Procurement teams in leading organisations have recognised the need to elevate themselves beyond being a traditional business function and play a more strategic role. Having a deeper understanding of what the latest technologies are capable of will help them maintain their world-class strategic procurement status.
A modern, technology-focused procurement operation is more than just a buyer of goods and services; it is an enabler for organisations to become world-class leaders.
So what are some of the key challenges procurement faces on the road to becoming a strategic function?
● A volatile economic environment has made it harder to achieve savings targets.
● Business restructuring and downsizing opportunities.
● Public sector budget cuts and impact on front line services.
● A shortfall in internal process performance.
● Limited commercial and strategic capability.
In today’s climate, companies face a variety of challenges. But, as such, there has never been a better opportunity for procurement to stand out and prove its necessity.
The future of digital procurement
Technology has maintained its rapid growth in recent years while procurement has changed and upgraded its purpose in tandem. Back in the day, it was a goods and services buying function. Now, it is driving value to the business and achieving significant savings through digitalisation.
It can take a few years to fully digitalise a procurement department, but the results can be extraordinary. Technology-enabled procurement functions are able to drive more savings, as well as improve efficiency and effectiveness in far shorter periods of time.
Digitalisation should be one of the most important objectives for a procurement department. There are a lot of different tools that can help with every aspect of the procurement process and the benefits go far beyond just achieving savings.
In these past few years there have been some trends in procurement that have really taken off and are likely to get further embedded in everyday procurement processes. One of them is artificial intelligence (AI).
AI is a set of rules that can be applied by a machine to simulate human intelligence. Machine learning is often used in the same context, but really, machine learning uses a different mechanism of neural networks to process information and uses probability-based judgements to make decisions. In procurement, as an example, this could be as simple as routing a contract or requisition to the right person based on value and type of spend. Going forward AI is going to revolutionise the way current procurement processes are made.
AI provides a level of intelligence to technology. In procurement, as an example, this could be as simple as routing a contract or requisition to the right person based on the deal value or type of spend. Going forward, AI is going to revolutionise procurement processes.
Applying AI to spend analytics
Basic spend analysis has already helped prioritise sourcing activity in categories of spend with high supplier numbers, countries with different item specifications, and more. With the cloud providing a common platform, procurement professionals can compare data across anonymised companies within industries to identify areas of under- or overspend. Within a business, spend patterns can be identified and matched with demand profiles to provide better information for sourcing lotting strategies and supplier rationalisation. AI provides genuinely useful strategies for procurement, and combined with machine learning can do this in close to real time.
Many of the benefits of sourcing such as gaining better value from suppliers, actually comes from solid spend analysis – identifying areas for spend consolidation, identifying spend and contract leakage and noncompliance, supplier rationalisation and specification simplification. But can the actual process of sourcing benefit from AI?
Applying AI to source to contract
With the ability to set rules of qualification and assessment, weighting responses and analysing combinations of items and lots, AI provides considerable benefits once sourcing events are extended beyond simple commodities. As technology progresses, the AI that sits behind sourcing becomes more powerful. Not only can sourcing solutions assess the best combination of suppliers and items for award, but it can make suggestions to offer even better value combinations that procurement teams may not have yet considered.
Transactional procurement offers great scope for efficiency improvement. By streamlining purchasing and invoicing processes, other opportunities are opened up such as dynamic discounting to deliver savings and support supplier sustainability.
Applying AI to purchase-to-pay
When searching for items, AI can provide useful comparisons to similar items and make recommendations based on what others have bought. Machine learning can add an extra level of detail; the technology can begin to understand if there are certain items or services that your organisation purchases at a particular point in the day, month and year and start asking you if you’d like to purchase them at the appropriate time. AI use cases include rules-based approvals, invoicing, matching and exception handling, prioritising of invoices for payment, and intelligent dynamic discounting for offers for suppliers.
If you are now thinking to yourself “how do I implement AI in my procurement function?”, then stop. This isn’t the right way to start the journey. The real question you should be asking is “how do I get more value from my procurement function?” The answer is likely to be, in part, focused on technology, which helps increase effectiveness and efficiency.
Alexandra Pogacean is digital content specialist at Xoomworks
This contributed article has been written by a guest writer from Xoomworks, a business management and procurement consultancy, at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.