Making Procurement Smarter

Over the past few decades, procurement has consistently evolved – beginning as a clerical, back-office task, and growing into a strategic, intelligent business function that has the power to not only save money and increase efficiency, but also combat social and environmental issues. While the source-to-pay processes are integrated in centralised IT and enterprise resource planning (ERP) systems, other emerging technologies including artificial intelligence (AI), machine learning (ML), Internet of Things (IoT) and blockchain are only implemented sporadically within supply chains.

Although these emerging technologies are not as widely utilised in procurement yet, a recent global survey of chief procurement officers (CPOs) revealed that integrating such emerging technologies is a priority. However, the same study revealed that many do not understand exactly how to unlock the full potential of a digitally transformed supply chain. While undergoing a complete digital transformation is a significant challenge and many struggle with where to begin, procurement professionals do have a handle on their end goals: automation of processes, improvements in data quality, achieving cost savings and advancing on corporate social responsibility initiatives.

In fact, 84 percent of responding CPOs recognised that digital transformation through emerging technology adoption will improve procurement operations. Despite that, less than 15 percent of survey respondents currently use AI, ML, 3D-printing or prescriptive analytics. The takeaway here is clear – CPOs understand that digital transformation is important, but they don’t necessarily understand why it is important, or the practical value it can bring to their procurement organisation on a day-to-day basis or in the long term. When implemented effectively and practically, data-driven digital transformation enables more effective spend management and mitigation of risk, therefore aligning ethical values with business practices, and ultimately saving money and time.

Managing and Mitigating Risk

Supply chain disruption comes in many forms – hurricanes, winter storms, trade wars, corporate financial health and more. While none of these disruptions are new to businesses, the way in which they can manage the disruptions is. For example, supply chains are beginning to leverage predictive analytics based on a holistic view of the business, which was not possible when data was previously siloed. Procurement professionals can then implement AI or ML to analyse that data and recognise patterns that previously slipped through the cracks, forecast bottlenecks and predict changes in demand.

When businesses leverage these technologies for purchasing and supply partner decisions to monitor changing patterns in real time, they can prevent potentially catastrophic events from causing severe operational disruptions.

Ethical Values

Businesses also consider corporate social responsibility an increasingly important issue. As the shift towards ethical and sustainable business practice continues to dominate the news cycle, consumers are becoming more mindful of their own impact, as well as the impact of businesses they engage with. A 2019 survey from CGS found that more than two-thirds of survey respondents prioritise sustainability and pay more for products if they are sustainable. This number is likely to increase as environmental and human rights issues continue to take centerstage.

The issue has never been more pressing in Australia with the introduction of the Modern Slavery Act, requiring companies with an annual turnover of more than $100 million to report on the risks of modern slavery across their supply chains.

To mitigate risks exposed through human and environmental rights violations, businesses can use tools such as blockchain and ML to identify what partners are employing unethical practices and work as a team to fix these issues.

Cost and Efficiency

When leveraged properly, AI-powered procurement can also help companies drive cost efficiency in a number of ways. For example, by automating manual operations, businesses can consolidate several processes and eliminate the opportunity for user error while making purchases or tracking invoices. Freeing up procurement professionals who were previously focusing on repetitive manual tasks enables those employees to be used in more strategic activities.

Another example is using predictive analytics to identify potential hotbeds of risk, for example a financially struggling partner or a supplier who is soon entering drought season, or worse – about to go bankrupt. By predicting and resolving these issues before they occur, buyers can minimise or even avoid disruption before it occurs by altering their supply cycle or finding an alternative supplier.

Managing Spend Intelligently

Managing spend while staying agile is a balancing act, especially in today’s global economy, and companies are beginning to realise the power they possess when they spend more effectively. Emerging technologies, such as AI, blockchain and ML, are especially valuable when used in conjunction with spend management. Intelligent spend management strategies are crucial to implement real-time decision making, assess and tolerate risk, and drive cost effectiveness. A unified view of intelligent spend is imperative to today’s intelligent enterprise.

Data shows that procurement leaders are beginning to understand the urgency and importance of defining and executing digital transformation for their businesses. Despite all of the benefits to digitalising the supply chain and the knowledge that integrating emerging technologies will prove beneficial, procurement professionals are still slow to adopt these technologies. This is due to several roadblocks, including budget restrictions, conflicting priorities, talent shortages and data insights. Interestingly, digital transformation will ultimately provide cost savings and drive profit margins because of the subsequent ability to avoid supply chain disruptions and automate more processes.

Strategic procurement processes achieved through digitalisation need to be employed for companies to widen their business network, reduce cost and increase efficiency, as well as leave positive, lasting societal and environmental impacts.

This article was originally published on Money Inc.