Forward Momentum

INTRODUCTION

In the business world today, leading companies are aggressively pursuing a “Digital-First” strategy. “Digital First” involves leveraging existing and emerging technologies such as artificial intelligence, cloud-based solutions, advanced predictive analytics, cognitive computing, and natural language processing to create innovative, competitive processes, products and services.

This changing landscape creates abundant opportunities for procurement. There is tremendous potential for procurement — which frequently finds itself hampered and limited by tedious, labor-intensive processes — to remake itself and its value proposition within the larger enterprise by adopting new technology-enabled capabilities. By doing so, procurement can find itself emerging as a bona fide, enterprise-wide digital transformation leader.

This process would take place over the course of three stages, as follows:

• First, procurement as a process innovator will internalize these emerging technology capabilities and set a path to “step change” its source-to-pay (S2P) process.
• Second, procurement as an intelligence arm for the organization will understand the emerging technology markets and its supplier base, and identify partners who will provide innovative ideas and tested solution applications to the organization.
• Third, procurement as a digital transformation advocate will collaborate with business stakeholders, suppliers and IT, and promote the use of these new technologies to create market differentiation, efficiency, and strong end-user experiences and processes.

 

Procurement as a Process Innovator

Today, organizations that want to be best-in-class must consider moving from their ERP systems and S2P point solutions to an integrated, cloud-based S2P platform with emerging technology integration. The “new S2P solution” will create new S2P processes not “tweaked,” but redefined by evolving technology capabilities. It will increase transactional automation, deliver improved compliance due to strong end-user experiences, introduce enhanced analytics to drive innovation and issue resolution, eliminate some traditional procurement processes, and allow the user time for more strategic activities.

To achieve these types of results, a well-defined procurement digital strategy is key. Yet according to a recent report by The Hackett Group, only 32 percent of procurement organizations currently have a formal digital strategy. [Source: 2017 Key Issues Study “The CPO Agenda: Keeping Pace with and Enabling Enterprise-Level Digital Transformation,” The Hackett Group]

Change takes planning and a definitive strategy. Procurement transformation comprising digital transformation strategies and process transformation strategies will drive savings, efficiency and innovation across the organization. But it will be disruptive to existing processes. Starting with a vision that is easily understood and shared across the organization will help build credibility and buy-in to the change.

Transformational strategies that are championed by executive leadership set the tone for procurement’s transformation. Each procurement organization will create its own set of strategies and should include, at a minimum, elements of the following:

• Digital Transformation (DT) Road Map: Procurement and IT/technology will define a procurement DT road map leveraging IT’s overarching digital transformation strategies and then supplement it with procurement-centric technology strategies.
• Process Change: Emerging technologies will eliminate some processes and change others. Process creation will be based on tool configuration possibilities and advanced tool functionalities designed to meet existing and emerging business needs. Cloud solutions will frequently “push” new functionality into the solutions. The organization will stand ready to realize new functionality benefits and be prepared to consider the “art of the possible” as new technologies emerge.
• Voice of the Customer: Digitization of procurement will drive better engagement of business stakeholders and quicker adoption of new processes. A forum designed to listen to the end users will be implemented to receive feedback, identify pain points and generate new ideas. More than anything, the end-user experience will drive success.
• Insight Creation: Both procurement and the organization will be free to explore data, create insight and drive action. By leveraging advanced analytical tools, disparate data sets will be analyzed. Predictive analytics will uncover trends typically not found. Procurement will generate market, category and process insights for the business and will be able to tackle more difficult problems. End users will be empowered to explore data with ad hoc reporting and analytics at their fingertips.
• Real Bottom-Line Savings: Contracted savings will be converted into realized savings by the integrated S2P solution. Every category will have a category strategy which promotes the creation of a closed-loop source-to-contract / procure-to-pay process, thus locking in the savings and value defined in the category strategy.
• Measurement: The organization will measure success. Two suggested measurements, process automation and user adoption, should be added to existing annual procurement and IT goals.

Creating Step Change: Digital Transformation and the S2P Process

For most, it might be hard to imagine what existing and emerging technology might bring to the procurement process. Every procurement organization’s digital transformation will be different based on its critical issues and the voice of its stakeholders. To help “bring it to life,” the following S2P use cases will provide examples of how technology can impact the procurement process. 

