Big Data
What is the Role for Big Data Innovation in Cost Reduction?
November 16, 2015
Alex Short
2 minutes

There are two ways in which procurement can deliver cost savings for its organisation: the tired and familiar route, or the exciting approach of Big Data Innovation.  

The first one is something we’re all familiar with: it involves analysing contract renewal dates, contacting suppliers and trying to negotiate a reduced rate, using increased volumes or previous poor performance as levers.  This method, while necessary, is limited in its effect and generally loathed by both buyers and suppliers.  No one likes the person pushing the rates down.

There is a more welcoming option, and that option is to innovate.  Put down your contract renegotiation template; avoid the awkward discussions with your suppliers about dropping their rates (again) and look to develop a deeper understanding of your supply base.  The chances are that by re-evaluating the way in which your organisation is engaging with its suppliers and the way your products and services are being consumed, you will uncover process improvement that will far outweigh the benefits of a slight reduction in rates.

Take the telecoms industry for example.  Tellabs estimates that by utilising big data solutions to better understand the consumption patterns of users, telcos are now able to proactively manage their traffic flows leading to increased utilisation of their lower cost network options.  It is estimated that this practice, if implemented globally, could save mobile operators more than $9B by 2017.

Mining companies are also harnessing big data solutions to uncover new working practices and they’re delivering significant cost savings in the process.

For mining giant Rio Tinto, mine road management is a critical element in their operations.  This process was previously delivered manually, by sending out teams to physically review and monitor the road conditions around the mine site.  A very time consuming and costly exercise.

The organisation has recently rolled out a new fleet of trucks that as well as carrying rocks from the pit to the delivery point, are fitted with 300-400 sensors that relay information about the truck’s pay-load, mechanical performance and of equal importance, the state of the roads the trucks are driving on.  This information provides Rio Tinto with the ability to understand the degradation of its road system in real time.  By understanding its road network Rio Tinto are able to deliver more rocks on time, maximising utilisation while saving money on vehicle maintenance and downtime.

To give you an understanding of the importance of these projects, Rio Tinto Chief Sam Walsh was recently quoted saying

It takes you back to the work that Toyota and others did 40 years ago in terms of process control. This is now taking it very much to the next level using big data and using 21st-century thinking into analysing what you are doing.

The organisation is now in the process of developing other industry leading data analytic solutions including analysing sound waves to determine the efficiency of its grinding machinery, and creating self-driving fleets.

Both Tellabs and Rio Tinto are innovative companies turning towards big data in order to realise huge savings.  So what are the critical elements for the organisations who are able to make these savings:

  1. Possessing both the software and the internal know-how which is required to process these vast arrays of data into something understandable and actionable.
  2. Establishing close working relationships with your supply base to actually put these findings into practice. There’s no point having all the information if you can’t do anything about it.

Procurement stands at the forefront of driving both of these activities.  By utilising big data solutions, procurement teams are capable of creating truly collaborative supplier relationships that will drive real bottom line savings for their organisations.  If you want to check out some awe-inspiring examples of supplier collaboration, and the innovation and value creation it leads to, then check out this post here.

Alex Short is Founder of Old St Labs he is passionate about building the next generation of business software. He is recognised as one of procurements thought leaders.
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