There Is Nothing Artificial About Predictive Procurement

There Is Nothing Artificial About Predictive Procurement

05/23/2018 Jon Hansen

In a recent television interview –with this country’s most notable high tech leaders, I gained an unprecedented look into the minds of the people who are shaping the nation’s digital future as we discussed everything from Artificial Intelligence to the need for organizations (and in particular senior execs) to digitally reinvent themselves.

While there is no doubt that the digital revolution has begun, as exciting technologies permeate every area of our lives, moving into this brave new world of unprecedented technological advancement has paralyzed many, perhaps the majority of organizations.

In a recent white paper on digital transformation in procurement, I had referred to this challenge of immobilization. More specifically, to an article by McKinsey’s Jacques Bughin and Tanguy Catlin.

Based on their research of 1,650 incumbent or industry-leading firms from around the world, Bughin and Catlin discovered that less than 20% of these companies take the path of “digital reinvention.” What was even more telling from a procurement standpoint, is that despite the potential impact that digital reinvention will have on the growth of revenues and profits, only 2 percent of companies report that the supply chain is part of their “forward-looking digital strategies.”

Revolution? What Revolution?

The McKinsey findings are sobering as they put a damper on the enthusiastic buzz surrounding the digital revolution and what it can potentially offer. The question is why, amidst all the excitement associated with technological breakthroughs such as AI or Robotic Process Automation, do companies “neglect to embrace digital innovations.”

Is this hesitancy because there is just so much to comprehend and only so many hours in the day to absorb it? Perhaps senior management has too much on their plates from the standpoint of overseeing the complexity of doing business in a new global economy? While these, as well as the myriad of other reasons, might explain why executives are ignoring what Mckinsey called the “warnings from ourselves and others” regarding the peril of not “adjusting to the digital era,” there might be a simpler explanation. Human nature.

As someone who has been in the high tech world since the early eighties, it would be safe to say that I have seen it all from the standpoint of technological advancement. For those of you who are old enough to remember, when the personal computer first appeared on the scene, IT people dismissed it as a fad that would never catch on. In this case, their resistance was based more on a dismissive arrogance than uncertainty or fear of the unknown.

In Fear and Loathing in Washington: Why a recent survey found that 92% of government IT leaders have reservations about making a move to the cloud, I talked about the ScienceLogic Survey’s reference to the “universal reservations” about former Federal CIO Vivek Kundra’s Cloud First policy. Specifically, the fact that even though two-thirds of government agencies identified the three “must move” services to cloud computing as stipulated by the Kundra policy, a whopping 92% expressed reservations as to the “veracity of the technology from the standpoint of performance and the availability of services.” Such fears were not limited to the public sector.

As illustrated by the above examples, with both the personal computer and the emergence of the cloud, in hindsight the attitudes or concerns that marked their early entry into public consciousness were unfounded. As time passes, I am certain that a similar reflection on the digital era will bear the same sentiments. In other words, and in the not too distant future, top executives will be asking themselves why, as McKinsey reported, were they ever reluctant to proactively embrace the digital promise.

Unpacking The Digital Value

In an earlier article, I referred to how Uber builds solutions for the way in which the world should work, as opposed to building for the way the world does work. While I will direct you to “Predictive Procurement: What Artificial Intelligence Promises to Purchasing” for Synertrade’s perspective on the way in which purchasing will evolve in a digital world, within this post I will share with you my personal experience with “digital” procurement.

Starting as far back as 1998, and with later funding from the Government of Canada’s Scientific Research & Experimental Development program, I developed an algorithm-based procurement platform for the Department of National Defense. The algorithm combined historical performance attributes such as delivery and quality, with real-time attributes that included cost, time-of-day, and geographic location relating to the purchase of Indirect Material MRO products to support their infrastructure.

The buyers could set the parameters of priority, meaning that if delivery was the critical need – and in most instances, there was a next day requirement, they would highlight that as the priority. Based on supplier response to the request, the platform would rank the suppliers accordingly referencing the attributes above. If cost, as opposed to delivery time, were the determining factor, the same list of responding suppliers would be ranked differently. The ability to assign weighted importance on a real-time case-by-case basis coupled with the platform’s limited learning capability ultimately led to a dramatic improvement in SLA performance, lowered costs, and a reduction in buyers from 18 down to 3 within 18-months of the platform’s launch.

In its earliest form, this platform delivered what today’s digital e-procurement software promise in the way of freeing up people resources while elevating positive outcomes. More essentially, the lesson I learned from these early days is simply this; embrace the possibilities offered by technological innovation because the rewards far outweigh any reservations you may have. And it is through this lens that you should view not only this digital era, but future breakthroughs in whatever form said advancements might take.

Jon Hansen

Jon Hansen

Jon Hansen is an expert in all areas of Supply Chain Management and Procurement. He is the owner of Procurement Insights and as a lecturer/speaker he is also a business radio talk show host. He writes blog posts for SynerTrade North America, to share the best practices and knowledge around Digital Procurement.