Top 5 Predictive Procurement Metrics
We don’t need to go into the myriad challenges that have disrupted procurement and sourcing over the past two years. Since the COVID-19 pandemic first began, the supply chain has been upended—although the ultimate cause of the disruption might not be what you think. Two things have become clear. The first is that organizations are more dependent than ever on procurement for their success. And the second is that the old way of doing things won’t work today. Predictive procurement metrics are key to measuring success.
In an October 2021 Harvard Business Review article called “A Simpler Way to Modernize Your Supply Chain,” the authors argue that digital transformation is key to modernizing procurement for today’s conditions. However, they make the point that these transformations do not need to involve millions of dollars in spending or multi-year projects. They note that firms reap considerable benefits using the following strategy:
“… firms assemble readily available data; use advanced analytics to understand and predict customers’ and suppliers’ behavior; optimize inventory, production, and procurement decision-making to cut costs and improve responsiveness; and add some automation to revamp existing processes and introduce new ones.”
We couldn’t agree more, especially on the use of advanced analytics, prediction, and automation. In fact, these capabilities—made possible by advanced AI—are the basis for Arkestro and its focus on predictive procurement orchestration (PPO). We feel this approach is the future of procurement. This post will focus on an essential part of PPO, namely the top five predictive procurement metrics.
1. Procurement Cycle Time
Traditional purchasing is a log jam of manual tasks. There is a lack of transparency into sourcing pipeline progress. Comparing pricing between different suppliers under different conditions is much more complicated than it should be and takes a long time. Cycle time is an important measure and benchmark for teams, and is often a target for time-saving.
Arkestro employs AI-powered pricing recommendations to suppliers to reduce cycle time. This platform can go even further, allowing strategic sourcing events to be calendared in advance and even run automatically. This eliminates the manual labor delay in repeated tasks. Progress is automatically tracked through each step of the process, with status reports to all stakeholders. AI and machine learning can analyze masses of data instantly, providing a comprehensive total cost of ownership analysis and supporting quicker award decisions.
2. Supplier Diversity
Modern procurement has shown the importance of supplier diversity. This is not just practical (a diverse supply chain is more resilient), but it also has growing importance among customers. In some cases, elements of diversity may be part of a legal requirement.
Arkestro enables your procurement team to secure RFI, RFQ, and RFP participation and reporting from a diverse supplier base. You have full visibility into which suppliers have received various diversity certifications. The platform offers a complete audit trail for every sourcing project. So your organization has full insight into the role diversity plays in the awarding and selection process. Arkestro also features scorecard capabilities, allowing procurement professionals to set weighted preferences for various diversity categories, such as minority-owned or women-owned companies.
3. Supplier Lead Time, Supplier Quality Rating, and Supplier Availability
Traditional procurement systems suffer from many supplier-related issues, including stale or inaccurate supplier information and outdated or inadequate supplier performance metrics. Communicating and coordinating with suppliers is a challenge and is often done through multiple channels—which then makes it difficult to track. Lead time can be miscalculated or wrong, and it is crucial to track.
Arkestro offers a centralized database of suppliers, which is always up-to-date. A full range of supplier engagement and performance metrics is part of the platform so our users can pick the supplier metrics that matter most to them. In addition, the entire supplier relationship—including messaging, tasks, and file management—is integrated. This supports full transparency and easy access at every step of the process. It gives procurement teams the ability to evaluate their suppliers based on overall value and not just price.
4. Price Competitiveness
Price is a huge factor in cost-savings and supplier selection. There are things procurement sometimes misses when focusing on price, such as lead time, order accuracy rate, and supplier availability. There are also instances where it is difficult to know what a competitive price should be, which is why Arkestro is a helpful tool for procurement and finance. Arkestro suggests a price, analyzes market price, and can be customized to include other factors.
5. Procurement ROI
One thing has become obvious in the new world of procurement: it can be difficult to measure procurement’s ROI with backwards-looking KPIs and analytics. However, procurement must show its effectiveness and that the function is going above and beyond its cost. Procurement needs to be seen as a revenue center and a necessity to the finance team. Manually pulling KPI reports and searching for metrics based on old data hinder efforts to show ROI. Why not pull the data in real-time using Akrestro?
Arkestro is able to increase quote velocity by 10 to 15 times compared to traditional, manual processing. This speed doesn’t just offer cost savings; it provides a significant competitive advantage when going up against competing procurement teams that use traditional methods, thus providing an opportunity for procurement to show immediate ROI to C-suite.
Now that we’ve reviewed the importance of modernizing procurement to thrive in current conditions—and the top five predictive procurement metrics—it’s time to take the next step. See Arkestro in action today to see how Predictive Procurement Orchestration will amplify the impact of procurements influence.