These digital technologies are truly transforming procurement
We hear a lot about how emerging technologies such as artificial intelligence (AI) and machine learning (ML) are disrupting the future of work, but very often this is a high-level narrative that doesn’t dive into specifics in terms of the enterprise business functions being most impacted.
In this article, we’ll look specifically at the procurement function to examine how and where business processes are being transformed – and even disrupted – and some of the most impactful technologies involved. These include AI/ML, predictive analytics, blockchain and IoT, as well as AR/VR and intelligent agents. While procurement might be one of the last places you’d expect to find digital transformation, the fact is that it’s well underway and a sizable organisational opportunity for unlocking cost savings and operational efficiencies.
By way of example, the Ariba Network supports over 3.4 million companies in over 190 countries and conducts over $2.1 trillion in commerce annually. That’s over two times the annual commerce volume of Alibaba, Amazon and eBay combined. With B2B commerce being such a large global market, there’s a tremendous opportunity for individual organisations to unlock business benefits in terms of cost savings, process efficiencies and risk reduction as well as many other tangible and intangible benefits.
The following emerging technologies are some of the key areas that are poised to transform the procurement function in the years ahead:
Automation and Machine Learning
According to SAP Ariba in their recent report, Procurement 2025, it’s estimated that over 50% of a procurement organisation’s time is spent on transactional activities. Automation technologies, supported by machine learning algorithms, will enable organisations to perform these activities at much greater speed, lower cost, and higher accuracy. Robotic process automation (RPA), in particular, can typically drive up to 25-50% in cost savings.
In contract management functions, contracts can be created and even reviewed automatically, with human intervention only needed for exceptions such as evaluating non-standard clauses or terms. This automation can help to speed cycle times, enforce terms, improve compliance as well as aiding in negotiation. In corporate risk management functions, real-time monitoring and analysis of global supply chain events can be used to identify, evaluate, and mitigate disruptions, helping to reduce overall risk.
Other use cases for automation include automated purchase order (PO) processing based on data triggers such as changing stock information; machine learning-enabled skill matching to find suitable contract labor for non-core company tasks; and automated PO-to-invoice matching to speed cycle times – with the latter already achieving up to 99% accuracy rates.
Predictive analytics software technologies including big data, modelling techniques and advanced analytics engines can be used to help procurement teams improve decision making, better simulate demand based on access to more information, and gain more visibility into real-time supply chain operations and the behavior of their suppliers. It’s estimated that advanced analytics, including should-cost analysis, can reduce cost of component products or services by up to 40 percent.
Supplier risk management (SRM) functions can be improved by using risk-sensing technologies and supplier dashboards to enable predictive and proactive risk identification. Real-time analytics, deployed using in-memory computing, can be used to help detect fraud and errors as they occur, saving significant time and potential losses to the organisation.
Blockchain and the Internet of Things
Beyond cost savings, Chief Procurement Officers (CPOs) are looking to technologies such as blockchain together with the Internet of Things (IoT) to gain greater speed, agility, security, and traceability across their entire supply chain and to unlock this value even further.
In sustainability and corporate social responsibility (CSR) initiatives, blockchain and IoT technologies can help to ensure sustainable supply chain management by strengthening the traceability and credibility of goods and services transacted. In the procure-to-pay cycle, real-time connectivity to IoT sensors can be used to automatically trigger the receipt of goods as shipments are delivered and blockchain-based “smart contracts” can be used to automatically trigger event notifications and other critical actions and process steps.
According to Gartner, “A smart contract is a computer program or protocol that facilitates, verifies or executes the terms of a contract.” The firm estimates that by 2022, ratified unbundled (that is, defined impact) smart contracts will be in use by more than 25% of global organisations.
Smart contracts operate on a decentralised ledger technology such as blockchain, are independent, and are immutable and irrevocable. By automating specific contracts in this manner, procurement organisations can automate critical events within their supply chain ecosystems and procurement processes and can establish undisputable provenance. In addition, blockchain can unlock significant cost savings: it’s estimated that blockchain for invoice processing, for example, could reduce cost per invoice by up to 60%.
Augmented Reality, Virtual Reality and Intelligent Agents
Innovations in the user interface (UI) and user experience (UX) combined with AI technologies such as chatbots and intelligent agents can be applied within the procurement function to deliver consumer-grade experiences that simplify procurement processes while helping to enforce compliance. The technologies can also help in simplifying understanding of data and associated insights.
In relation to service desks, chatbots and intelligent agents can be applied to reduce the time and cost associated with traditional call centers often saving up to 4 minutes or more per enquiry. Voice-enabled intelligent agents can also be used for tier one support calls and are now intelligent enough by way of their emotional intelligence and natural language understanding to hand off to human operators as situations dictate. This is another area where substantial cost savings can be unlocked, enabling human customer service and support agents to focus on more strategic tasks.
As another example, using visualisation and AR/VR technologies, buyers can now remotely access and evaluate products and essentially experience the product before ordering. This drives faster cycle times and enables more informed decision-making on the part of the buyers.
Crafting your strategy
With all the potential cost savings and improvements in accuracy rates by utilising these digital technologies, it’s clear that the procurement function has a compelling opportunity for digital transformation.
For CPOs, while it’s important to have a strategy and approach related to each of these technologies, it’s also important to have an overall strategy that ties everything together. With an upfront knowledge of the potential ways that these emerging technologies can be applied to deliver business value, CPOs can craft a business strategy for their procurement functions that takes advantage of each of these technologies in combination with one another to yield value that exceeds the sum of the parts.
As business strategies and digital strategies become one and the same, this upfront knowledge of the various use cases for emerging technologies specific to procurement, and their potential benefits, can be a great way for CPOs to unlock transformative business value for their organisations.
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