Digitized Procurement: Your Setting-off Point to Autonomy
In five to ten years, procurement in many of the world’s leading companies will be “truly digital”. They will have succeeded in transforming their procurement organizations to leverage artificial intelligence-based technologies to achieve autonomous procurement. But what does this mean? How will we get there? And where are we now?
Autonomous Procurement: The Reality versus the Hype
Over the coming months, we will identify and describe the four levels of development stages on the road to autonomous procurement.
- All spend under control
- All processes automated
- Full data transparency
- Predictions by Machine Learning
- Rule-based recommendations
- Smart Assistant
- Self-maintained data quality
- Sourcing automation
- Contract compliance automation
- Requisition automation
- Supply-Chain and Invoice automation
- No UI Smart Assistant
- Cognitive Automation
- Next-generation Assistant with pattern recognition for self-learning actions and recommendations
- Sourcing Strategy Advisor
- Negotiation Chatbot
- Supplier enablement based on AI
- Algorithm trading network, enabled with partners
As we do so, we will tread carefully, distinguishing between what can and is being done today, what is already on the horizon, and what is the long-term objective. This is important because the reality is that most vendors are not yet even at Level 1 (automated procurement) and their claims should be treated with some skepticism.
Back in September 2018 Gartner wrote, “Technology product managers must develop AI solutions that are aligned with high-priority procurement use cases, enhance user experience and improve supplier loyalty to gain their confidence.” Most procurement software vendors realized that if they weren’t in AI, they weren’t in the game. True, most had every intention of investing in AI. Gartner wrote in the same report:
Seventy-five percent of application software vendor CEOs who participated in Gartner’s Tech and Service Provider CEO Survey indicated the intent to incorporate AI into their products by 2020. This is up from 39% in 2017. The shift toward AI is natural, as previous investments such as cloud now provide a diminished competitive differentiation, while AI is attracting increasing demand especially for digital transformation.
There was just one problem: while pursuing this “intent”, some vendors were acting as though their offerings already leveraged artificial intelligence when in fact their capabilities merely mimicked AI using classical statistical approaches. This is how Spend Matters describes the de facto level of “AI” on the market today.
A sad consequence of the AI hype is that, as we reported in 2019, procurement professionals have been largely unconvinced. Gartner estimated the current penetration of the addressable market for AI to be somewhere between 1% and 5% and that procurement professionals are hesitant about investing in new software.
Procurement leaders are concerned about “difficulty in measuring business value and lack of clarity around the deployment scenario required for successful deployment of new software. These concerns result in procurement leaders hesitating to invest in new AI-powered procurement software applications.”
Spend Matters also writes that “there are a lot of products on the procurement market that claim to be modern ‘digital’ solutions when all they do is digitize manual processes.”
There Is Much Disagreement on What “Digital” Means
As analysts have pointed out, “Just using a digital computer ‘digitizes procurement.’” To cut through the fog of hype and disinformation, let’s remind ourselves of the definitions we have set out in our past reports.
From Digitization to Digital Transformation
Digitization is the simple conversion of analog to digital.
This can be as simple as converting paper-based information to digital data that can be stored on a computer or other device. However, it may also extend to the storage and processing of information in large quantities, requiring some conventional statistical techniques. But this has nothing to do with AI or automation.
Digitalization can be defined as “making digitized information work for you”.
Companies that have centralized their procurement data and data on suppliers (such as contract information and performance records) and make it available to support decisions made by procurement professionals throughout the organization may be said to have “digitalized procurement”. However, while this information is useful and saves time, it has not yet fundamentally altered the way procurement professionals go about their day-to-day business. They still need to extract the information from systems and analyze it in ways that are not fundamentally different from using a spreadsheet.
As JAGGAER Product Marketing Director, Greg Holt, explained in our webinar on the topic:
Digital transformation in procurement is not just automation. Many automation tools are still only speeding up current processes, but not fundamentally changing the way procurement is done. True innovation means using technologies to move your processes forward and generate value.
Digital transformation comes about when digitalization combines with advanced technologies to enable the creation of new business models, i.e. new and more efficient approaches to manage procurement.
When you begin on the path of digital transformation, you are taking a huge step. It is the first step on a path that will, ultimately, lead you through the four stages that we, together with the analysts at Spend Matters, have identified as reaching full maturity with autonomous procurement. This will be a process that takes place over many years but to get there you need to pass through each level.
Think of school as an analogy: a child cannot go straight to university. It needs to complete several primary and secondary school grades. But the same child needs, early on, a vision of the future, even if it is only a hazy one. Likewise, “Only organizations that start today can even hope to reach autonomous procurement within five years.”
Taking the First Steps to Automated Procurement
For several years now, JAGGAER has been offering solutions that give companies a “leg up” to automated procurement.
Merck optimized its supplier management with JAGGAER automation tools:
New suppliers can easily apply to Merck online using a simple registration interface that automatically checks for duplicates and redundancies. Merck no longer has to update information manually because each supplier is able to enter and manage their own data within the system. This also provides greater transparency; for example, if something like an important certificate is missing from the portal, the supplier can be paused in regards to new commissions until the required items are provided.
Similarly, at Deutsche Post DHL:
In terms of their procurement solutions, many companies have grown organically with independent IT procurement tools that, while fulfilling the need for automation of a particular silo, do not fill the need for a joined-up approach. To align with its strategic vision of connectedness and to bring the benefits of transparency and common process to both internal and external stakeholders, DPDHL Group decided that a fully integrated suite would be the necessary next step so that all departments globally could communicate on the same platform in the same language.
Historically we did have tools in place to help us automate each part of our procurement process, but they were fragmented. The new sourcing platform brings us the opportunity to connect data much better and generate new value-adding information for our internal business partners.
– Head of Regional Procurement, DPDHL
Installing JAGGAER enabled DPDHL to connect the components in one system—worldwide – so everyone had transparency, accessibility, and a common working platform and process. By focusing and connecting, the company took away the redundancy, and this created more space and therefore growth potential increased.
And Rensselaer Polytechnic Institute:
JAGGAER enabled RPI to transform from a time-intensive manual procurement process that had to meet the stringent tracking regulations of the U.S. Department of Homeland Security (DHS) and the Drug Enforcement Agency (DEA), to a state-of-the-art digital chemical management solution that brought advanced automation into the process.
Through our review we recognized that managing the inventory of chemicals and the associated safety database manually on spreadsheets was cumbersome and inefficient. Now that we have conducted a digital transformation, all the information necessary for a researcher to place an order is readily available. The implementation of the system was so successful because it was designed from the ground up to simplify inventory acquisition and management, enabling our researchers to focus on their work.
– Ron Moraski, Director of Procurement Services, RPI
Also in higher education, at the University of Virginia:
UVA’s previous processes required users to input exception invoices from scratch, then handle it all the way from the mailroom to the file room. “With JAGGAER’s touch-free processing of invoices, we can complete the same process in about a minute,” said the Assistant Director of Procurement Services at University of Virginia.
However, these examples of process automation are taken from a year or two ago. In our next autonomous procurement article, we’ll be looking at automated procurement in more detail, before moving on to JAGGAER’s current focus on augmented and intelligent procurement, and our vision of fully autonomous procurement.
Gartner, The Impact of Artificial Intelligence on Procurement Software Applications, Balaji Abbabatulla, Magnus Bergfors, Patrick Connaughton, 14 September 2018
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