AI's emergence in strategic business functions: Is procurement getting left behind?
50 percent of respondents to a recent McKinsey survey reported that their companies adopted artificial intelligence (AI) in at least one business function in 2020. As interest and investment in AI and machine learning (ML) continue to grow across different business functions, is Procurement keeping pace with its business unit counterparts?
Procurement value generation is heavily dependent on fast access to accurate data; while other business functions are automating decisioning using AI, in many organizations today Procurement is still working manually just to collect and clean source data before even getting to the decisioning stage.
Procurement teams require investment and partnership to enable the use of AI and ML. Often the challenges in having data-driven investment conversations are knowing where to begin the AI journey, developing a framework for execution, identifying the right leaders as sponsors and being able to quantify and champion the value to the business.
How can Procurement address these challenges? Access to scarce internal Technology resources is typically a challenge for Procurement teams; more often the answer lies with choosing the right partner to help implement and run the initiative.
Where should Procurement start its AI journey?
Fast access to accurate and comprehensive data is critical to effective decision-making, nowhere more so than in Procurement. A real-time understanding of where and how operating and capital expense is being transacted, and the suppliers with whom the organization is partnering, underpins many of the opportunities (or challenges) which Procurement faces on a daily basis.
Indirect, or Goods not for resale (GNFR) spending can equate to up to 20 percent of the business’s annual revenue. This represents significant expense -- and a significant amount of data. Procurement teams are often challenged to achieve a broad picture of all of this information from multiple interrelated data sources: historic spend, budgeted baselines, contracts, purchase orders, invoices -- as well as information on suppliers such as financial stability, codes of conduct, diversity and sustainability practices.
The ability to gather, categorize and view all of this information in near real-time is the foundation level for many procurement teams. Using AI to consolidate, clean and categorize data into meaningful views, versus investing in resources to do this manually, is typically the starting point for many. Securing the right partner to help with the work is critical to move the initiative from idea to execution.
Setting the initiative up for success
While selecting a partner and developing and communicating a clear overall vision for AI strategy is critical, starting on this journey with narrowly defined, achievable steps is just as important. Communicating wins and empowering sponsors with data-driven value points to champion them at each step ensures continued support for the program as it develops.
Just as importantly, a solid roadmap ensures that Procurement teams remain able to explain in simple terms how AI arrives at its outcomes. If the basis for data consolidation and/or opportunity identification becomes unclear over time, driving decisions with business unit stakeholders will become increasingly difficult as trust in data (or algorithms) erodes. Ensuring simplicity and clarity as the program develops will prevent the "explainability challenge".
At the basic level, AI and ML save time on low-value tasks by automating manual processes. AI initiatives rapidly consolidate and categorize spend, contract and supplier information, accelerating timelines and eliminating human error, providing near real-time data visualization and enabling opportunity identification and risk mitigation efforts for Procurement teams.
Ensuring that the Procurement team can champion new ways of working with business stakeholders as these foundational capabilities are developed is critical; not only to ensure that the quantifiable "wins" are well-publicized and the initiative keeps momentum, but also to bring business stakeholders along the journey as more advanced capabilities (e.g. automated opportunity identification in areas such as demand management and price benchmarking) are developed and rolled out.
Don’t Miss the Bigger Picture
The often-overlooked factor as Procurement AI and Technology initiatives become more advanced is the supplier side of the relationship. Procurement leaders must be able to have value-based and transparent conversations with their supplier partners, from multi-year strategic partnerships to simpler but value-based episodic transactions.
How likely is it that devolving these conversations to an AI-powered Hagglebot will result in a favorable, value-based relationship with a supplier and a business unit stakeholder?
While AI and ML will undoubtedly develop to be critical toolsets for Procurement teams, business relationships internally and externally will always require conversation and communication (underpinned by data) to ensure value-based partnerships. The real value is in automation that can rapidly view and model scenarios to support these conversations and decisions.
Partner for Success
As economies emerge from the COVID pandemic, companies everywhere are focused on cost reduction; either for reinvestments to help them evolve digitally, or for-profit improvement opportunities. Procurement teams everywhere are increasingly under pressure to deliver this value as well as help to drive critical initiatives across digital capabilities, risk management, supplier diversity and sustainability (typically without the luxury of additional resources).
Finding the right partner to help develop and launch AI and Technology automation initiatives has never been more important for Procurement teams. Other business functions are already down the path on their AI journeys; if Procurement wants to keep up and stay relevant, then every day counts for developing their own capabilities - and not getting left behind.
Photo Credit: Photon photo/Shutterstock
Jo Seed is chief operating officer at LogicSource. Jo is responsible for technology, shared services, and client-site operations for all of LogicSource’s current and prospective clients. Prior to joining LogicSource, Jo held a range of business development and consulting positions in both the US and Europe, working on major services engagements with Fortune 50 clients across the retail, CPG, financial services, pharmaceutical and publishing industries. Jo has a BA Hons. in psychology from the University of Reading in the UK.