Source-to-Contract (S2C): Digital Transformation Examples

There are many opportunities for emerging technology to evolve dated S2C processes. While initial assessment may be that S2C activities are strategic, and therefore must require human intervention, there are areas where technology will drive change.

Without a doubt, there will be a high volume of artificial intelligence (AI) embedded in the development of sourcing strategies. Currently, advanced spend analytics, opportunity identification  and external / market insight development are executed by humans. In the future, AI will enable  these activities and bring insight back to category managers to vet with their teams.

Additionally, mundane tasks like contract metadata extraction are being replaced with optical character recognition (OCR) technology, making contract searches easier. Front-end “self- service” scorecards will allow suppliers to provide up-to-date information that allows supplier risk assessments and performance management to be automated. This will minimize or eliminate the need for dedicated supplier relationship management roles.

The use cases below illustrate how emerging technologies could impact three S2C sub-processes: supplier risk assessment, automated contract metadata capture and contract performance, and internal analysis.

Use Case: Supplier Risk Assessments Using AI

By building a supplier risk assessment scoring capability, like Credit Karma for credit scores, the organization could automate its risk assessment. Supplier risk assessment scores could be automatically generated without manual intervention, and the suppliers themselves could be actively monitored through technology to maintain updated risk assessment scores in real time, with greater speed, accuracy and efficiency. Suppliers could view their own scores to understand what actions to take to improve their scores over time. AI would simulate cognitive processes to generate in-depth risk profiles of organizations based on a combination of factors such as information found on executive officers, AI-driven analysis performed on financial information of third-party suppliers, and actively monitoring news from thousands of internet sources. These AI-driven supplier risk assessment scores work like a credit score algorithm, thus allowing organizations to keep pace with a constantly changing environment, and will reduce time-consuming manual activities to AI-driven activities.

Use Case: Automated Contract Metadata and Contract Performance

OCR technology takes contract photos and converts them to contract metadata, classifies and indexes the agreement, then tags it to a supplier, thus enabling metadata to be extracted and analyzed. Then, AI and machine learning could perform supplier spend and trend analysis to make recommendations, measure contract performance and compliance, and send automated alerts based on milestones. These capabilities would enable procurement managers to spend time on more strategic work.

Use Case: Enhanced Internal Analysis Using Automation and AI

At present, technologically mature organizations utilize dedicated end-to-end software platforms for their procurement needs, covering the entire S2P process flow. As a result, organizations have a ready repository of spend data. In the current scenario, the system is already able to analyze spend and create a spend profile based on categories, suppliers, geographies, business units, cost centers, etc. Through machine learning algorithms, AI will be able to extract granular-level insights from spend data, and help support business decisions by providing trend analysis, demand forecasts, and historical benchmarks, learning continuously to improve accuracy.

For example, through an analysis of historical demand and buying patterns, the system will be able to perform a trend analysis and forecast future demand. It would provide inputs that would previously have to be brought out manually, or otherwise have been missed, given the sheer volume of data that is now available to procurement.

Procure-to-Pay (P2P): Digital Transformation Examples

The P2P process has been long burdened with manual, repetitive tasks which can be dramatically mitigated with emerging technologies. Industry reports vary, but an average of 60 percent reduction in P2P-related resources is expected as manual processes are replaced by a combination of robotic process automation (RPA) scripts, bots and functionally-rich P2P solutions.

RPA will play a large near-term role. Expect to see full automation of tasks such as requisition quality and compliance review, order management, expediting, and invoice data entry using RPA. Not only will this lead to FTE reductions; error rates will be reduced or even eliminated.

Future impacts on procurement with tools such as blockchain and smart contracts are a few years down the road. Below are a few use cases of emerging technology playing a role in driving P2P toward a cleaner, digital or digital-ready environment:

Use Case:   Process Automation Using RPA

RPA is probably the biggest buzzword in the operations field today. The concept is to take any task that can be clearly defined (think process flowchart) and replace the human interaction with a computer that follows step-by-step instructions. Simply, RPA could be a macro within Excel that follows clear instructions and updates information, creates reports, and manipulates data. Slightly more advanced functions can be added such as scraping data from a screen (think reading a price from a supplier website), or running a more complex algorithm to use data to drive processes in different directions.

