of their suppliers are able to meet certain sustainability standards. The risk to an organization’s brand if one of its suppliers is caught polluting, or obtaining materials from a company with a bad environmental record, is a major concern. Modern tools enable procurement to set a range of parameters in the qualification system to ensure that certain sustainability thresholds are met.

Continuous updates

Supplier assessments are a snapshot in time. In between periodic assessments, events that signal emerging risks may come to light. Things can change quickly, such as a supplier’s financial health. Management changes can signal problems that affect service. Factories can be impacted by natural disasters or found to be in violation of environmental or labor standards.

Procurement teams need to be aware of any issues with their suppliers that could affect product delivery, the ability to meet future obligations, brand reputation, and myriad other issues. That’s where the advantage of a modern supplier intelligence solution comes into play. By using natural language programming to scour the internet for information on suppliers, tapping AI and machine learning to process it with user-defined filters and scoring parameters, and then delivering it to procurement as an embedded alert, such a system provides procurement with continuous updates.

All of that data is then used to calculate a risk score based on the criteria that procurement has set. That risk score is shown prominently on the supplier’s profile, where it is constantly updated — and procurement is able to drill down into that risk score to fully understand the factors involved.

Risk on many fronts

The opportunities these technologies bring to the supply chain industry is coming at exactly the right time. Recent research by The Hackett Group found that reducing supplier risk to maintain supply continuity is a top priority for procurement leaders this year. The report says:

Procurement leaders are tasked with strengthening third-party risk management, monitoring a broader set of risk exposures at earlier stages of the supplier life cycle, and continuing to monitor and mitigate risks. 

Maximizing visibility and timeliness are key here, requiring proper digital tools and the ability to leverage market intelligence data from multiple internal and external sources.

While the study found that adoption of modern tools for data visualization as well as advanced analytics and modeling was expected to grow significantly, access to extensive and trustworthy data is critical.

That’s what makes advancements in procurement analytics tools so exciting – they enable procurement professionals to easily gain insight from a wide range of data sources and act faster, which helps their organizations address supply issues or avoid brand damage.

By delivering such tangible business benefits, I believe analytics has the potential to help transform procurement into a critical part of an organization’s risk management programs.