Re-engineering Coupa's Business Spend Index
Since I last wrote about Coupa’s Business Spend Index (BSI) there have been significant changes in the U.S. economy and the business community. That economic turbulence allowed us to refine and recalibrate the BSI model. Today we’re relaunching the BSI based on a revised methodology that we think will help provide stronger insights for our community and better equip them to take action in this new era of uncertainty.
As an economist, one of the most rewarding parts of my job at Coupa is being able to provide rich insights to our customers based on our unique access to high-quality business spend data. After all, spend is an expression of demand. The BSI is powered by the billions of dollars of aggregated, anonymized, and permissioned business spend data flowing annually through our platform. This data provides an unparalleled look into the past, present, and planned spend of companies around the globe. In turn, this provides insight into the larger trends affecting our economy and industries.
As Coupa continues to grow, adding customers globally, our dataset will continue to get richer and enable us to provide expanded analysis each and every quarter. Access to consistent, quality data is what allows economists like me to be able to provide robust and meaningful commentary on the economy.
The BSI is a predictive measure of business confidence and future economic opportunity based on the willingness of a business to commit to spend. Analysis of the aggregated insights of spend activity enables us to help business leaders make strategic decisions that deliver value back into their business strategy.
What Can I Learn From the BSI to Help My Business?
Today, we released the Coupa BSI, Q2 2021 Outlook Report that highlighted that business spend confidence is improving, driven in part by strong order activity. While the U.S. economic output appears to be on a path to return to “normal”, the BSI shows the economy is far from fully recovered and there will be significant differences across regions and industries.
As a business leader myself, here are a few of the key things I’m keeping an eye on:
- Labor Supply vs. Demand: With the U.S. returning to pre-pandemic levels of demand for labor in the upcoming quarters, we can expect to see increasing concerns about worker shortages — something that would have been difficult to imagine last quarter but is already occurring within the hospitality and healthcare industries.
- Rebounding Commodity Prices: In the U.S. we’re already seeing the prices of steel and lumber skyrocketing as the economy starts to rebound and activity picks back up.
- Recovery of Global Supply Chains: During the pandemic global supply chains were significantly impacted. We will be monitoring the flow of goods through the Coupa supplier network looking for increased on-shoring/near-shoring.
For businesses around the globe, rising demand will put upward pressure on prices and will have a direct impact on business profits and investment. Right now, that pressure is multiplied as global supply chains are still recovering from multiple disruptions, including those caused by the pandemic and the Suez Canal blockage.
What is less obvious is the intermediate-term implications. Higher prices could induce increased labor force participation and will likely accelerate improvements to global supply chains. We’re all asking questions about how fast we will get back to normal and to some degree what the baseline for normal is now. How quickly markets adjust will be key to the rate of improvement.
An Inside Look at the New Model Powering the BSI
Starting today, we’ve updated the methodology for Coupa’s Business Spend Index using a proprietary algorithm that takes into account 13 spend variables that maximize the forecast accuracy of our model. We have bundled these variables into three groups or “factors” that quantify predicted business confidence — Search, Order, and Pay. Here is what those three factors entail:
- Search: A set of inputs that measure early-stage activity in the Business Spend Management process. Search includes, for example, a measure of sourcing activity which is indicative of improving or declining confidence in future economic opportunities by businesses.
- Order: Inputs that measure purchase order creation, which represents the commitment to spend. Order includes both spend and transactional volumes and is positively related to increased confidence in the economy.
- Pay: Inputs that measure invoice and expense volume. Pay is composed of transaction volumes related to spend which has been incurred. This includes business travel spend, which is highly sensitive to changes in business confidence.
These factors provide unique visibility into the end-to-end strategy for how a business manages their spend, providing data that begins with their intent all the way through to how their dollars have actually been spent.
So what’s our secret sauce? Our updated methodology and analytics model got a huge boost following Coupa’s acquisition of LLamasoft in November 2020. Now a part of Coupa, Coupa Supply Chain Design and Planning’s Demand Modeler technology combined with a world-class team of 150 data scientists working on robust modeling and AI capabilities have enabled us to quickly recalibrate the BSI algorithm. As a result, the Coupa BSI will continue to be agile, allowing us to move quickly each quarter to refine the BSI, extend the forecast horizon, and provide enhanced value to business decision makers within our community.
What’s Next: Preparing For Economic Acceleration
Navigating uncertainties successfully requires increasing business agility. A comprehensive Business Spend Management platform allows companies to control costs and can provide real-time visibility into all company spend.
Coupa’s customers benefit from access to the unique community data and insights that can show early economic warning signs and enable businesses to make informed decisions and drive results.
Our aggregated industry and category-level insights are just the beginning! Join the Coupa Community and let us show you how you’re performing as a company to maximize the value of your spend and get the most out of your own company's information.