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The Road to Cognitive Procurement: LevaData Models a New Standard for Sourcing Maturity

10/16/2018 By

Most procurement groups are coming around to the idea that they need to address the imperative for digital transformation sooner rather than later. Yet even with a convincing case for taking an AI-based “cognitive” procurement approach to processes like sourcing, the same impediments inevitably stop organizations from taking the first step toward transformation.

Poor data quality.

Lack of investment from management.

Uncertainty about the right steps to take.

All of these issues and more prevent procurement organizations from pushing themselves away from transactional processing to more mature forms of supply management. Bridging this gap between desired procurement maturity and organizational readiness has been an area where solution providers are increasingly focusing, to help procurement not just take on technology but also create the roadmap for organizational maturity that leads to better business outcomes. 

One example of this outlook is how LevaData, an emerging provider of artificial intelligence-powered e-sourcing software, is approaching its client relationships. At its 2018 Cognitive Sourcing Summit in Santa Clara, California, LevaData presented its most recent research on sourcing maturity, including a framework for becoming a “cognitive sourcing” organization and research study on how businesses are performing in a digitally enabled world.

LevaData’s Cognitive Sourcing Maturity Model

 In its discussions with attendees following the first Cognitive Sourcing Summit, the most common feedback LevaData got was that attendees loved the idea and promise of the vendor’s technology but first needed help bringing all of what they’ve learned back into their companies, especially tips for how to jump-start more fully digital approaches in their sourcing organizations.

To aid customers and prospects in those efforts, LevaData developed what it calls its Cognitive Sourcing Maturity Model. It is “a process and performance auditing tool geared to enterprise teams exploring digital transformation and seeking the exponential impact of AI-enabled direct materials sourcing,” the vendor explained in a July 2018 announcement.

Source: LevaData 2018 Cognitive Sourcing Summit

While procurement maturity models are not new — Spend Matters, for example, published its own framework in 2016 — LevaData differentiates its approach by adding additional maturity levels beyond where current models top out.

As Richard Barnett, senior vice president of marketing at LevaData, said during a presentation about the model at the event, “Level 3” has for a long time represented a “best in class” sourcing organization. Characteristics include a centralized procurement function, integration of sustainable cost management with risk management, and visibility into 50% to 70% of the supply base.

With the rise of artificial intelligence in the enterprise, however, the goalposts have moved out. New predictive and autonomous technologies can now enable a higher level of capability, so organizations can aspire to new levels of maturity as they digitize their sourcing processes.

In its vision of “Level 5,” LevaData sees sourcing as a business’ means to competitive advantage through acquiring innovative materials or subcomponents, rather than just a pipeline of costs to manage. Organizations can trade in Excel for a sourcing platform shared by multiple business functions, complete with autonomous decision-making capabilities. And suppliers are in constant contact with sourcing, continuously engaging in new events over 90% of the time, compared with just 1 to 3 per year at the “Ad Hoc” level.

Benchmarking Cognitive Sourcing Maturity

But LevaData didn’t just stop at modeling the path from transactional to cognitive procurement. Through its ongoing Cognitive Sourcing Survey, the vendor is also continuously evaluating current organizational maturity and what sets digital leaders apart.

In its initial results, which the vendor shared at the event, most companies are stuck in Level 2 and are more mature in supplier engagement and organization. Those that work with LevaData, Burnett said, typically move to Level 3 within a year, eventually using the platform as a “single source of truth” for sourcing data within their company. Companies typically approach Level 4 within 2 or 3 years with LevaData, leading their sourcing teams to new roles as proactive collaborators.

The findings also painted stark differences between digital leaders and laggards. For those considered leaders, 75% have already launched some kind of digital transformation initiative. They also claim a readiness for data-based sourcing, maintaining a stated belief that “data-driven procurement is important.”

At laggard organizations, however, 54% say “my company and talent are not ready” this year to tackle new digital efforts. And for all organizations surveyed, over half are still reliant on Excel for some process, even if active transitions to purpose-built systems are underway.

As illustrated in the upper levels of the maturity model, the goal from a sourcing perspective is to move into a state of continuous and constant sourcing for supplier engagement. Today, the average sourcing organization engages with 40% of suppliers in one competitive bid annually. The best-in-class vision is holding weekly sourcing events for key commodities or suppliers.

Unfortunately, most organizations — but especially digital laggards — still spend a lot of their time “firefighting” emergencies, although to different degrees. In the survey, LevaData found that 18% of organizations spend over 50% of their time firefighting, with most focusing more than 25% of their time on tactical issues. At best-in-class organizations, however, only 25% of their time is dedicated to emergencies, with the other 75% dedicated to activities described as “strategic value creation.”

In the context of the survey, the most common categories of fires included supply continuity and shortages, on-time delivery, quality issues, cost and lack of talent/expertise.