Tag: Analytics

Monetizing Data Within Your Buying Group

On October 30, 2020

Your buying group is sitting on an oil field. In 2006, Clive Humby, architect of the Tesco Clubcard, a supermarket reward program, declared that “data is the new oil”. He went on to say, “it’s valuable, but if unrefined it cannot really be used.”

How valuable is it? According to one study by MarketsandMarkets, the global data monetization market is expected to grow from 2.3 billion USD in 2020 to 6.1 billion USD by 2025.

Data monetization strategies fall into two general categories. Direct revenue – selling direct access to your data to third parties – and indirect revenue – using refined data to improve supply chain performance, understand customer behaviour to drive sales, predict trends, and highlight how to save costs, avoid risk and streamline operations.

So what is your group’s data strategy? Do you even have one?

The first step in any buying group’s data strategy is accumulating the data. A centralized EDI program, such as the one offered by LBMX, allows groups to capture live supply chain data as electronic invoices, purchase orders, purchase order confirmations, and other documents flow through the group’s database. Nightly feeds from member POS systems can provide valuable sales data. Group-sponsored e-commerce sites can supplement sales data while also capturing customer information. Companies like CoMetrics provide tools to survey members on key metrics and provide benchmarking information across groups.

Admittedly, these approaches are simple, but they are not easy. Until they see the benefits, independent members may be reluctant to share their data. Clearly defining your group’s data strategy, including what data you are capturing and how you will use it, will go a long way in reducing member concerns. The key is to get started. As the proverb says, “The best time to plant a tree was 20 years ago. The second best time is now.”

Keep in mind, though, that it isn’t just about collecting information. It’s the ability to do something with it that solves specific problems that is important. It’s critical to really understand the data in order to see potential new opportunities, how to achieve them, and if they’re sustainable and efficient.

Do you even need a data strategy? Organizations that aren’t maximizing the value from enriching data are missing out on opportunities to grow, optimize, and manage risk. Your savviest members will have their own data strategies and will be hungry for the additional data you can provide. Your suppliers are likely doing everything they can to accumulate data within your sector. Competing groups will be employing their own data strategies as a market advantage. Your corporate competitors have been doing this for years. If you don’t begin to make use of your data to help your members, you can guarantee there are others actively using their data against them.

What do you do with the data?

In order to make use of or monetize your data, groups must identify the biggest opportunities your data can provide. For example, a partial list of opportunities for your group include:

Refining and enriching your group’s data and providing it to your members, either free or as a paid service
Analyzing the performance of specific product categories and suppliers to increase rebate revenues
Identifying product demand and analyze supply chain documents to see which suppliers are out of stock in order to make sure members have the stock they need to drive sales
Implementing predictive analytics to make intelligent forecasts about geographic market trends, pricing, product demands, and customer behaviour.
Providing strategic marketing and loyalty programs within your group.
Boosting levels of cooperation between manufacturers, vendors, and your members, resulting in cost savings throughout the entire supply chain.
Selling data – with a keen eye towards data security and privacy rights – to other companies.

The data buying groups hold is uniquely valuable, as it provides a holistic view of the market that suppliers, members, and customers do not have. There are challenges around security, privacy, and competitive concerns that need to be addressed before data can be monetized. These challenges are surmountable and can be addressed by developing and communicating a transparent data strategy with your members.

If you don’t begin taking advantage of this growth opportunity, you can guarantee that someone else will.

Spend Analysis and Rebate Negotiations for Buying Groups

By Steve_Seguin

On July 9, 2020

In Strategy

Do you know how much, and how often, your members spend with a specific supplier? The answer to that question is key to negotiating a fair and realistic vendor buying agreement with your vendors. When it comes to supplier negotiations, the power balance in the supplier/group relationship has always favored the former. For groups looking to optimize their members’ rebates, vendor spend analysis data is key to the success in re-balancing that equation.

Most buying groups and purchasing cooperatives lack comprehensive real-time insights into what their members’ purchase. The same is often true of your suppliers – they often don’t recognize the full buying power of your group. That’s why accurately presenting spend analysis data is vital to improve buying groups’ negotiation of supplier contracts as well as improve their relationships with suppliers.

What is Spend Analysis?

Basically, spend analysis is the process of collecting, cleansing, classifying, and analyzing all available spending data that results in a better understanding of how money is spent in the procurement of products. It is considered to be the fundamental foundation of sourcing.

Spend analysis attempts to answer:

· What are members buying?

· Who are they buying it from?

· Which members are buying it?

· How often do they buy it?

· When did they buy it?

· How much did they pay?

· How much rebate did your members and your group earn?

· Is the group and its members getting what they were promised?

· How does the data compare to previous years?

Sources of Spend Analysis Data

Typically buying groups and purchasing cooperatives are reliant on after-the-fact reports submitted manually by either suppliers or members. This often results in missing or inaccurate data.

The best source of purchasing data is invoice data routed electronically through the group’s databases via EDI. Central bill groups have an advantage of having easier access to this data, but it is possible – and advisable – for direct bill groups to have invoice data routed through their system as well. Note that invoice data, not purchase order data, is key for accuracy.

While invoice information provides the most accurate information, claims, remittance advices, advance shipping notices, and other supply chain documents, when captured electronically are useful supplements.

Spend Categories

A spend category is the logical grouping of similar items. For example, “power tools” may be considered a spend category. To be effective in a buying group, spend categories must apply across members.

Once spend categories are set up, line items on invoices that flow through the group must be assigned to appropriate spend categories. Preferably, this task should be automated with the help of product inventory management (PIM) software.

Once invoice data has been collected, cleansed, and categorized at the line item level, procurement data may be sliced and diced based on a number of key performance indicators (KPIs). Some of the most common metrics include:

· Spend by category

· Number of suppliers by category

· Number of transactions by category

· Average purchase order value

· Spending distribution of key members

· Total expenditure by supplier

· Payment terms and conditions

· Rate of payment

· Number and dollar value of claims or returns

· Frequency of out of stocks

· Average delivery time by category

Using Spend Analysis

Successful, long-term negotiations and relationships must be strategic. Too often, I hear horror stories of groups enter less-than-favourable supplier contracts because they don’t realize how much their members are buying or they enter negotiations with a “hunch” rather that data-backed reasoning.

Using accurate spend analysis data buying groups can re-establish their leverage with suppliers. Done correctly, you may find that you have more information about your members’ buying habits than your suppliers do.

Crucially, spend analysis is most effective when comparing suppliers with competing suppliers within the same category. This is information your suppliers do not have, giving you a clear advantage. Understanding your alternatives, and strategically inserting them into the negotiation process adds more leverage to the buying group.

Managing supplier relationships and keeping them win-win is often key to a buying group’s success. Spend analysis is not just competitive, but collaborative. Sharing data where appropriate helps to establish your group’s credibility and trust.

In short, spend analysis should be a vital aspect of the negotiation of supplier contracts and the maintenance of positive and mutually beneficial vendor relationships. Buying groups need to overcome their lack of comprehensive data through the adoption of EDI as well as analytics tools such as the LBMX Solution Centre. With a proper, automated, and real-time supplier spend analysis process in place, buying groups can ensure that they have the best preferred vendors for each spend category with optimized terms and rebate programs for their members.