Strategic Procurement Casts A Wider Data-Capture Net
In an interview with the Managing editor of pymnts.com, Sandeep Gauba, CEO of GoProcure, shares insights on Tail Spend and the impact of FinTech in the world of procurement
B2B FinTech has made leaps and bounds in the world of procurement, enabling large enterprises to automate a significant portion of their purchasing processes. Strategic sourcing, data integrations with ERP and accounting platforms, digital catalogues, spend analytics and other technologies are tackling a historically paper-ridden, monotonous process in the corporate procurement department.
However, there is another side of procurement that has been left without much exposure to FinTech disruption: tail spend. While an organization may have efficient, digital tools in place to tackle its needs in regular, high-value purchases, tail spend represents the one-off purchases, rogue buys and shadow spend within an organization — and procurement tools aren’t always able to capture that behavior, according to GoProcure CEO Sandeep Gauba.
The biggest problem with tail spend, Gauba explained to PYMNTS, is that, because of its opaque nature, organizations cannot capture the purchasing data they have come to rely on so heavily to make smarter decisions about spend, future buys and their overall procurement strategies. Increasingly, he added, spend compliance and control are driving organizations’ procurement digitization efforts. Yet, when as much as 40 percent of company spending remains in the shadows, control can go out the window.
“In the tail-spend environment, for larger enterprises, people buy items in a decentralized manner, and it is not being captured by a procurement system,” said Gauba. “Enterprises have no understanding of how to bring in that data to do anything, because they don’t even have that data.”
Capturing data on corporate purchases is essential on several fronts. That information can be used to stay on budget, analyze supplier relationships, combat fraud and ensure that employees are spending company cash on the right products with the right vendors.
Tail spend has historically challenged an organizations’ ability to enforce its purchasing guidelines, according to Gauba, and it’s a growing issue. A 2017 study by Zycus, featured in an Amazon Business blog, surveyed 725 procurement leaders and found that only 53 percent of total spend is considered “under management,” with tail spend one of the largest sources of unmanaged — and potentially noncompliant — spend.
Expanding The Scope Of Data
GoProcure aims to broaden organizations’ access to procurement data by including tail-spend purchases within the scope of data capture, thus promoting internal compliance and control. However, Gauba said it is important to expand that scope even further by examining the procurement function as part of a larger ecosystem, an effort that can connect organizations to additional benefits of procurement visibility.
That ecosystem, he said, not only includes the corporate and its vendors, but logistics providers within the supply chain and financial institutions (FIs) — all part of a loop that encapsulates product order, delivery, fulfillment, spend and reconciliation.
“To have full visibility, we have to have access to all tracking information, to combine being able to follow the flow of products and the flow of funds at the same time,” Gauba explained. “This ecosystem is critical to develop, and to understand the interconnectivity between each player. It’s the data flows between various providers in the ecosystem that is a critical element for success.”
That interconnectivity of data between these procurement process participants can further eliminate fraud, promote accuracy in delivery and payments, and elevate a company’s procurement strategy when sourcing vendors or choosing service providers.
Considering the critical role of transparency in procurement data, it’s perhaps unsurprising that Gauba pointed to technologies like artificial intelligence (AI) and machine learning as tools that are quickly adding value to the procurement function. Beyond fraud and spend management, he said, these technologies have the potential to look ahead at organizations’ future spend, offering predictive buying opportunities by analyzing past spending behavior.
Blockchain, too, shows promise in promoting security and speed in the B2B payments process. Combining these technologies also presents the opportunity to develop a self-ordering system that can predict an item need and purchase it automatically on behalf of a business — all while maintaining compliance with internal requirements.
The ability to capture more data on company purchases enables service providers to aid companies in the development of their internal controls. Gauba said procurement teams’ guidelines must have an element of flexibility to appease the unique needs and wants of various internal departments, without compromising a firm’s overall procurement goals.
Today, organizations continue to spend funds without having an eye on who is making a purchase, what they’re buying or from whom they’re buying it. If up to 40 percent of a company’s spend is in the shadows, data analytics technologies can only go so far to deliver valuable insights, from fraud risks to predictive purchases.
However, once tail spend falls under the umbrella of procurement technologies, businesses will have greater opportunity than ever to take advantage of the available data.
“The opportunity with AI and machine learning is humungous,” said Gauba. “And, honestly, we are all just scratching the surface right now.”