It is widely acknowledged now that the way businesses function has undergone a sea change with the advent of technology, data science and artificial intelligence. Across all major business functions, there are significant changes in the way decisions are taken, plans are made and execution is done. It is, therefore, more critical than ever to understand the manner in which these developments impact specific functions, in order to be able to maximize the returns from embracing new tools and technologies.
Procurement functions within organizations are at the cusp of incorporating new approaches focused around AI and analytics. Given the tremendous pace at which businesses are evolving, it is no longer a matter of choice for procurement practitioners to adopt emerging solutions. The advantages of doing so run far deeper than many expect.
The most obvious value is of course financial. New digital technologies and advanced data analytics equip procurement with unprecedented ammunition for identifying opportunities to deliver bottom-line impact. The more dollars procurement is able to save, the greater its value to the overall business.
Until recently it was a challenge for procurement to even have an accurate understanding of what an organisation’s total spending was. With the onset of AI enabled methodologies for procurement, this is a problem of the past. Advanced analytical methodologies are leveraged to build a solid data foundation, which in turn can be analysed through multiple algorithms to find hidden opportunities across multiple levers.
New age spend analytics solutions can help find as much as 15–25% savings on addressable spend.
Unlocking value at such scale without analytical solutions was hitherto a pipe-dream for procurement. Today it is a well-acknowledged reality.
Like most technological solutions, AI and analytics can help save procurement teams a lot of time, thereby freeing them to focus on capturing savings. Traditionally, procurement teams would spend an inordinate amount of time, often a majority of their time, in just wrestling with the data coming out of spend capture systems. This data would need massive amounts of linking, cleaning and enriching, before being ready for any analysis. With AI, these analyses can be available at the click of a button.
Advanced spend analytics solutions go as far as to point procurement to exactly where the savings are hiding, quantifying these savings, and recommending ways to maximise the impact of different sourcing initiatives.
Apart from greater productivity of procurement teams, higher efficiency also comes in the form of faster time to money. Access to granular savings insights significantly accelerates execution of procurement initiatives, delivering impact much sooner with three to six months faster savings capture being typical.
The least understood but by far the most profound of all the benefits of AI adoption is cultural. AI adoption will position procurement in a more prominent and strategic role in driving business decisions, something that historically has hardly ever happened. Procurement is almost always relegated to a support function, an important one no doubt, but not one of strategic importance.
However, as more and more procurement organizations are changing to a data focused approach, this paradigm is fast changing, manifesting in two key ways:
- Changing conversations with internal stakeholders: Detailed data driven analytics enables procurement to engage with other aspects of the business on equal footing and drive transformational initiatives. In the past, critical business functions would typically dismiss most of procurement’s initiatives as unviable and attribute it to the fact that procurement functionaries do not understand how the business functions. However, with robust spend analytics solutions, procurement can have these same conversations armed with facts and figures that are much more difficult to ignore. Business functions therefore start seeing Procurement as a valuable ally that can help them reach their own goals in the most cost-effective manner.
- Easier negotiations with external suppliers: Similarly, dialogue with suppliers has also undergone dramatic changes. While traditionally, procurement teams would depend on personal relationships or typical bargaining approaches to negotiate with suppliers, with data this discussion is very different. Instead of requesting for a price drop on the back of budget constraints or intangible competitive pressures, a category manager can today sit across the table from a supplier and go through data around rates the supplier has provided to different business units, rates other suppliers have provided, data around relevant commodity price movements, consumption volumes, supplier performance metrics, etc., and request for terms and prices that would be much more difficult to argue with.
While the journey to becoming an AI enabled procurement organisation needs time and effort, it is well worth the investment. Once the data foundation is in place, there are many different avenues through which procurement can leverage it to deliver consistently higher value.
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