Category Archives: Procurement Damnation

AI: Applied Indirection, Artificial Idiocy, & Automated Incompetence … The April Fools Joke Vendors are Playing on You Year Round!

So on the one day of the year when they should be making the joke, I’m going to reveal it.

The vast majority of vendors who claim “AI”, where they want you to think “AI” stands for Artificial Intelligence, have no “AI” in that context, and many don’t even have anything close. A few may have “Assisted Intelligence” (Level 1) and even fewer still may have “Augmented Intelligence” (Level 2), but “Analytical (Cognitive) Intelligence” (Level 3)? Forget it! And as for, Level 4, “Autonomous Intelligence”, which is the baseline that must be met before you could even consider a system true “AI”, doesn’t exist (at least as far as we know). (ChatGPT would be a 3 on this scale, 3.5 if you’re dumb enough to use it to power a semi-autonomous application.) (For more details on the levels of “AI”, see the detailed Pro piece the doctor wrote over on Spend Matters on how Artificial intelligence levels show AI is not created equal. Do you know what the vendor is selling?.)

However, thanks to ChatGPT/OpenAI and other offerings, every vendor all of a sudden feels that their solution has to have “AI” to compete, and is now claiming they have AI when, at best, they’ve implemented some third party “library” into their analytics module, which itself may or may not be AI, or, at worst, they just have classical rule-based automation and statistical-based predictive analytics (i.e. trend analysis) but have called it “AI” because, just like a classic decision-tree expert system from three decades ago, it can make a “recommendation”. Woo hoo.

Not that this is nothing new, three years ago a study by London Venture Capital Firm MMC found that 40% of European startups that are classified as “AI” don’t actually use AI in a way that is “material” to their business. MMC studied 2,830 “AI” startups across 13 EU countries, and in 40% of cases, [they] could find no mention of evidence of AI. (See the great summary in The Verge.) And even that statistic is a bit misleading, because I’m willing to bet that the “evidence” they did find was technology that didn’t necessarily mandate “AI” and could be implemented with “classical” techniques because, as a longtime blogger, analyst, due diligence professional and, most importantly, a PhD in theoretical computer science (read: advanced applied mathematics), I have found that most claims of “AI” weren’t really AI — in most cases they were just using a combination of automation and/or configurable rules and/or advanced statistics and/or machine learning and just had some of the foundations, but no real “AI”.

In our space, real “AI”, and by that I mean strong Level 2 / weak Level 3 (which is the best you can get) is quite rate and specific use cases are few and far between, and most AI is simply semi-unsupervised machine learning for transaction/categorical classification (spend analysis) or clause identification (contract analytics).

The problem is that, when no one really understands what “AI” is, and given that less than 1/10 Americans have the mathematical competency to even begin the university studies to try and garner an understanding [Level 4 on the PIAAC], it’s really easy form them to try and pull a fast one on you. This is especially true when the solution is able to automate certain tasks or recommend best practices in the majority of situations faster and more consistently than the average buyer (who, let’s face it, is under-educated — thanks to limited supply chain / operations management programs and almost no real Procurement training in Colleges and Universities, under experienced, and not an expert in modern technology), and the solution can be made to look “smart” (but, in reality, is dumber than a doorknob and definitely dumber than Maxwell Smart). But it’s not smart. Not at all.  And don’t be fooled.

The good news is the marketing manager using Applied Indirection to push a false AI solution at you probably doesn’t have a clue what they have anyway, and a few smart questions asked by someone who understands what AI is, and isn’t, can probably get pretty close to the truth pretty fast. For example:

1) “We have advanced AI data auto-class. It’s the most intelligent, and accurate, classification in the space.”

‘How does it work?’

“It uses a multi-level neural net that has been trained on tens of millions of records across over a hundred clients in the indirect space.”

‘Great, so basically it categorizes transactions based on similarity to other transactions in a slowly evolving manner, and I’m guessing for a new client in the indirect space, out of the box, you’re around 85% to 90% accuracy out of the box and you approach 95% with semi-supervised retraining over time — and that’s the upper bound and it will never be perfect.’

“Uhm, … well, … more or less … “

‘Got it!’ At this point you know it’s “AI” level for classification is augmented (as it learns and evolves over time), and barely, but it’s not “the best” mapping in the space as platforms that use AI to suggest rules (upon implementation and then for unmapped transactions) and do mapping and categorization based on the user selected and verified rules can produce 100% accurate mappings, always outperforming an “AI” solution that uses neural nets that are good (but not perfect).

‘Do you use AI anywhere else?’

“Uhm, what, why? It’s great where, and as, it is.

And now you know that there is no real AI in the analytics part of the platform, and there’s no reason to choose it over any other.

2) “We use AI for OTD prediction and risk in delivery prediction.”

‘Cool. What algorithm do you use?’

“Huh, what do you mean?”

‘How does the application compute the OTD and/or risk associated with the delivery.’

>Wait for the hand off to their “data scientist” …< “We use a blended least-squares method to produce a prediction function where, if there is enough data for the product, carrier, and lane, we’ll primarily use that data for the function, but if there’s not enough, we’ll use the most similar (using a mathematical distance function) product, carrier, and/or lane data … “

Is that AI, well, if there’s some sort of learning involved in the selection of “similar data” or recommendations as to parameter tuning IF parameters can be tuned, maybe, but this is just classical statistical trend analysis and not really any different than classical ARIMA based forecasting from the 70s, and did they have ANY AI then?!? (The answer is “NO”!)

