Using AI to Extend Digital Transformation to Services Procurement
Every time you shop at a favorite retailer’s online store or use an app to bank, you’re benefitting from the digital transformation of B2C services.
In the B2B environment, digital transformation of services is also taking place but at a slower pace. And in B2B for procurement, the shift is even slower, most often being used to automate processes and uncover potential cost-savings.
As discussed in The Digital Transformation of Services Sourcing: What It Is and Why It Matters, part 1 of this series, procurement departments will need purpose-fit technology to manage the vast areas of services spend. Procurement won’t necessarily do the hiring of services. That role will likely continue to rest with the stakeholders who need a marketing team or extra legal services. Since procurement departments may not be able to centralize the decision-making over services spend, they need another way to manage each stakeholder’s sourcing process — and the answer is artificial intelligence (AI).
Some businesses are already adopting more sophisticated technologies that use AI and machine learning, which allows procurement leaders to make better decisions. Taking advantage of data that has been previously difficult to analyze can also lead to fundamental changes in their procurement services practices. These new capabilities can lead to positive changes in areas including hiring methodologies, cost structures, supplier relationship management, time-to-fill, risk management and performance metrics.
Embracing the Disruption
Large corporations are rapidly accelerating their investment in AI solutions and are anticipating this may have a dramatic impact on their business in the coming decade.
The likes of Chevron, Allianz and Daimler are investing in AI technologies for long-term gain, even when there are no immediate cost-savings. In a 2018 Deloitte study, those companies and others adopting AI-based technologies reported that AI implementation across departments increased productivity, improved compliance and boosted the ability to analyze larger, more complex data sets.
Procurement professionals whose companies have been slower in the adoption and integration of digital platforms into existing procurement systems are now expressing a greater sense of urgency and doing their best to accelerate their efforts.
According to the Hackett Group’s “2019 CPO Agenda: Building Next-Generation Capabilities” study, procurement professionals understand that their success hinges on integrating existing practices with new digital tools and technologies. Their research shows that 60% of respondents believe that digital transformation will have a major impact on their companies within two or three years.
With advancements in AI, companies have new opportunities to improve their management of services spend, which has been growing rapidly and has benefitted less from digital efforts until now.
What AI Makes Possible
In procurement, one significant aspect of the digital transformation allows companies to discover and vet otherwise hard-to-find niche firms or workers to fulfill specific business objectives. It’s no longer necessary to accept the available but “not-exactly-what-I-need” solution from an incumbent supplier. The integration of AI into sourcing services for labor-driven markets allows companies to pinpoint resources they could only guess at before, balancing requirements around cost, geography, skill sets and length of engagement.
Another aspect is being able to better forecast resource requirements. In certain sectors, the numbers of workers needed can be determined by such specific data points as the price of commodities or weather patterns. Exacting worker forecasts can be made, then those workers can be sourced on-demand via digital tools. In the past, a reasonable guess had to be made, then traditional staffing firms went to work.
Specifically when procurement-as-a-service programs combine technology and staff to determine worker needs, it uncovers where money is being spent and where savings can be realized. By analyzing data and using digital staffing platforms, procurement is empowered to seek out subject-matter experts to provide services.
By embracing sourcing technologies, procurement professionals can enlist these experts on an as-needed basis, moving away from large recurring contracts with incumbent firms. And once the department’s repetitive tasks have been automated, the procurement staff will then have time to manage supplier relationships and seek out new avenues for services and talent. They can also become their own subject-matter experts in data and analytics within their departments and companies. This can lead to identifying even more cost-savings opportunities and better managing risk.
In professional sectors not often seen as needing procurement solutions, some companies are transforming and optimizing their services procurement practices through digital solutions.
Law firms are moving into the digital realm, using digital solutions to secure new clients, improve client experiences, and increase staff and partner effectiveness. In one particular instance, adopting the Globality digital sourcing platform allowed Axis Law Chambers, a Pakistan-based law firm, to change the way it connected to potential new clients, many of them global.
The firm, led by younger attorneys who wanted to move away from the more traditional organizational models, decided to use the digital sourcing platform to more efficiently and effectively expand their reach.
The platform allows them to connect with global companies looking to do business in Pakistan; its ability to analyze millions of data points successfully matches the firm to local businesses, and has allowed them to connect with U.S.-based entities. They’ve even used the platform to match their services to global law firms in need of their specialized geographic expertise, increasing their reach in the ever-growing inclusive global economy.
The technology has also created efficiencies and lowered costs, as it has all but eliminated the traditional, time-consuming RFP process.
How to Measure the Impact with AI
Many companies use KPIs to track operational and financial objectives against their strategic plan. When a company implements a digital transformation and AI solution it should also rethink whether its traditional KPIs are still suitable. Data gleaned from various internal and external sources, once analyzed, can then be used to update existing KPIs and establish new ones. A company’s digital transformation has the power to reshape operations and change outcomes, if it is fully supported across all levels of the organization.
Beyond cost-savings, return on the digital investment can be measured by looking at improvements in speed of sourcing, compliance, supplier satisfaction and gains based on connectivity of systems.
In fact, AI solutions can help companies understand which early operational indicators are affecting later-stage operational and financial performance. For instance, procurement teams may learn how the rigor of the bidding process affects on-time and on-budget completion of projects. It may also be helpful to measure what portions of traditional procurement work disappear as the workflow becomes automated and how much time is freed up for activities that add new value.
Finally, not everything needs to be pre-determined as AI systems dynamically provide actionable insights based on high-level financial and operational goals. When AI systems are implemented, they can assist procurement professionals in a wide range of analytics not possible before. The systems help notify them about actions they should take as it identifies opportunities to optimize the sourcing process in real time.
So how do companies make the digital transition happen in practice? In Part 3 of this series, Yuval Atsmon, Chief Customer Officer at Globality, offers insights about how his company can ease the pain of transition for businesses seeking digital procurement solutions.
CLM P2P SOURCING01/04/2017
CLM P2P SOURCING01/04/2017