Volatility is the new norm – be it political, or a natural calamity, or industry equations. With the supply base having gone global the degree of unpredictability has increased and so has the resultant disruption.
Recently US east coast was devastated by hurricane Sandy. Many economists expect the storm to shave up to half a percentage point from growth in the fourth quarter. Major marine terminals along New York and New Jersey were closed by the storm and warehouses submerged. This had a ripple effect on suppliers expecting their shipments during the holiday season.
So how can procurement prepare for the uncertainties?
There are several procurement strategies that businesses can adopt. These may range from a basic strategy like having an alternate supplier/supplier base to a more complex strategy, involving use of market and supplier intelligence information to form the procurement strategy. The technology like e-sourcing, spend analysis etc used for procurement has to be coupled with market and supplier intelligence so that procurement function moves from being reactive to proactive. As per CPO Agenda 2011, for 74% of the total respondents implementing Business Intelligence or Analytics applications is a top priority.
For majority of the businesses the process of spend analysis starts with gathering and analyzing spend data. This being an excellent start, businesses can achieve maximum value from their analysis by supplementing spend data with market and supplier intelligence.
Let us understand what this means. Supplier intelligence refers to information about supplier stability. This includes parameters like past performance of the supplier in terms of on time delivery and discounts, trends in the supplier’s industry, supplier’s competitive position with respect to its peers and competitors, events that take place in the supplier’s immediate business environment, regulatory and compliance reports and legal information about the supplier.
Market intelligence largely refers to the real time prices of the commodities. The commodity prices fluctuate on account of volatility in the market. Technology can be used to collate spend data with intelligence information to arrive at an appropriate solution that can add value to the business by making a more informed and relevant decision. For instance, if the prices of iron have gone down beyond the limit mentioned in the supplier contract, businesses can demand the next stock at new reduced price. Thus reducing the commodity cost.
The challenge of an unpredictable business environment comes with an opportunity for procurement to break free from the existing mode of functioning to a more advanced, value driven performance.
Catch up with spend analysis matrix and intelligence information significance in the latest report Transcending Spend Analysis.