Embracing Digital Disruption

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Author: Tom Cosgrove

Procurement executives may understand how key technologies like data analytics, artificial intelligence (AI) and machine learning (ML) can significantly improve their processes, but they don’t always turn that understanding into actionable adoption of those tools, according to a recent webinar on LevaData’s Cognitive Sourcing Study.

The San Jose, Calif.-based LevaData, a cloud-based cognitive sourcing platform that offers market intelligence and supply chain cost management solutions, offered the webinar as an update on its study from last year.

To set up the issue of cognitive sourcing, the study used a quote from Mark Perera, founder of Procurement Leaders Network, to define it as “the application of self-learning systems that use data mining, pattern recognition and natural processing to mimic the human brain around the processes of acquiring … goods, services or works from an external source.”

Slow to Adopt

“People know that digital disruption in the supply chain is already underway,” LevaData CEO Rajesh Kalidindi said in a statement. “Given this, we were greatly surprised to learn how many procurement managers are still using outmoded management tools.”

To compile the study, LevaData surveyed more than 100 senior executives responsible for a combined $920 billion in direct material spend. Respondents work in five primary industries: automotive, consumer products, high tech, industrial equipment and life sciences.

Overall, the survey found that procurement specialists appreciate the potential that a data-driven approach to sourcing and procurement has on efficiencies and cost savings. In fact nearly 87% of respondents agreed that a data-driven approach to sourcing and procurement is a critical component of driving value in the enterprise. They attribute data analytics to heightened efficiency and reduced costs.

However, while LevaData’s analysis suggests a gradual increase in professionals who are making gains to digitally transform their procurement operations, progress remains slow. According to LevaData, only 45% of respondents believe that their companies and talent are ready to take on the opportunities for digital transformation and to apply data-driven analytics in their current business processes.

“As more companies implement AI-powered strategic sourcing technologies, those that don’t will find themselves at a crippling disadvantage,” according to Kalidindi.

The study includes what Richard Barnett, senior vice president of marketing with LevaData, described in the webinar as a “new model that incorporates the potential for new levels of performance that can be achieved with cognitive technologies along with a roadmap to the future.”

The Cognitive Sourcing Maturity Model, which bears a striking similarity to an academic performance rubric, has five levels and five descriptive categories:

 

Source: LevaData

A glance at the “roadmap” gives organizations a good sense of where they stand in the digital transformative evolutionary timeline.

Compare, for example, a Level-One Ad Hoc organization, which still relies primarily on Excel, to a Level-Five Continuous organization, which incorporates a shared platform, partially autonomous system.

Underperforming with Old Tech

In terms of supplier coverage, to use another example, Barnett pointed out that an alarming discovery was that the average organization engages in competitive bids with just 41% of their suppliers annually.

“More frequent engagement allows your organization to scale strategically and intelligently,” Barnett said.

What distinguishes best-in-class organizations, Barnett noted, is their use of integrated market intelligence technologies that offer a broader view of their supplier base.

“In contrast, the rest of the businesses analyzed simply gather information from direct supplier relationships.” Barnett noted. “Only 8% of survey respondents are using third-party technology solutions.”

While 58% of respondents are using some type of risk analysis that deploys AI, LevaData found 64% continue to use spreadsheets or tools that rely only on internal data-gathering to provide market intelligence. Less than 10% are gathering data from four or more sources and, according to Kalidindi, it means most companies are missing a major opportunity.

He said a world-class sourcing and procurement organization could examine at least 1.5 million data points affecting the supply chain, which is more data than any individual could take in and use strategically.

 

About Author

Procurement and Supply Australasia (PASA) is the leading provider of information and education to procurement and supply professionals throughout Australia and New Zealand. PASA supports the largest community of engaged procurement stakeholders in the region, through its renowned series of events, publications, awards, plus various community and network building activities. PASA is a trading name of BTTB Marketing, for many years recognised as the leading producer of conferences and events for the procurement profession in Australia and New Zealand. Whether producing under the BTTB, CIPSA Conferences or now PASA brands over the last ten years, our events have consistently led the market in terms of both educational and networking opportunities.

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