If you are a corporate procurement leader or a supplier of MRO and indirect materials, there is a good chance you have muttered the words “what were they thinking?” under your breath at least once in the past quarter. Striving to understand what drives B2B buyers to make the choices they do is critical for leaders on both sides of the buy-sell equation as pressures to reduce costs and maximize profitability continue to mount.
Despite the billions of dollars spent annually on MRO/indirect materials, a disproportionate number of businesses still manage their procurement manually or via legacy enterprise resource planning (ERP) systems, according to the 2018 Procurement Insights report from PayStream Advisors. As a result, for most organizations, tracking who bought what, from whom and when is a tediously manual process of reconciling requisitions, invoices and account ledgers. And even then, there is rarely, if ever, any context to the options that were available, the conditions under which the purchase was made and the ultimate need of the buyer.
But, there is a better way. Many organizations are turning to cloud-based e-procurement solutions to achieve greater visibility into their organization’s indirect/MRO materials spend, without frustrating buyers with unreasonable compliance features and limited choices. While these solutions are certainly a step up from manual procurement processes, at EqualLevel, we believe that procurement leaders need more than visibility and flexibility, they need intelligence.
Leveraging the power of advanced data analytics and emerging artificial intelligence technologies, the EqualLevel Savings Advisor (ELSA) doesn’t just document what was purchased, when, by whom and for how much, but, most critically, it will capture the user justification for any choice that diverges from established corporate procurement parameters in a structured report that can be analyzed by management. We call this “the power to know.”
The idea here is not to gather ammunition to chastise a buyer for his/her choice, but to understand the tradeoffs people are making. A best-in-class e-procurement solution must recognize that there is more to the total cost of a product or service than the base price. There are many factors, including delivery options, return policies, payment terms, etc. that must be considered, and gaining visibility into these variables allows procurement management to adjust policies and procedures to empower users, while keeping spending within budget.
The intelligence garnered from system records like the EqualLevel Savings Advisor Report, which shows items purchased, lower priced exact match or substitute options, and justification entered by shopper, can also prove to be a valuable resource in strengthening supplier relationships.
Remember, commerce is a two-way street. Both buyer and seller derive value from an e-procurement solution if it is to achieve its optimal potential. With data in hand, procurement leaders can demonstrate to suppliers where they may be falling short of customer requirements and give them the opportunity to improve. For example, maybe the supplier was the lowest price option on X occasions, but did not get the order for Y reasons. This insight into what buyers were thinking as they made their choices can help suppliers make the adjustments necessary to be more competitive. Again, the objective is not to beat up suppliers and force them to lower their prices, but to help guide discussions and structure contracts, catalog and service offerings to more effectively meet the needs of both buying and selling organizations.