Solving the Procurement Puzzle with Predictive Analytics

February 20, 2024 Theresa Rex

procurement specialist using predictive analytics in accounting software

For today's manufacturing finance leaders, navigating the ever-evolving procurement landscape can feel like solving a complex puzzle. Between economic volatility, fluctuating demand, and an increasingly regionalized supply chain, making strategic procurement decisions can feel more challenging than ever. CFOs are most effective when they can anticipate market shifts, optimizing their procurement strategy accordingly and nimbly. Sounds great in theory, right? Putting it into practice, however, is often easier said than done. Predictive analytics can be a powerful tool — this increasingly table-stakes technology is changing the way manufacturing companies approach the procurement cycle.

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CFOs that can find a way to weave it into the logistics finance function are better able to make informed, data-driven decisions that maximize efficiency, minimize costs, and mitigate risks.

The Power of Prediction in the Procurement Process

prediction in procurement process

Finance leaders in every industry can benefit from more efficient and cost-effective procurement processes, but in manufacturing, where procurement directly impacts the cost of goods manufactured (COGS), getting it right goes right to key metrics that monitor the bottom line.

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The ability to simplify — or even see inside — its complexities benefits everything from profit margins to the ability to provide consistent quality and supply. There's no crystal ball that can anticipate demand, tease out potential risks, or identify (and capitalize) on opportunity with 100% accuracy, but leveraging predictive analytics can feel a little like having one. Traditionally, manufacturing CFOs have had to assess the patterns from past economic conditions and use their best judgement to apply what the data says forward.

Leveraging Forecasting Analytics in Sourcing: Six Use Cases

Predictive analytics graph background in pink and blue hue colors

Predictive analytics supercharges this process by leveraging historical data, machine learning algorithms, and external factors to forecast future trends and outcomes. It can be leveraged across the finance function, but in the context of procurement, it enables finance leaders to better:

  • Forecast demand: Accurately predict future demand for goods and services, enabling you to optimize inventory levels, avoid stockouts, and negotiate better deals with suppliers.

  • Identify potential disruptions: By analyzing historical data and external factors, predictive models can anticipate changes in demand due to seasonality, economic trends, or competitor activity, allowing CFOs to proactively adjust production plans and mitigate potential risks.

  • Predict equipment failures: Analyzing sensor data and historical maintenance records can predict when equipment is likely to fail, enabling pre-emptive maintenance and reducing downtime costs.

  • Optimize inventory levels: Implementing a predictive model makes it easier for CFOs to determine what level to hold raw materials and finished goods to hold, balancing the cost of inventory carrying costs with stockout risk.

  • Assess supplier risk: Identify potential disruptions in your supply chain due to supplier performance, geopolitical events, or natural disasters, enabling you to mitigate risks and develop contingency plans.

  • Price strategically: By looking at historical demand, how competitors are pricing goods, and how consumer behavior evolves, CFOs can remain competitive while maximizing revenue and overall profitability.

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The CFO's Guide to Implementing Predictive Analytics to Supercharge Procurement Processes

CFO happy after having implemented predictive analytics in procurement process

It's clear that when it comes to procurement, implementing predictive analytics — whether for direct, indirect, or strategic sourcing — can give manufacturing finance leaders a much-needed competitive edge. Implementing it effectively, however, is key. And that requires a clear roadmap with careful planning and execution. Here's how CFOs can start strong:

  1. Define your goals and objectives: What specific challenges do you want to address with predictive analytics? Are you looking to reduce costs, improve efficiency, or mitigate risks? Clearly defining your goals will guide your data collection and analysis efforts.

  2. Gather and clean your data: The quality of your data is paramount to the accuracy of your predictions. Ensure you have access to clean, consistent, and comprehensive data from various sources, including internal ERP systems, market intelligence reports, and external data providers.

  3. Choose the right tools and technology: There are numerous predictive analytics tools available, each with its own strengths and weaknesses. Evaluate your needs and budget to select the tool that best suits your requirements.

  4. Build your analytics team: Consider establishing a dedicated team with expertise in data science, statistics, and logistics to manage your predictive analytics initiatives. Alternatively, you can partner with external consultants who specialize in this area.

  5. Start small and scale up: Don't try to boil the ocean. Begin by focusing on a specific area of procurement, such as demand forecasting or supplier risk assessment. Once you better understand how to maximize the value of predictive analytics successfully, you can gradually expand its use throughout the finance function.

  6. Communicate and collaborate: Predictive analytics is most effective when everyone involved in the procurement process is aware of its potential and limitations. Foster open communication and collaboration between your finance, procurement, and operations teams to ensure everyone is aligned and working towards the same goals.

The Future of Procurement is Predictive

warehouse worker working through the future of procurement

The use of predictive analytics is not a passing trend. CFOs are already relying upon it to gain unprecedented insights into the procurement cycle. Rolling it into manufacturing finance strategy keeps that strategy future focused. In an accounting landscape that's undergoing a major transformation alongside a global supply and value chain evolution, staying ahead of the curve is more important than ever.

Investing in the right tools and talent allows CFOs to maximize the impact they'll ultimately make by facilitating smarter decision-making, cost optimization, and risk mitigation. As technology continues to evolve, the capabilities of predictive analytics will only become more sophisticated, further empowering manufacturing CFOs to navigate the complexities of the procurement landscape with confidence.

Additional Predictive Analytics Tips for CFOs:

  • Look for solutions — and providers — that can integrate seamlessly with your existing ERP and data management systems or work within your existing technology.

  • Invest in training and development for your team to ensure they can effectively utilize and interpret the insights generated by predictive analytics.

  • Regularly monitor and evaluate the performance of your predictive analytics models to ensure they remain accurate and relevant.

Finally, it's important to remember that no technology — no matter how powerful — can be effectively deployed without a team that's committed to seeing it succeed. If you're ready to use predictive analytics to solve your organization's procurement puzzle, you'll need to invest in the right accounting expertise.

At Personiv, we've been helping finance leaders do exactly that for over 40 years. See how one of our powerful virtual accounting solutions can help future-proof your finance function and supercharge your procurement process when you get in touch today.

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