Use Case: Price Checking

RPA functionality can be joined with other emerging technologies, such as big data analysis and AI. Think about a solution where AI leverages historical purchasing data to predict purchasing needs and kicks off an RPA script to build out the requisition, obtain quotes, and route for approval, all without human intervention.

Use Case: Master Data

RPA in its simple form is often used to automate ERP master data maintenance. As an example, supplier price lists arrive in Excel spreadsheets and after review, a simple Winshuttle script is run that updates ERP info records for each location with the new appropriate pricing.

Use Case: Bots!

Bots, or in some cases, chat bots, are simple computer applications meant to mimic interaction with a human. Bots are becoming extremely prevalent in the help desk realm, where users are engaged to provide responses to simple questions (How can I help you today? What is your account number?). The data collected is used to make predetermined steps to provide data or direction with the intent of providing a level of automated triage in attempt to reduce human interaction. Bots can be as simple as a prompt for your company name, which after a quick search can route you to your appropriate account manager for further information. More complex bots are beginning to be combined with AI to determine not only how to best help with the current issue, but to predict any follow-up actions and initiate additional processes as required.

It’s easy to see the efficiencies gained by using bots in a help desk environment. But how can bots be used in the procurement process? Think about how Amazon Alexa is changing the way we order things at home. “Hey Alexa, order a pepperoni pizza” turns into a conversation like this between a stock room manager and his purchasing bot, “Bob”:

Store room manager:	“Hey Bob, order the parts to complete the quarterly maintenance on line 3.”
Bob the Bot:	“The quarterly maintenance on line 3 will require 32 different parts. Would you like me to check for updated pricing?”
Store room manager:	“Yes, that would be great.”
Bob the Bot:	“I have received updated pricing on 31 products. One product is no longer available. Would you like me to initiate a spot buy request?”
Store room manager:	“Perfect, Bob. As usual!”

While this is a little more complex than most bots used today, the future of bots is huge, and when combined with other areas of emerging technology, the future of a bot as a user interface is limitless.

Use Case: Guided Buying

Sometimes technology is not used to make the back office more efficient, but to help front-end users make better decisions and understand best practices for a given task. Guided buying is a great example of how emerging technology will be used to prompt users to follow appropriate procurement channels. Guided buying consists of a series of questions whose answers will be used to determine the appropriate buying channel based on category of goods, quantity, price, intended use, location and any other key data built into the algorithm. Requesters will then
be prompted to create a requisition (or one will be created for them), or have a sourcing event or simple spot buy initiated. The benefit is that the requester is engaged prior to requisition creation, so procurement has time to act on the need rather than react to the purchase. This simple web-based or bot-fronted process may eventually become the single point for all purchasing, whether tactical or involving a strategic sourcing event.

Use Case: Automated Spot Buys

With an integrated procurement platform, every order can be examined for compliance to policy through simple scripts that compare requisition data to category strategy information from category cards. These automation scripts could identify appropriate suppliers by product line, ensure contract pricing is used, check terms and conditions, and identify outdated pricing or opportunities for spot buys.

In these cases, predetermined supplier lists are used to generate RFQs which can either be presented to the buyer, or in more mature organizations, can be released automatically to begin the spot buy process. By automating spot buys, not only is higher compliance to strategy achieved, but savings and compliance can be driven on lower dollar transactions that typically would take more cost effort than value if done by a human buyer.

Procurement as an “Intelligence Arm” for the Organization

As procurement transforms and leverages advanced technologies to improve its analytical capabilities, it will become an “intelligence arm” for the organization. Business intelligence capabilities will provide procurement a vehicle to convert data into insight. Procurement’s role is to understand this insight and then “tell the story” to the business so they are compelled to move into action.

