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Uncertainty around supply and demand, coupled with inflation, means it’s harder than ever for procurement teams to get the right balance in their purchasing strategy. But business analytics and AI are helping provide some much-needed insight.
Finding the right balance
After significant rises in recent years, on the back of supply shortages due to the COVID-19 pandemic and the subsequent period of inflation, prices have now started to return to more “normal” conditions. But they remain highly unpredictable, often at the mercy of wider geopolitical or environmental events as well as surges or shortages in both demand and supply, meaning it’s difficult for organisations to budget and plan with any degree of certainty.
For those working in procurement, where planning ahead is essential, this is causing significant issues. Not having a clear vision of how prices of raw materials, transportation and other essentials such as fuel are likely to change, and when, makes it difficult to predict prices of other goods that depend on these elements.
In turn, this makes it hard to plan the best supplier strategy, whether to agree to a longer-term contract at a fixed price, for instance, or adopt a shorter-term, market-based approach in the hope that prices will fall in the medium term. Getting the right balance in both stock levels and price certainty, while also factoring in wider business imperatives such as moving to more sustainable sources of supply, is an ongoing issue for procurement professionals.
Vital information
While the ongoing economic landscape may be challenging, the emergence in recent years of data analytics and business intelligence is helping procurement teams get valuable insights into supply cost fluctuations, and whether prices are likely to rise or fall.
With a clear understanding of what has been spent and with which suppliers, procurement teams can gain a sense of control over their current spending. This knowledge not only identifies areas of potential savings but also empowers them to anticipate future needs and price fluctuations, enabling proactive decision-making.
Armed with this knowledge, procurement teams are better placed to enter discussions with suppliers and secure value for money. But it can also help direct spend to suppliers that meet the organisation’s broader objectives, such as ethical or sustainable standards.
Artificial intelligence is not just a tool, but a guide that can help organisations gain deeper insight into their buying habits and expected future trends. The 2024 State of Procurement Report found that 98 per cent of respondents are planning investments in analytics and insights tools, automation and AI for their procurement operations in the next few years.
Investing in technology or tools to be more efficient is also seen as the top activity procurement wants to invest in, with 36 per cent saying this is the case.
Business analytics in action
For Amazon Business customers, this kind of information is already at their fingertips. Using Amazon Business Analytics, procurement teams can view their organisation’s purchasing history across all types of spend, so that they can track purchases made by individuals or groups. They can also use pre-built custom reports to identify opportunities for optimising spend through bulk purchasing or supplier consolidation.
One company that is already making use of this is Uber, which uses the Spend Visibility feature to generate highly graphical business-analytics reports. “With Amazon Business Spend Visibility, we can see total spend across business groups, average order size, number of items, amount spent on each item, and more,” says Blaine Milner, Senior Procurement Analyst at Uber. “And we don’t have to build this. All the calculations are done by Amazon, and it aligns with the raw data that is pulled out of our procurement system.”
This is helping the business become more responsive to buying habits and implementing measures to help overcome any issues, such as maverick buying, which refers to unauthorized purchases made outside of the agreed procurement process. “We no longer have to ask if we trust the data we’re looking at,” says Arrigotti. “With Amazon Business, we can focus on what the data means rather than on whether it is accurate.
“We used to review procurement data every two or three months,” he adds. “Now we can look at it in real-time, which makes us much more agile in our decision-making. What procurement policies do we need and which policies need refinement? We can answer questions like that far better than we could before.”
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98%
of respondents are planning investments in analytics and insights tools
This is reflected in the findings of the Amazon 2024 State of Procurement Report, which identified the top two external challenges facing procurement professionals as rising costs for purchases – highlighted by 36 per cent of respondents – and preparing for unexpected changes (which ranked second in a tie with ESG mandates, on 34 per cent).
The main risks facing procurement for the next two years follow a similar theme, with costs and budgets, cited by 29 per cent of respondents, seen as the biggest issue, and markets and supply chain volatility (25 per cent) ranking second.
