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Increasing Cost Savings through Data-Driven Cost Estimation

The procurement function is taking centre stage in areas of risk mitigation, cost reduction, innovation, and guaranteeing overall business continuity as the COVID-19 Epidemic affects every facet of the business landscape. Supply cost reduction is proving essential for protecting and growing operating margins as businesses around the world look for ways to obtain a competitive advantage in this difficult market.

What Level of Artificial Intelligence Should Procurement Adopt?​​

To save money from these strategic partners, businesses need to adopt a more data-driven, strategic technique. Machine learning and data-driven methodologies can then rejuvenate the function and boost efficiency.

As supplier networks expand, traditional cost-reduction strategies are becoming less and less successful.

Data-Powered Purchasing​​

Three ways that data can improve performance

  • Calculate the price of a new good or service with almost flawless precision.
  • Find potential for cost savings across all product categories.
  • Provide current, anonymous benchmarks for particular categories.

Cost estimation using random forest and drivers

  • A random forest’s 1,000 decision trees are used to evaluate cost.
  • When compared to conventional statistical methods, the method increases accuracy by 60% or more.
  • In order to find discrepancies and improvement opportunities, the software examines any relationships between the actual purchase prices and the “cost drivers” of the good or service.
  • Data collection Our off-shore data team, situated in Chennai, India, builds a database that contains all cost drivers for each component number by extracting attributes from client drawings.

Cost factors are identified by family members utilising technical knowledge.

  • A database is built that includes cost drivers by part for each family.
  • To improve the model, cost drivers are normalised.
  • To complete the project, the client is given access to the complete list of attributes.
  • Machine learning estimates forecast the most competitive pricing that important strategic suppliers should be able to provide for currently available parts that are currently supplied by transactional suppliers.

KEPLER Advanced Analytics defines data vision for Operations offering breakthrough solutions & assisting the implementation.

A Subsidiary of KEPLER.

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