Increasing Cost Savings through Data-Driven Cost Estimation
- March 3, 2023
- Posted by: Admin
- Category: Procurement Analytics
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.