PROCUREMENT
E Why business intelligence is important
to effective procurement
ffective procurement may be a well
understood term to
many corporate buyers but is often a misunderstood concept for most business people. Firstly, procurement relates to the whole series of processes associated with the activity of identifying, sourcing and buying goods and services. Purchasing by contrast is the activity associate with the physical acquisition of the goods and services themselves.
Business intelligence in a procurement context or procurement intelligence as some refer to it, can be defined as: “The skills, tools and practices used to help an organisation acquire an enhanced understanding of its commercial context to support better buying and sourcing decision-making.”
When business intelligence is applied to procurement process it enables organisations to identify better options to realise savings opportunities, by analysing relevant and related data from external sources alongside a robust risk management process
A procurement team that never looks beyond the current project or satisfying the organisation’s current day-to-day needs become little more than expert expediters. Best practice procurement involves using business intelligence to analyse the sourcing environment in order to make appropriate decisions and provide timely recommendations to senior management and policymakers alike.
The effective use of business 26 pse
intelligence is essential in order for organisations to achieve truly effective procurement for the following reasons:
• It is essential in assessing when is the most
advantageous time to enter the marketplace and the factors that affect entry e.g.: market conditions such as consolidations, raw material supply problems, technology trends, security of supply and political factors;
• assessing price trends in the marketplace that are vital in setting realistic cost efficiency expectations within the organisation;
• identifying and understanding possible alternative sourcing strategies and the methods employed by other peer organisations and their relative merits;
• assessing viability of individual suppliers by assessing their position, strengths and weaknesses in the context of their particular marketplace; and
• to provide a useful framework for assessing the effectiveness
of the organisation’s procurement activity against the wider marketplace.
An online survey of BI- Group members on LinkedIn during October-November 2009 identified that of all the functions in a business, top management, finance, marketing and IT were most likely to purchase business intelligence (BI) and only 9% of respondents believed that supply chain management as a activity that would need to purchase business intelligence. This is interesting given that procurement and supply chain management, like marketing and sales, as a whole is largely outward market facing and of perhaps of greater importance for a business is that every pound saved by better procurement opportunities translates to a bottom line improvement.
In a recent case study1 of
direct interest to the public sector is the North West NHS Collaborative Procurement Hub’s (NWCPH) adoption of a business intelligence solution
References
1 – Case study: North West Collaborative Procurement Hub Uses Business Intelligence to help save 33 million over two years – dated 14/03/2008, http://
www.nwcph.nhs.uk/nwcph/gmasdefault. aspx
as an integral part of its business in 2008, aided in the achievement of some £33m in savings over a 2 year period to the benefit of some 38 separate trust bodies. Unfortunately in the public sector context too few organisations invest time or resources on business intelligence which is often reflected in their sourcing methods that are often no more than a lottery.
In the case of the NWCPH, the BI solution was an IT solution which was fully integrated into its other management systems. However, for BI to be useful to an organisation it does not have to mean the purchase of a costly IT solution as many might believe. Many organisations use external BI suppliers to provide standard or bespoke reports on specific suppliers and markets when their procurement teams have a need for them.
Sep/Oct 10
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