The digital transformation of organisations has given value to internal data, which procurement departments have learnt to leverage. However, external data often seems to be less successfully utilised by procurement departments, despite being able to add to the value of internal data.
There are at least three reasons why buyers should focus more on external data:
- To address systemic threats to their supply chain
- To identify potential weaknesses in their network's structure
- To harness value-added innovations before their competitors
External data: A strategic resource
The current pandemic has proved time and time again just how important it is for health and geopolitical factors to be taken into account when looking at the strength of the supply chain. This is why external data is such a strategic resource for anticipating potential disruptions and preparing for alternative scenarios.
It's not about turning procurement departments into intelligence agencies, but about raising buyers' awareness regarding the value of external data so that they can stay ahead of the curve when a crisis arises.
Procurement departments have much to gain from keeping track of key indicators, such as:
- Mapping areas where conflicts threaten access to raw materials
- Monitoring the health status of countries with tier-1 and tier-2 trading partners.
- Tracking the impact of climate threats on transport infrastructure
Clearly, high-risk supply chains are currently under close observation by procurement departments (link: https://www.manutan.com/blog/en/news/covid-19-supply-chains-at-risk). Organised monitoring, which can also be outsourced to an external service provider dedicated to interpreting external data, is certainly not a luxury for buyers.
External data: A precautionary principle
The strength of their supplier network has often been instrumental in a company's ability to cope with the turbulence of the crisis and pave the way for business recovery. This interdependency should prompt procurement departments to strive towards gaining a good understanding of their key partners.
Internal data, which provides information about compliance with contract terms, has to be scrutinised by buyers continuously in order to identify any worrying trends as early as possible.
On the other hand, external data provides information about a partner's ability to:
- Manage finances
- Retain key expertise
- Maintain their dynamic of continuous improvement
- Stay true to CSR commitments
This type of information must also be monitored by procurement departments, or they risk being caught off guard when problems arise during the fulfilment of the contract. If a breakdown in manufacturing conditions is the root cause of these problems, external data is a better indicator to help stay ahead of the game.
External data: A source of innovation
Value creation is the biggest strategic challenge for procurement departments. This is why gathering external value-added data needs to be high up on their agenda.
External value-added data refers to any positive information indicating a potential partner's ability to support business development. For instance, successful fundraising for a start-up or a patent application for a more mature company bodes well provided their vocation meets the needs of the business.
Once again, foresight is key. Specifically, access to the most promising partners at the earliest opportunity. When everyone is aware of the disruptive value of a new entrant to the market, trading conditions are inevitably less favourable and the unique selling point of the company's own innovation attracts less attention.
In conclusion, procurement departments must monitor external data for both defensive and offensive reasons: to protect against supply chain disruptions and to gain early access to resources with strong, innovative content.
However, what makes external data so valuable is the head start companies can gain once they learn how to gather the data as early as possible. The key therefore lies in organisation: procurement departments must establish an effective system for monitoring opportunities and risk factors. What would Porter [1] do without external data?
To look at external data from a different angle, check out this recent article written by Julie Dang Tran, Managing Director of Manutan France, about the new responsibility facing procurement departments.
[1] Michael Porter is the founder of a recognised method of strategic analysis.