Spend Analysis:

The place where procurement starts is with spend analysis. By combining data from multiple ERPs, purchase cards, T&E solutions, temporary labor solutions, wire transfer data, etc., big data solutions with AI will provide procurement full spend visibility and the opportunity to identify new cost reduction or value generating opportunities with the business. According to research from Aberdeen Group, companies that perform spend analysis increase total spend under management by over 35 percent and increase contract compliance by 30 percent. [Source: “Spend Analysis: The Nexus of Spend Management,” Aberdeen Group]

Spend analysis will enable companies to rationalize their supply base, decrease part proliferation, reduce maverick spend, understand parent-child supplier relationships, and eliminate price variance across the business.

Modeling tools will enable procurement to examine existing demand patterns and project future ones. Procurement and stakeholders can use this capability to adjust inventory replenishment orders, shape supplier commitments, and time-phase part substitutions more accurately.

Analytic tools will enable procurement to perform pricing analysis to determine if suppliers charge the correct price, identify pricing differences across business units, and examine pricing escalation values to market benchmarks.

Market Intelligence:

Procurement has traditionally used market intelligence as input to its category strategies. Information was gathered and analyzed regarding spend categories, competition, market trends, and pricing trends to fully understand the company’s negotiation position and to bring new insight and innovation into the business.

In the future, procurement will track and trend the company’s industry and markets, competition, new business models, customer trends and what impact each will have on its business and competitiveness. Procurement will participate in the analysis of make-buy decisions not only for manufacturing of products but also of core processes. Procurement will take on the role of process outsourcing adviser by understanding trends in outsourcing / insourcing and provide guidance to the business.

Procurement Risk and Control:

Armed with statistical and visualization tools, procurement will create a strong fact base to identify points of noncompliance in the S2P process. Analysis will be performed for each category and buying channel. AI and big data tools will analyze contracts against spend patterns to identify maverick spend. In the future, this insight could be associated with noncompliant user profiles. When they procure again, the guided buying solution will “direct” them away from the noncompliant supplier and toward the preferred supplier.

Analytical tools will also be used by procurement teams to explore potential fraud. They will perform demand pattern reviews, requisitioner order placement analysis, and price monitoring to flag suspicious behavior.

Procurement as a Digital Transformation Advocate

Organizations need to constantly evaluate themselves and be honest about their need to change. Leadership must be forward thinking with a strong vision and demonstrate commitment to the change. Most importantly, they must be focused on customer insight, experiences and expectations.

Companies that are successful in a “Digital-First” transformation define a clear digital strategy that is predicated on using technology such as cloud, mobile, analytics and social solutions to transform how they do business. The digital strategy, combined with an accepting company culture that thrives on positive change and strong leadership that empowers the business to transform, sets the tone for success.

Procurement, as a digital transformation advocate, can collaborate with stakeholders to understand the current state and explore future-state options. Procurement will introduce the business to “supplier innovators” who will present new products and services, redefine business models, create new processes and leverage new tools.

Procurement can work with IT to create an overarching digital strategy that will support business transformation. Together, they will encourage risk taking, innovation, and collaboration. They can see their organization as an extended enterprise reaching out and including suppliers in its value propositions to clients and to third parties who bring business acumen, new talent, intelligence and innovation.

Procurement can share its own experiences and lessons learned from the digital transformation journey. When ready, procurement could work with stakeholders to source new suppliers, ensuring that contracts, pricing and service level agreements (SLA) support their new desired outcomes. Together with stakeholders and IT, procurement could ensure that the organization’s digital transformation strategies are leveraged and new potentials are explored.

Conclusion

Procurement, almost alone among business functions, has amazing opportunities to step into the role of a digital transformation leader in the enterprise. As a process innovator, procurement is standing poised at the edge of a new world where emerging technologies illuminate a path  to “step change” — a transformed S2P process that generates unprecedented value for the business. As an intelligence arm for the business, procurement can leverage its access to markets and suppliers, assessing new and emerging technologies, and pioneering partnerships with entities that can contribute innovative ideas and road-tested solutions to the organization. And finally, as a digital transformation advocate, procurement could take the message of digital transformation outward to stakeholders, suppliers and IT, promulgating an understanding of
the power behind a “Digital-First” mindset and launching new collaborative efforts resulting in impactful changes throughout the organization