November 21, 2018

New technology must influence procurement’s strategic decisions to bring true change

Sony Betamax old technology

The natural state of affairs seems to be that whenever ‘innovative’ new technology arrives after riding a wave of hype, it fails to deliver the benefits it promised.

Recent history is littered with technological innovations that claimed to be the change the world was waiting for before disappearing without making much impact. Think Betamax, Google Glass and QR codes. Could the ever-present ‘Artificial Intelligence’ be next on the list?

Well, maybe not just yet. There are indications that procurement decision makers still have AI very much in their plans.

Deloitte’s 2018 Global Chief Procurement Officer survey found that almost half of CPOs said they were considering, piloting or already using AI or cognitive technology in some capacity. Indeed, efficiency-enabling tools such as chatbots are becoming increasingly common and allowing people to go through the buying or ordering process without requiring human procurement experts to get involved.

Procurement processes remain largely the same

However, while there have of course been technology-enabled changes to the way people work, such as much faster communication, the underlying processes that define the way that buyers and suppliers work together haven’t changed all that much when compared to what they were like 20 or 30 years ago.

Take purchase-to-pay (P2P) or sourcing management as examples. P2P processes may be automated, but they still largely follow the same steps that they’ve followed for a long time. Even though processes may now be digital, that doesn’t mean they are fundamentally different. A digital tendering process follows the same rules that were established in the days of manual tendering.

This is why it’s always wise to be cautious about the much-heralded new technologies that promise greater digitisation and revolution in procurement and supply chain management. Are they actually changing the nuts and bolts of how the procurement industry works, or simply automating a few more processes?

What does real procurement innovation look like?

Real innovation of procurement and supply chain management means having an actual, tangible effect on organisations’ procurement strategic decisions and allowing them to create much greater value than ever before, rather than simply executing surface-level changes – such as the aforementioned chatbots – which look good, but aren’t fundamentally revolutionary.

Giles Breault, former CPO at Novartis and founder of advisory firm The Beyond Group, sums up the difference when he says: “Procurement is evolving towards a two-tier function; one where an enhanced set of operative activities is managed largely through digital technologies and another that is much more strategic, managing issues such as supply continuity, risk management, collaborative value creation and sourcing innovation”.

True technological innovation means being able to rely on decision-making technology that can be trusted to influence the following:

  • identify the best suppliers that can give you a competitive advantage
  • supplier selection and contract negotiation without the endless back-and-forth on draft contracts
  • find opportunities to engage more effectively with supply markets
  • manage supply chain risk in an ever-changing world and regulatory environment

If analytical and visualisation technology and artificial intelligence can begin to make inroads into these strategic areas, then the world of procurement can really start benefitting from the digital revolution.

Building the skills required to use the technology

However, while talking about technological changes, we cannot forget the human element. There’s no point introducing it if those working in procurement lack the skills required to use it properly or understand what the technology is telling them.

More than that, there will also need to be strong relationships between those using the technology and those who are building it to make sure that it is designed to deliver the required outcomes.

After all, you need to know the logic behind why decisions are being made in order to trust their accuracy. Organisations don’t want developers with no procurement knowledge or experience to be running the show, but a lot can be gained from procurement professionals and AI experts working together closely.

The technological road ahead may be a difficult one to navigate at times, but the benefits to anyone working in procurement should be clear.

This blog is based on an article originally written by Peter Smith, MD of Spend Matters, as part of our AI in Procurement report (published alongside Raconteur). You can read the detailed report in full here.

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