Where are you on the Journey Towards Autonomous Procurement?
- All Industries
This is the second instalment of our discussions, led by David Ford, Global Head of Procurement at law firm Freshfields Bruckhaus Deringer, under the rubric “Digital Darwinism”. Each company has its own priorities, issues and timelines and varying levels of maturity in technological innovation. The automation journey in procurement, all the way to autonomous systems, is a long one, but procurement professionals are seeing progress – and benefits. Note that the people taking part did so in a personal capacity and any views expressed do not necessarily reflect those of JAGGAER or any other organization or company.
Read the first installment: “The Economic Impact of the Pandemic: Survival of the Most Adaptable”
What does autonomous procurement mean in your organization, and how far advanced are you?
Kicking off the discussion around autonomous procurement, a leader from the aerospace sector highlighted the human dimension and possible unforeseen consequences: “At the platform level we have the future mapped out on both the direct and indirect procurement sides. The part that we are still trying to get to grips with is the people side – the role changes. The other challenge we face is unpicking the legacy systems. You don’t start to uncover some of the issues until you go through the roll-out of a platform and you realize you are taking data from systems that are no longer fit for purpose or are starting to creak, or perhaps there is an overlap.
“That said, a large proportion of our spend is now handled online and automatically through self-service, with the big ticket multi-million-pound purchases going for triage and more strategic analysis.”
The head of procurement operations at a large energy sector company said, “The aim is to make the experience as frictionless as possible for the customer, also for our procurement team members who are still having to deal with a lot of low-value admin and reporting. So, we’re trialing an event-driven architecture with mobile apps that allow engineers to order what they want from the field, for example. The big thing for us is that we do a lot of low-value direct sourcing and we’d like to automate as much of that as possible, maybe getting three-bids-and-a-buy in through the system implemented with AI or RPA. We still have a lot to think about, but we have set ambitious goals to have an upper quartile digital business in the next few years.”
A global sourcing director within a major oil and gas company said that a lot of investment has gone into creating a streamlined demand pipeline to aggregate the demand at a group level and feed it through source to contract. “We’re currently at 80 to 90% of demand in our division … that amounts to a couple of billion in spend annually. We are fast-tracking about 30 to 40% of transactions and I think the next step is automation, it’s an aspiration at the moment but it is becoming more urgent as we need to manage more demand with fewer people as part of cost reduction.”
“Which are the most appropriate categories for autonomous procurement and where should we start?” were questions raised during the roundtable. A spokesperson from JAGGAER argued: “It’s a valid point that the first phases of automation are going to be in those processes that are more standardized. But we’re already seeing some incredible results from artificial intelligence in terms of it learning on the hoof. And frankly, this is where you are going to see a fast return on investment and what you learn here can be progressively applied elsewhere. In short, start on the simple things, perhaps with basic machine learning and RPA, and I believe that you will see it being applied to more complex categories sooner than you think.”
The pace of change is largely determined by sector and business needs
A head of procurement at an energy services company commented that digital technology in procurement is moving at a “pretty rapid pace”. He said, “A lot of the focus is on the teams themselves. We are not looking at hundreds of categories in isolation. There is a huge amount of value that you lose if you do that, because you will never find a solution that will satisfy everyone. So, we are looking to aggregate within three portfolios of spend rather than lots of categories, and we segment our suppliers by looking at where to place them within those portfolios. We need to ensure that those portfolio managers have the tools they need to give their stakeholders a good experience and to make sure that they are focusing on the things that deliver most value. That means giving the stakeholders the feeling that self-service works and taking away the strain from procurement professionals, while ensuring that we are getting value for money, for example by implementing three-bids-and-a-buy in such a way that we do not have to touch the process. And then we have a triage team that handles some of the requests that come in from left field.”
A head of category management for marketing at a leading supermarket chain said that their automation journey had started but they were at a low level of development. “Where things could and should be going through the catalogues without being touched by human hands, especially not by highly paid procurement professionals, there is still a lot of human intervention. Maybe that’s a retail thing.”
The head of procurement at another chain of grocery supermarkets confirmed that there is much progress to be made in retail. “We’re looking at automating some of the administrative tasks that we do in procurement, but I think that in retail we are well behind the curve. Supermarkets are a very high volume, very low margin business. This means that whenever we apply for an investment, we must show a very compelling ROI and I have not yet been able to do that for procurement software. They totally understand the benefit it brings in terms of better sourcing decisions and the indirect benefit of knowing where your money is spent, but the feedback you typically hear is, ‘That sounds like jam tomorrow’, to use the horrible metaphor. It’s lovely to hear how some of the other speakers have demonstrated the business case, but in retail we’re not quite there yet.”
In retail there is an absolutely clear segregation between goods for resale (GFR) and goods not for resale (GNFR). A spokesperson from JAGGAER UK wondered if “there’s a ‘Faraday Cage’ around things that you cannot touch?”
The head of procurement continued: “I’m coming at it very much from a ‘goods not for resale’ perspective. The GFR people consider themselves traders, working in partnership with suppliers of food and goods. In the procurement team we are looking for savings that the business can then invest in GFR. It’s not a big enough priority at the moment. In my opinion we need to look more closely at the synergies between the two sides of the business.”
A former director of procurement from an online retailer expanded on this topic, “I was responsible for goods not for resale, and incidentally, I was also responsible for the disposal and sell-on of stock that was not sold online. I therefore started a conversation with the people in the retail team. I said, ‘Guys, we’re both buyers, we just buy different things.’ And bear in mind that this is a company with a young demographic, a lot of customers in their teens, and a lot of buyers in their teens. We were sending 19-year-olds straight out of fashion school with no formal procurement training off to India with £20 million in their back pockets to buy clothes. We got a lot of resistance as they’d say things like, ‘What we do is an art. You’ve got to know what pair of jeans will look good next year’. We’d reply, ‘Well, that might be the case, but selecting factories, managing suppliers, understanding materials and negotiating price requires a more studied approach at a deeper level of granularity’. We came to the conclusion that there was a lot that the GNFR team could contribute around training and developing skill sets, so I set up a procurement academy, originally for my own team, but with a view to bridging the divide with the retail team. Procurement can offer a lot to the goods for resale team. But it is very, very difficult because merchandisers view the world from a very different perspective. It is essential to get executive sponsorship for such a project.”
So what does this mean for autonomous procurement? The same speaker continued: “It very much depends on your business and its level of maturity, its scale, the sector you are in. We had a small team and 2% margins on our sales. In a large enterprise in a non-retail environment where there are hundreds of people in procurement and making double-digit margins, it is far easier to reach for automation Nirvana. At [this online retail company] I looked at the buying channels and there was huge tail spend, so there was an opportunity to do some basic things like shifting spend onto p-cards, purchasing from catalogues etc. We can then look at the more strategic buying, although what I find is that there is a real capability issue. It is not easy to tell someone who is used to wallowing around in the mud of price negotiations to go and ‘talk to stakeholders strategically’. You need to think about your operating model as a department. You may need to move away from strict category structures.
“In summary, it is very important that you think about the unique needs of your business. Don’t try and force things that are not going to work in your environment and won’t get the advocacy of your senior decision-makers.”
In our third and final report on the proceedings in the roundtable, we’ll focus on supplier relationship management.