The current cost-of-living crisis in many markets has left food and drinks businesses facing significant blows to their bottom line.
Procurement teams are at the sharp end of this problem. The dilemma – to either find ways to mitigate the rising cost of goods or risk already narrow profit margins being further eroded. One solution is to harness insights and analytics already available by adopting a data-driven procurement strategy.
But won't it take time and money to shift to a data-driven procurement plan?
No, because the data is already there. Typically procurement teams within food and drink have relied on tried-and-tested methods to build forecasts, select suppliers and manage inventory. But even now, with vast amounts of data at their disposal, only a small proportion of it is used by teams.
Why isn’t it more widely used already?
The problem seems to be access. According to research by McKinsey, 86 per cent of CPOs acknowledge that they lack the platforms to access good-quality data. And even when it is available it isn’t being used to drive procurement strategy. In fact, as little as 10 or 20% of data is being leveraged to influence cost management and decision-making.
So how can a data-driven procurement strategy help?
When it comes to supply chains, a data-driven procurement plan can give businesses an edge in the marketplace. In a recent Gartner survey, 61% of respondents say technology is a source of competitive advantage. So with more than 50% of the typical value chain in the food industry dependent on third parties, making better use of available analytics is an incredibly effective way for businesses to optimise processes and seek out ways for cost reductions. Particularly in a challenging economic climate.
The concept itself is simple. Data-driven procurement is broadly centred around using actionable insights and data to feed into any and all decisions and strategies made around procurement.
Where does the data come from?
A variety of sources, including finance, operations and social media. It may, for example, consist of comparative data on the price stability of different suppliers over time. It could be deploying historic sales data to forecast likely changes in consumer buying behaviour. Or it could make use of global databases to create predictions on which commodities may be most exposed to inflation going forward.
Whatever the source of data, the end goal is always to optimise procurement at every stage so as to be as effective and streamlined as possible, thereby reducing the overall cost of goods.
How does a data-driven procurement strategy reduce costs?
In lots of ways. With a procurement software solution, for instance, procurement teams can produce automated spend analysis reporting that provides insights across various metrics, so teams can understand their biggest outgoings and ROIs. This creates a tool with which to compare suppliers and understand where significant cost savings could be made.
By regularly using historic sales data and trend forecasts too, procurement teams can far more accurately predict fluctuations in buying behaviour. This allows them to create far more accurate inventory management, minimising any waste or unnecessary stock and reducing both shipping and storage costs.
Are there any indirect savings?
Yes. This approach can, for example, provide greater supply chain visibility ensuring each stage of the supply chain is performing optimally, lead to improvements in both internal and external collaboration and therefore drive long-term cost efficiencies, and it can improve risk and compliance management, by allowing ongoing evaluation of supplier performance. Again this creates long-term cost reductions by reducing the likelihood of product recalls or similar food safety scares.
With little sign of an end to inflationary pressures in the global supply chain, there’s never been a more critical juncture at which procurement teams should be reviewing their strategies. And by failing to make use of the reams of data now at their fingertips, and feeding this into their insights and analytics through into a more data-driven procurement approach, they’re missing out on a highly effective way to mitigate cost rises, increase visibility and optimise efficiencies across their food supply chain.
Read more about how rising costs are impacting the food industry in our blog series, including how to integrate agility into innovation, why sustainability should be a priority and how proactive procurement can help navigate pressures on the supply chain.