Chief Procurement Officers (CPOs) are under constant pressure to reduce costs in their supply chain. They often try to achieve this goal in two ways: by focusing on doing more with less or by negotiating better pricing on purchased materials.
But all too often, efforts to implement cost-cutting initiatives are thwarted by one culprit: messy data. Let’s explore this massive challenge and how you can overcome it.
Messy Data Everywhere
Organizations today have access to more data than ever before.
The catch? That cache of data is frequently messy, thanks to duplicates, inconsistencies, and inaccuracies that render entire datasets misleading and difficult to use.
Messy data brings about a host of problems. Perhaps the most troubling is that when procurement organizations use inaccurate data to make business decisions related to driving down costs or reducing risk, the decisions themselves are likely baseless and could inflict more harm than good. Unfortunately, managing this mess often falls on CPOs and their teams.
The Challenges of Messy Data for CPOs
CPOs face numerous challenges when it comes to handling data effectively, and they are typically limited in resources available to allocate towards managing and organizing data, which leads to lost cost savings potential. To further complicate matters, integrating data from a multitude of other sources, which is often the case after merger and acquisition events, can make an already challenging task seem virtually impossible.
Bad data, at best, interferes with the ability to drive out cost and, at worst, puts your company’s brand and reputation at risk.
The bottom line? Messy data damages the ability of CPOs to make the best decisions and effectively negotiate component pricing while still ensuring the availability of supply and compliance.
This is the heart of how bad data can break procurement teams.
The Fight for Trusted Insights
On the opposite side of the coin is clean data, or data that is free from inaccuracy, redundancy, corruption, and other ailments. With access to a trove of clean data, CPOs can gain insight into the most accurate lead times, pricing options, and availability of parts for procurement.
With good, clean data, CPOs also gain transparency into activities related to their suppliers, such as their plans to discontinue certain product lines. As a result, CPOs have the best chance possible to source components on time, for a better price, while mitigating risk within their supply base.
Ultimately, there are three significant challenges in dealing with data in procurement organizations today: limited resources, limited analytical capabilities, and merger & acquisition challenges.
1. Limited Resources
Imagine a mid-sized manufacturing company with a procurement team of just three people struggling to manage inventory levels, effectively work with suppliers, and ensure timely product delivery due to limited resources and budgetary constraints.
This lack of resources and time leaves the team unable to gather and analyze data effectively, hindering their ability to monitor supplier performance, compare prices, track lead times, and identify trends in their processes that could lead to cost savings.
But, by utilizing clean and accurate data, short-staffed teams can overcome limitations and recognize cost-saving opportunities. For example, with clean data, procurement organizations can negotiate more effectively with suppliers by leveraging insights on demand patterns, lead times, and supplier performance.
2. Limited Analytical Capabilities
While supply chain data can provide valuable insights into procurement processes, CPOs often lack the necessary analytical tools and skills to extract meaningful insights from that data.
Consider this example: If a Chief Procurement Officer (CPO) doesn’t have the necessary analytical tools and skills to interpret supply chain data, it becomes a challenge to pinpoint areas for potential cost savings and to build and maintain strong supplier relationships. This inability to make data-driven decisions can lead to overspending and missed opportunities for significant cost reduction.
Furthermore, if a company’s legacy systems lack the capability to run advanced spend benchmarking analysis, the CPO loses access to the accurate, market-based information needed to negotiate better prices with suppliers. Down the line, this will result in higher costs for the company.
3. M&A Data Integration Challenges
Using data to make cost-cutting procurement decisions can become exponentially more difficult after acquiring another organization due to data challenges.
In many companies, data is organized and managed using multiple legacy systems. While this approach may be necessary, siloed legacy databases can create major problems. Legacy systems are usually not designed to work together, which makes integrating supply chain data from multiple sources challenging. Executing this across two or more enterprises makes integration issues that much more intimidating.
Consider this scenario: Your company is experiencing growth through acquisitions, and the procurement organization is challenged to deliver synergy-based savings among the newly joined companies. As is often the case, the procurement team within the newly formed organization is not able to gain a view of global demand for items or accurately determine inventory levels across the organization because their back end systems cannot precisely match components due to various naming conventions for the same item.
These common scenarios result in higher organizational costs and may feature one part of the company facing shortages while another struggles with excess inventory of the exact same component.
Without an accurate understanding of demand and inventory levels, companies may order unnecessary components or materials, creating excess inventory and increased purchasing and storage costs. They may also not be able to fully leverage their combined purchasing power, resulting in unnecessarily high costs for components.
However, this problem can be solved with clean and accurate data that allows for better visibility across the organization, helps CPOs make the most informed procurement and inventory management decisions, and ultimately delivers significant cost savings.
Regaining Control of Your Procurement Data
Ineffective procurement data management can severely impact organizations that rely on data-driven decision-making. However, the good news is that messy data can be remedied with the right strategies. Here are five practical approaches to help your organization overcome limited resources, limited analytical capabilities, and M&A integration challenges to get your procurement data management back on track.
- Utilize your organization’s untapped skillsets – To optimize the resources available, it’s important to take a closer look at your staff’s skillset. By identifying any untapped talent or interests, you may be able to uncover hidden resources within your organization that can help work on a procurement project.
- Share the workload across your organization – Workload sharing can also help maximize resources, as long as it’s done strategically based on employee availability. Consider reprioritizing and cutting costs in other areas to free up resources for new projects.
- Engage with your suppliers – By collaborating with your suppliers, you can tap into their resources and expertise, which ultimately benefits them as well. Suppliers lack direct access to consumers without you, so they will have a vested interest in supporting your business goals.
- Partner with schools and universities – Partnering with schools and universities can be an excellent option to consider. It allows organizations to collaborate with students and professors enthusiastically when working on analytical projects. This collaboration also provides access to a diverse pool of talent, new perspectives, and a valuable network of connections for future collaborations.
- Take advantage of technology – One effective way to enhance your organization’s data management capabilities is using free versions of cutting-edge technology tools. These tools offer the latest features and updates without requiring long-term investment, allowing organizations to test and identify which ones work best for their needs.
How Lytica Can Help
Managing a supply chain and procurement operation is challenging in today’s fast-paced business environment, especially when dealing with outdated and disorganized data.
Lytica provides customers with the market insight and analysis they need on the electronic components category to improve their procurement operations and build stronger, more effective supply chains.
Are you ready to revolutionize your supply chain?