Business Intelligence: what is your application in the purchasing department?
Business Intelligence (BI) is the process of collecting, organizing, analyzing and monitoring data and information related to a business or department.
This data is converted into applicable information to facilitate decision-making and help companies solve problems – based on accurate, real-time information.
By helping to manage routine, efficiently and optimally, Business Intelligence in Purchasing 4.0 is very important because it provides the necessary foundation for:
- To see possible failures in the purchasing department’s processes;
- Improving the sector’s strategies;
- Optimize negotiations.
Leaving assumptions aside, it is easier to reduce the distance to achieve the goals and objectives of the sector and the company. Follow in the next topic the important information that the purchasing industry can obtain with BI.
Important information for an effective purchasing sector
It is known that the data and information volume related to an enterprise and to each of its sectors is very large. It is necessary to filter it, paying attention to the main indicators, those that have the greatest impact on the sector’s results.
For Business Intelligence in the purchasing department we list the most relevant indicators below.
1) Lead time
Lead time is one of the most important indicators within the purchasing department. It measures the time interval between a purchase request and its execution. It involves the creation of a purchase order, quotations and choice of supplier, delivery time, receipt and entry record for each item.
It is worth noting that the lead time is fundamental in programming purchases. Thinking about it is essential to avoid keeping the stock depleted.
The reduction of lead time can be achieved by mapping the entire route the order takes to reach the supplier, and promoting improvements, including the use of appropriate technologies.
2) Payment terms
The average payment term is the indicator that, as the name says, measures the average payment term to suppliers. The purpose of this data is to collaborate for an efficient control of the business cash flow.
3) Cost per order
Within Business Intelligence in the purchasing department, it is also important to be aware of the “cost per order” indicator. It is common for the purchasing department to negotiate better prices and good payment terms with their suppliers when placing orders in larger volumes.
Some strategies in this regard, which help improve efficiency in the purchasing department, are:
- Place orders for a particular vendor on a single day of the month;
- Seek to purchase as many products from the same vendor as possible;
- Analyze whether it is worth increasing the quantity of items per order to achieve a better price – of course, if this is positive for stock requirements;
- Counting on the collaboration of a company specialized in indirect material purchasing that can unify orders from different manufacturers and coming from different continents.
4) Supplier performance
The performance of suppliers is the indicator that measures their efficiency in several issues – among them:
- Availability and quality of products;
- Prices and payment conditions;
- Delivery times;
- Quality of service in pre and post-sale;
- Commitment to comply with what was agreed.
Here, the most indicated is to make a periodic analysis and constant monitoring of each supplier’s performance, observing all the issues mentioned above (among others, such as social and environmental responsibility) [sustainable purchasing link]. This helps to maintain partnerships with the best suppliers.
5) Price Evolution
To measure the price evolution of the products purchased by the company’s purchasing department means to compare the previous values with the current ones practiced by suppliers (if there is such variation).
The intention of this indicator within Business Intelligence is to analyze the oscillations in this sense and verify if they are justified – as well as, if there is any purchase period that provides greater financial advantages to the business.
6) Saving in purchasing
Saving in purchasing is the indicator that represents the cost reduction made in the acquisition of a material, created to calculate gains with negotiations in the procurement department.
In addition to the costs, the variables time and payment terms must also be considered. As an example, we can think of the interruption of production due to the lack of an unsolicited part by the factory with the necessary anticipation.
What is the daily loss of the company with this stoppage? How much will be saved if the purchasing department gets an urgent delivery that ends the stoppage? These figures should be accounted for in the indicator that shows the cost reduction provided by the purchasing department’s action – on costs, read our article on how to better balance organizational finances, knowing how to choose between Opex and Capex.
Putting BI into practice
Purchasing expert Gerard Chick says the use of BI will allow procurement professionals to work proactively, staying ahead of the game. But to gain competitive advantage it is not enough to have up-to-date information on hand, you have to condense it and know how to analyze it so that it can be useful for the decision-making process.
And this is where BI comes in, by avoiding trial-and-error and waste of time and money – two challenges that the procurement department continually faces.
In practice, Business Intelligence in the purchasing department must follow the steps that follow:
A- Data collection and organization
At this stage, the objectives must be defined and the indicators that will serve as a basis for processing the information must be selected. Then, all data needs to be recorded in the database in an organized manner, to facilitate subsequent searches. One way to do this is by sorting this data into different groups of information: material type, quantity, price, suppliers, etc.
An important factor to note is choosing the right tool for data collection – in addition to those developed to record information specific to the purchasing sector, there are solutions aimed at monitoring social networks, websites and news, for example.
Depending on the needs of the business it may be necessary to have a series of platforms available in the market, so having the support of experienced professionals who know the existing technologies and the characteristics of the company is the most appropriate way to make the ideal choice.
B- Data Analysis
After feeding the database, you need to interpret information, define metrics, and make dashboards to make it easier to visualize the data – this is one of the skills that the purchasing professional needs to master today to succeed in this task.
The use of BI-specific technology solutions is essential at this stage, as they are programmed to provide reports based on user-defined metrics – vendor performance, price, timeframe, etc.
Microsoft Power BI, IBM Cognos Analytics, SAS Business Intelligence, SAP Business Objects and Domo are some examples of BI platforms. When choosing one of them, you need to analyze the demands of your company and the available budget for this investment.
C- Data sharing
After obtaining the information, the reports extracted from the BI software should be shared with all stakeholders, which contributes to more agile and assertive decisions. The development of the Business Intelligence strategy must also be monitored, and adapted to any changes that may occur in the company/procurement sector.
Business Intelligence in the purchasing department helps track supplier performance
Applying Business Intelligence to the purchasing sector means coming out of the dark and working in the light of facts, by providing concrete elements for one of the most complex steps: analyzing supplier performance.
It is a process in which the lack of concrete information can directly interfere in the company’s results. But BI helps in a greater transparency, considering the facilities it offers.
- Partnership analysis and improvement: the buyer needs quality products, delivered on time, and BI offers real-time data for a correct and fast evaluation;
- Supplier performance monitoring: Business Intelligence enables insights that will collaborate so that the supplier knows where he can improve his services and thus become a partner;
- Increase transparency in the purchasing process: BI organizes all data that involves each purchasing transaction, offering comparisons between suppliers on each defined indicator, generating transparency to the purchasing process within the company and with suppliers.
Without concrete information, purchasing decisions often are made by what feels right. The tools, however, expand supplier evaluation – not only related to the lowest price, but also involving other significant metrics such as quality and on-time delivery!
On the improvement of the purchasing process, we suggest reading the articles:
Business Intelligence offers greater efficiency in the purchasing process. Efficiency that can also be obtained by having the support of a company specialized in providing spare parts, such as Soluparts.
We are a global company with offices in Brazil, Germany, Portugal, Hong Kong and the United States. We facilitate the entire process of acquiring indirect materials from your company, as we have access to thousands of products and suppliers worldwide.
To better understand how Soluparts can contribute to your company’s purchasing department, please contact our team!