• Written by Azhar Aliyar, Director

When a category manager checks the purchase order table, they expect to see a clear picture of what the organisation is buying, from whom, and at what price. However, if the data is not properly structured, they may find that the information is incomplete or inconsistent, leading to incorrect conclusions. This can happen when the field-level meaning of the data is not well defined, causing confusion about what each column represents. For example, a column named "supplier" might contain the name of the supplier, but it might also contain the name of a subsidiary or a parent company, or even a completely different entity. This lack of clarity can lead to problems downstream, when the data is used to inform procurement decisions.

Field-level meaning and why column names are not documentation

The problem of field-level meaning is often overlooked, but it is crucial to getting the data right. Column names are not sufficient documentation, as they can be ambiguous or misleading. For instance, a column named "price" might contain the list price, the discounted price, or the price after rebates. Without clear definitions, it is impossible to know what the data represents, and therefore impossible to make informed decisions. This is not just a matter of semantics; it has real-world consequences, such as overpaying for goods or services, or failing to comply with regulatory requirements.

A shift supervisor checking the maintenance log might assume that the "price" column contains the actual cost of the maintenance, but if it contains the list price instead, they will be making decisions based on incorrect information. This highlights the need for rigorous data governance, to ensure that the data is accurate, complete, and consistent.

The systems that get left out of scope and the partial answers that follow

Another common problem is that certain systems are left out of scope, resulting in partial answers. For example, a procurement system might be integrated with the enterprise resource planning system, but not with the accounts payable system. This means that the data will be incomplete, and the answers will be partial. A category manager comparing two suppliers might think they are getting a complete picture, but if the data from the accounts payable system is not included, they will be missing crucial information.

This can lead to a situation where the organisation is making decisions based on incomplete information, which can have serious consequences. For instance, if the organisation is trying to negotiate a contract with a supplier, but does not have access to the complete payment history, they will be at a disadvantage.

The procurement data this depends on: purchase orders, supplier contracts and terms, invoice history, category structure

The procurement data that is required for informed decision-making includes purchase orders, supplier contracts and terms, invoice history, and category structure. This data must be accurate, complete, and consistent, in order to provide a clear picture of what the organisation is buying, from whom, and at what price. A category manager checking the purchase order table should be able to see the complete history of purchases, including the date, quantity, and price of each purchase.

They should also be able to see the supplier contracts and terms, including the pricing structure, payment terms, and any discounts or rebates. The invoice history should be complete and up-to-date, to ensure that the organisation is paying the correct amount. Finally, the category structure should be well defined, to ensure that the organisation is buying the right goods and services, and that they are being properly categorized.

What it changes about: spend fragmented across suppliers and contract terms diverging from what is paid

When the data is accurate, complete, and consistent, it can have a significant impact on the organisation's procurement practices. For example, it can help to identify spend that is fragmented across multiple suppliers, and to consolidate it into a single contract. This can result in cost savings, as well as improved efficiency and reduced complexity.

It can also help to identify contract terms that are diverging from what is actually being paid. For instance, if the contract specifies a certain price, but the organisation is actually paying a different price, this can be identified and corrected. This can help to ensure that the organisation is complying with regulatory requirements, and that it is getting the best possible value for its money.

Measured with: spend under management, price variance to contract, supplier concentration

The effectiveness of the procurement practices can be measured using a variety of metrics, including spend under management, price variance to contract, and supplier concentration. Spend under management refers to the percentage of the organisation's spend that is being managed through a formal procurement process. Price variance to contract refers to the difference between the price specified in the contract and the actual price paid.

Supplier concentration refers to the percentage of the organisation's spend that is concentrated among a small number of suppliers. By tracking these metrics, the organisation can identify areas for improvement, and make data-driven decisions to optimize its procurement practices. For more information on how to implement these metrics, please visit our operations page.

What this does not do, or when it is the wrong choice

This approach to procurement data management is not a panacea, and it is not suitable for every organisation. For example, if the organisation is very small, or if it has very simple procurement needs, this approach may be overkill. In such cases, a more straightforward approach to procurement data management may be sufficient.

Additionally, this approach requires a significant investment of time and resources, and it may not be feasible for organisations that do not have the necessary expertise or budget. In such cases, it may be necessary to seek outside help, such as from a consultant or a technology vendor. For more information on how to get started, please visit our contact us page.