A Recent Survey of Senior Executives Finds 82 Percent Are Not Prepared for Data-Driven Procurement
SUNNYVALE, Calif.–(BUSINESS WIRE)–LevaData, the company that helps global enterprises improve gross margins by reducing supply chain costs, today released the results of its 2017 Cognitive Sourcing™ Survey on data-driven procurement capabilities by medium to large manufacturing firms, including those in high tech, consumer goods, industrial equipment, automotive, and life sciences industries.
“Far too much of the sourcing we do today is based on data that is not easily analyzed.”
The survey addressed the concerns of senior executives who oversee over $450 billion in annual direct material spending. Almost all of the respondents, 97 percent, believe that a procurement process that is data-driven is vital to achieving long-term value, cost reductions, and efficiency gains. But 49 percent expressed concern that their in-house talent is not ready to leverage the competitive benefits of a digital transformation.
“A world-class sourcing and procurement organization could examine at least 1.5 million data points affecting the supply chain,” explained Rajesh Kalidindi, founder and CEO of LevaData. “This tsunami of data far exceeds any individual’s ability to digest and respond strategically.”
It was not surprising, Kalidindi added, to learn that 69 percent of survey participants are extremely interested in how AI-enabled cognitive sourcing technology enables organizations to manage risk, sense market opportunities, and improve the negotiation process.
“People know that digital disruption in the supply chain is already underway. Given this, we were greatly surprised to learn how many procurement managers are still using outmoded management tools,” Kalidindi said. “Access to transformative, actionable information is deeply fragmented. But the window of opportunity for competitive advantage will only be available to early adopters.”
At the recent Cognitive Sourcing Summit 2017 in Palo Alto, keynote speaker R. “Ray” Wang, author and founder of Constellation Research, warned supply chain executives not to be slow to implement AI-enabled cognitive sourcing tools.
“I think you’re going to look back at 2017 and say, if you didn’t start, you’re going to be 5x behind. By 2018, I’m already 10x behind. By 2019, that will jump to 20x behind,” Wang says. “Because the application of machine learning with predictive analytics is not going to be a small digital divide, it’s going to be an exponential disruption.”
A Significant Performance Gap
The LevaData survey documents key metrics of best-in-class versus average performance, according to supply chain executives. They include:
Cycle Time for Request for Quote (RFQ): 3 days versus 40 days.
- Total cycle time for a best-in-class organization is 3 days: 1 day for preparation and 2 days for negotiation.
- Total cycle time for an average organization requires 40 days total to complete, with 15 days devoted to preparation and 25 devoted to negotiation.
Sourcing Event Frequency: Ongoing, regular discussions on a quarterly or more frequent basis versus once-a-year events.
- Best-in-class procurement managers engage with their suppliers on a constant basis (13 percent), with average performers still following discrete sourcing events with a subset of their suppliers on a weekly basis (35 percent), quarterly (26 percent), or annually (19 percent).
- “Average” organizations only engage with 52 percent of their total supply base with a competitive bid or sourcing event at least one time a year—and 10 percent do not even track the frequency of procurement negotiations.
Management Tools for Strategic Sourcing: Best-in-class procurement organizations use integrated market intelligence systems that provide a consolidated view of the market versus siloed business intelligence tools or information from direct supplier relationships.
- 5 percent of survey participants are using third-party, purpose-built technology solutions.
- 67 percent use internal business intelligence solutions or Excel spreadsheets which primarily aggregate information from multiple internal, enterprise systems, with limited tracking of market intelligence.
- 15 percent rely on market intelligence obtained only from suppliers directly.
In reviewing these trends, Donald Farmer, a renowned data scientist and Principal at Treehive Strategy who spoke at the recent Cognitive Sourcing Summit 2017, said his key takeaway was that supply chain executives “need to get their data in order.” As documented by LevaData’s recent survey, “far too much of the sourcing we do today is based on data that is not easily analyzed,” said Farmer. “To increase the value of the information you have and the value of the decisions to be made from this material, insist on your contracts being data-driven. That will greatly increase your competitive advantage going forward.”
Request a copy of the ebook summarizing the survey findings here.
LevaData, the Cognitive Sourcing™ Platform, offers global enterprises the ability to improve gross margins by reducing supply chain costs, with a focus on transforming the way global enterprises source products and services. Customers include leaders in the top global supply chain organizations, as well as medium-sized OEMs seeking to achieve best-in-class direct materials sourcing practices. LevaData is privately held and headquartered in Sunnyvale, California. For more information, visit www.levadata.com.
Gabrielle Jasinski, 708-732-3913