Procurement’s future is embedded platforms: Introduction to predictive procurement orchestration (PPO)

The Spend Matters analyst team released a white paper on the new market category of predictive procurement orchestration (PPO), and how the use of behavioral science, game theory and predictive machine learning enable powerful new levers for enterprise procurement leaders.

In this paper, titled “Procurement’s future is embedded platforms,” Spend Matters provides a definition of PPO, explains the underlying technology and surveys a selection of real-world case studies from enterprise procurement.

Data shows that enterprise procurement teams from diverse industries, which have implemented self-service solutions that place significantly more spend under management, have seen an unintended consequence: the number of net new suppliers is ticking up, along with the rise of low-intent purchasing. Although organizations that have implemented procurement suites have massively increased their spend under management, they have also massively increased the number of stakeholders involved in the procurement process. More stakeholders – especially those with low motivation to enter data correctly – means that procurement data quality has gone down.

Orchestration categories arise when there are too many systems, too many options and too many suppliers for human decision-making capacity. In other words, PPO solves the pain of complexity, anxiety, overwhelm and decision fatigue for organizations that have many buying channels and lots of choices to make in order to create value in fast-moving cycles.

The paper highlights that low-intent purchasing can be detected and quantified by increases in the following three procurement operations metrics:

• Suppliers per dollar
• POs per supplier
• Price variance per item

Low-intent purchasing overwhelms procurement teams and means that enterprises are missing out on significant value-creation opportunities. While certain companies describe this problem as “tail spend,” the reality is that the so-called “long-tail” is getting fatter as more and more spend goes through decentralized/delegated (a.k.a. self-service) procurement. Simply put, as stakeholders gain greater control over supplier selection decisions, the aggregate number of suppliers for an enterprise increases, which in turn leaves money on the table and creates a tremendous amount of extra work for procurement teams. The fact that this has all happened during a world-historical series of shocks to supply chains has meant that many procurement organizations that rely on manual data entry have felt not merely challenged but significantly overwhelmed.

With the increasing pressure to embed supplier-selection criteria related to sustainability, diversity, risk management, quality and supplier performance in everyday purchasing cycles, the amount of work per procurement cycle, independent of supply chain shocks, is also going up. Emerging from a global pandemic and supply chain crisis, the problem of procurement overwork and burnout is only getting worse – driving an industry-wide shortage for qualified talent.

Predictive data validation and multi-source checking

PPO’s embedded platform enables large enterprises to create a “procurement data lake” that can serve as a foundation for embedding preferred outcomes and error-handling within a process through predictive validation and multi-source checking. Unlike previous approaches to procurement data, PPO offers the following differentiated benefits as a real-time intelligence layer within any cycle:

• Predictive price targets
• Predictive award tabulations
• Predictive supplier recommendations
• Real-time error handling
• Real-time opportunity detection
• Real-time cost savings attainment on autopilot
• Real-time supply chain performance improvement on autopilot

PPO runs in the background in any system, enhancing the ROI of existing investments in processes and systems. PPO is also effective regardless of an organization’s digital maturity, provided that data exists in a machine-readable format (e.g. in tables with rows and columns). Pivot tables, vloookups and manual error-handling simply do not scale across spend categories or to fast-moving, complex or highly constrained buying channels. As procurement’s long tail gets fatter and fatter, the financial cost of failing to address this challenge is only going up.

Many enterprise executive leadership teams are turning to PPO via embedded platforms. Embedded platforms run on autopilot inside of customers’ existing systems seamlessly and amplify the beneficial impacts of procurement’s influence across all addressable spend, regardless of whether it’s direct, indirect, logistics, CapEx, tail spend or even spend within corporate credit cards (p-cards). This embedded architecture is a new take on the debate over “suite” versus “best of breed,” as organizations with either configuration can leverage the ability to improve a process (and the data behind it) wherever that process lives across many systems or within a single suite.

To discover why Procurement’s future is embedded platforms read more here.