Procurement data: the key to unlocking strategic sourcing
Now more than ever, procurement is gaining recognition as a strategic contributor to the organization, rather than simply an administrative or support department. After all, procurement teams play a crucial role in ensuring that internal departments get the goods and services they need to put organizational plans in action.
Along with the shift in perception, the role of procurement teams is shifting. Technology is reducing the amount of transactional administrative tasks in a procurement manager’s day, providing more capacity for strategic sourcing.
Data collection and analysis is necessary to inform a strategic approach to sourcing. After all, to fuel continuous improvement, you need to understand where you are now, where you want to be, and how you are tracking against those goals over time.
As the adage goes, we cannot manage what we do not measure. Collecting and monitoring key metrics around your process helps your team identify shortcomings and allocate the time and resources to improve these areas, fueling better performance in the long run. Once you are tracking your own process, you can also benchmark against other public sector organizations to find further opportunities for improvement.
For example, the State of the RFP, a benchmarking study of public sector RFP processes, finds that the average disqualification rate for proposal submissions is 4 percent. If your disqualification rate is significantly higher than that, it’s worth investigating the obstacles that vendors are facing in preparing successful submissions to your projects.
When considered alongside other metrics, such as the number of questions asked during the Q&A period and frequency of cancelled RFPs, disqualification rate can give you a sense of the quality of the RFPs your organization is putting out, providing a path forward for future improvements.
Given that half of every municipal tax dollar is spent on procurement of goods and services, prudent management of funding is a chief concern of procurement teams.
Data on cost savings (on an overall as well as per-project basis) makes it possible for procurement teams to identify and optimize cost savings opportunities.The State of the RFP finds that the average public sector RFP saves between 20 and 22 percent (calculated as the difference between the winning vendor’s price and the average proposal price for that RFP). Being able to report on this metric gives procurement teams concrete evidence of their impact on the organization — as well as the ability to set and monitor goals for further cost savings. In the public sector, it’s not all about the bottom line.
Procurement acts as a critical interface between internal departments and the business community. As such, internal customer service and contract outcomes are other key measures of success alongside cost savings.
Many public organizations are adopting the Net Promoter Score (NPS), a common customer satisfaction metric for software companies, to take the pulse of their internal department satisfaction. The simple one-question survey asks respondents how likely they are to recommend your service to a colleague.
However, to truly ensure end user satisfaction, procurement teams must go beyond satisfaction surveys. In order to ensure that procurement outcomes are being delivered and priorities are aligned, procurement teams must stay engaged with their contracts and vendors even after the award is made.
By collecting data on supplier performance, contract term and change orders, and total contract value, procurement teams are able to close the loop on their bid and RFP decisions with clear visibility into how well suppliers are fulfilling their contract. They can also provide more proactive and insightful service to stakeholders by using supplier performance data to correct issues before they escalate, or even to inform future sourcing decisions.
When it comes to the impact of data on public procurement, we are just scratching the surface. Fortunately, procurement technology is evolving to make it easier for procurement teams to capture and analyse their own data—without spending hours in Excel.
“Software providers should offer easy-to-use and easy-to-understand dashboards and reporting capabilities to give you the information you need, at your fingertips,” notes Corry Flatt, CEO of Bonfire Strategic Sourcing Platform. “Once the procurement process is digitized, you can harness that massive amount of data and leverage it to make better procurement decisions. Technologists have two names for this: ‘Big Data’ and ‘predictive analytics’. They’re fancy terms for taking large amounts of data and making a process better.”
For instance, teams can make more informed decisions about approaching the market for a particular category when they are aware of trends in pricing over the last five years. However, it’s almost impossible to extract and identify this information when the data is spread out across paper and digital files and ERP systems. Once procurement processes are centralized in a data-rich SaaS application, insights like these will be readily accessible.
The power of cloud software and ‘big data’ will transform how public agencies buy,” notes Flatt. “It’s an exciting time for public procurement technology.”
Lindsay Kroes is a senior writer for Bonfire Interactive.