Driven by fierce customer demand and global competition, today’s manufacturers are scrambling to deliver the highest quality products at the lowest possible cost. To remain competitive, manufacturers are turning to technologies, such as 3D printing, robotics, cloud computing, intelligent automation and advanced analytics (among other emerging technologies), to revolutionise every business aspect, from sales to the supply chain.
But with the benefits of digitisation and automation now abundantly clear, it is quickly becoming the norm across industry, leaving many manufacturers on the hunt for their next big competitive advantage. Many are now turning to procurement. Sammeli Sammalkorpi, VP: Customers and Co-founder of procurement analytics solutions provider Sievo, maintains that “the function presents a significant, untapped opportunity to leverage spend insights to drive a new wave of competitive advantage, owing to the fact that the function sits at the core of manufacturing operations”.
Recognising this opportunity, we recently analysed procurement data from more than 180-million transactions across the manufacturing industry. The goal was to benchmark procurement key performance indicators (KPIs) to help manufacturers understand how they perform, how they compare and where they can improve and drive more value. The analysis was based on real data from manufacturing organisations around the purchasing of indirect spend.
One of the first data points that stood out was the amount of spend in the facilities category that has increased significantly from 2015 to 2017, particularly when we look at spend per headcount, which experienced 34% growth. Another interesting finding was the number of suppliers across indirect categories. The most rapid growth was seen in utilities, with a 39.1% increase, especially in the water and sewer sub-category. At the same time, payment terms have become less favourable in the utilities category over the last few years, driven by the oil, heat and electricity sub-categories.
We also found a significant drop (12%) in marketing spend per employee. We can point to a decrease in spend per headcount in market research and media buying as the primary cause for this shift.
But what do these numbers mean for manufacturers? Spend dynamics and supplier relationships continue to shift and margins continue to remain tight. With markets entering an unpredictable state, there is very little room for financial error in 2019. While most of procurement’s resources are, typically, dedicated to managing direct spend, the indirect side of business presents an immediate opportunity to reduce costs and drive efficiencies for manufacturers. Even more valuable is being able to aggregate and analyse indirect spend data across multiple plants, sub-divisions and suppliers, and acting on the insights to drive bottom-line improvements (and more spending flexibility) across the globe.
While analysis like this offers manufacturers valuable insight into current spend trends, it is only a static snapshot. The real value of procurement benchmarking lies in the ability to compare your own data against your peers, category-by-category, updated every month, to help drive informed business decisions every single day. With artificial intelligence (AI) and machine learning tools more readily available, manufacturers have a wealth of new data at their fingertips as well as the ability to clean, analyse and act on it like never before.
In 2019, we expect leading manufacturers to invest more in turning data into dollars. The insights gained from benchmarking, for instance, are only valuable if they result in actions that improve performance. The great thing about benchmarking, at least when it is powered by machine learning and data-driven technology and done in real time, is that an organisation can unveil value from insights that previously may not have been considered. Manufacturers could begin the process with certain metrics in mind, but emerge with insights about a different set of KPIs that could have an even bigger influence on their operations.
Another way of looking at it is that traditional approaches to analysing procurement data were based on finding answers to a set of pre-determined questions/queries. Today, AI advances have shifted that mindset, with technology now able to find answers to questions and problems (and opportunities) manufacturers didn’t even know they had.
Every organisation is looking for their next big opportunity. As AI, machine learning and big data continue to push their way into industry, leaders must realise and invest in the possibilities these technologies afford them. For manufacturers, one of these benefits is the value of data-driven procurement benchmarking. Are you leveraging procurement to your full advantage?