When “you don’t know what you don’t know” – Understanding the Value of Analysis
Many organizations we work with continue to struggle with indirect procurement, especially services, due to the lack of detailed spend data visibility.
The core elements of data required to make solid strategic decisions are often unavailable in typical ERP and Procurement Catalog type systems. However, we find the problem to be even more rudimentary than that: many of the companies we speak with tell us “We don’t know what we don’t know.” In other words, they are uncertain which key business metrics need to be collected in order to make strong strategic procurement decisions that will materially impact savings and corporate goals.
Indirect services are NOT like commodity or direct buying. Certainly, many of the strategies and theories taught in procurement school can apply to a good indirect services program, but the collaborative nature of these services must be taken into consideration to move the program from good to great. Indirect services play such a critical part of operational productivity that if tampered with and rendered ineffective with an inaccurate strategy, will quickly be abandoned and sub-optimized by the end users. It HAS TO BE better today than it was yesterday or the end users will continue to find ways to circumvent the processes put in place. Collaborative processes is a key term when formulating your indirect strategy and must be the filter that determines what data is looked at.
In a recent indirect procurement survey we conducted, 28% of the respondents said their biggest challenge was no visibility into data or unreliable data. This demonstrates the challenges being felt by most organizations. Additionally, 8% of the same respondents reported lack of sourcing expertise in indirect services as a deterrent for a meaningful program. (Click here for full survey results)
Additionally, in an recent Procurement Leaders Article, John Martin, Director Hospital Services of Queensway Carleton Hospital, said: “Without having a high degree of confidence in your data, it’s difficult to establish a baseline. And if you can’t establish a baseline, it’s difficult to create a business case and measure success. You don’t know what you don’t know until you try to measure it.”
In summation, it’s not so much the data for the sake of data. . . it’s knowing what to do with the data once you get it. Spend the necessary time required to map out what your line consumers need, how they buy and what data will help them purchase indirect services in a smarter way. Then you’ll gain some clear direction into what data is needed to make the right decisions.
Let us know how you have handled, or not handled, gaining the necessary visibility into your indirect spend data.
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Tags: business metrics, collaborative nature, indirect procurement, indirect procurement services, indirect services, procurement consulting services, procurement decisions, procurement services, strategic decisions, strategic procurement, visibility,
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Indirect Procurement intelligence beyond what our competitors provide:
We don’t just guide our clients on what they can achieve, we help them achieve it.
- Beyond analysis and strategy, our teams of experts assist our clients by implementing successful change management and adoption programs that ensure sustainability and success.
- Technology Agnostic. We don’t believe systems are a “one size fits all.” Our analysis of your firm’s expenditures reveals the best market solutions based on your corporate goals, cultural nuances and definitions of business success.
- Create enterprise intelligence on a single platform for tremendous indirect procurement visibility.
- Our programs can be deployed from analysis to implementation within 3-6months with a rapid return on investment.
- Proof-of-Concept. We can start slow then move fast. Let’s collectively demonstrate
to all constituents what success can look like.
Like any other business process, indirect procurement consists of a series of steps, each performed by some role-player, each with a start and an end condition, the whole culminating in the delivery of the procured goods and the payment of the bills. As with any other business process, you cannot manage what you do not measure (W. Edwards Deming.) Until your process is under statistical control, you cannot tell whether a specific outcome is an anomaly, nor can you tell whether a change in procedure results in an improvement in results.
The first thing to do is to draw a map of your indirect procurement process – not the way it is supposed to work, but the way it actually does work. The people whose job it is to carry the process out will tell a consultant, but not the boss, the truth about how the process goes, where the bottlenecks are, and the where the good parts are. Once you have a true map, you can see what steps in it produce numbers (time spent, dollars, incidents of rework, etc.) that represent “good” versus “bad” results. Those numbers, collected over time and subjected to statistical analysis, become your key performance indicators.
The process map shows you what you know, what you need to measure, and where the process is not working. If you are thorough about the numbers, there will be nothing left over that you need to know but do not!
Six Sigma is a method for applying this process discipline to manufacturing.
All you really need is software in which to draw the map and software in which to do the statistical calculations, and an outsider to cajole the truth out of the workforce!
Comment by David Vernon — June 23, 2010 @ 7:13 pm
Great insight David! Thanks for sharing.
Comment by admin — June 23, 2010 @ 7:20 pm