3) “We use AI for our supplier recommendation process?’

‘Sounds promising … please explain!’

“We compute a relevance score taking into account a large number of factors including product base, geographic location, diversity, risk, etc.”

‘OK … how … ‘

>Cue the Eventual Hand Off to “Data Science” Team<

“Product Base is computed as a percentage of the category they can likely cover, geographic location as an average distance function, diversity as an estimate of diversity employment if there is no diversity ownership data (in which case it’s just 50%), the risk score from our risk model, etc. “

‘So, in other words, it’s just a formula … ‘

“A very sophisticated multi-level formula with conditionals and nesting that computes … “

‘Got it thanks!’ NO AI! Not even a hint there of as it’s just a functional risk score that could be built in ANY application with a formula builder.

This isn’t to say that a solution without AI isn’t right for you! (In fact, it probably is!) It’s all about solving your business problem, and many problems have been solved in our space just fine for the last decade or so with rules-based workflow and automation, optimization, and statistical modelling and trend projection. When guidance is needed, decision trees/matrices tied to expert curated best-practices (the modern equivalent of a classic “expert system”) often work better than one could imagine. In other words, it’s not AI, it’s not the hype, it’s what solves your problem, reliably and predictably time-after-time.

So don’t fall for the false hype and be the April fool.

It’s Been Four Years Since I Told You About The Procurement Damnation of Project Management …

… but what has your vendor done to abate it? There’s a reason that the new iteration of Spend Matters’ Solution Map, designed by the doctor, has two subcategories dedicated to Workflow and Project Management (and two other sub-categories dedicated to Data and Document Management) … and that’s because of the importance of project management to your sourcing and procurement efforts.

Remember, while project management works good with the physical world, it doesn’t work so good with the virtual world. For example, where software development is concerned, there is a rough definition of what is desired, but the beginning and end is a best estimate that is no more accurate than a wild guess in some cases, the resources required (while defined as software architect, developer, network specialist, etc.) are not well understood (as a non-skilled software architect cannot define what makes, or identifies, a good software architect), and the amount of money required is relatively unknown (due to uncertain work effort requirements, unknown support requirements, etc.). And that’s just software.

When it comes to supply chain, the difficulty is intensified. There’s the management of the sourcing, the management of the negotiation and contracting cycle, and the management of the procurement. But before that, there’s identifying the right supplier, which requires detailed understanding of the product technical requirements and the supplier production capabilities. There’s identifying the expected costs, based upon understanding material costs, labour costs, energy costs, tariffs, and overhead. There’s managing the supplier relationship. There’s dealing with disruptions and disasters. And taking corrective actions.

Most supply chain projects don’t have well defined beginnings, or endings, or static workflows. There’s no one-size fits all and the platform needs to be able to adapt.

But even before we get to workflow and adaptation, we first need the ability to define a project and a workflow to support it – be it a full strategic sourcing project with supplier discovery, supplier selection, multi-round RFI, and online negotiations; a simple 3-bids-and-a-buy RFI for a services engagement; an automated auction for regular MRO purchases; a deep optimization project for multi-national transportation or services; a regular catalog buy for a regularly occurring purchase; etc.

How many platforms can define an appropriate project? They all have the capabilities, but in many platforms that’s it. You can’t define a workflow. You can’t capture basic category intelligence. Everything is one step at a time, where the steps can only be performed by an experienced platform master. You can create an event, and then do stuff in the event, but you can’t abstract the workflow, just copy it and edit it for next time.
And if you need a new workflow, you need to create a new event.

Even four years later, only a few platforms have any real semblance of project management, and that needs to change. But will it?

(If it doesn’t, at the very least the platform should integrate with a project management workflow tool like Per Angusta which was built to do precisely this and integrate your disparate best-of-breed Sourcing and Procurement modules into a unified platform with workflow and project management.)

Societal Damnation 47: XaaS

This is a damnation so damning that it was one of only two damnations that required two entire posts just to overview (and one of the few damnations the doctor could literally write an entire book on)! So just what is XaaS?

XaaS, short for Everything as a Service, is the latest craze that is going to cause your Supply Management organization nothing but suffering and pain. While it sounds really cool, because, historically, the transformation of a non-core but essential function (legal, accounting, etc.) or utility (water, electricity, waste disposal, etc.) into a service made your life easier. But, as with any good thing, it’s always possible to have too much … and with XaaS, to have too much forced down your throat even if you’re already choking on your own regurgitations.

And while the right services can provide an organization with advantages that include, but are not limited to,

  • expertise,
  • cost reduction, and
  • efficiency

for an organization that does not have the dedicated personnel, or expertise, to perform the function as good as a third party, if the wrong services (or service providers) are provided (or selected), the organization will instead be burdened with a number of considerable disadvantages that included, but are not limited to:

  • cost increase,
  • efficiency decrease,
  • loss of control, and a
  • 3rd Party Management (3PM) nightmare.

And if different business units decide to start outsourcing what they perceive as non-core functions (which are in fact core to the business or which should be managed by Supply Management or a different business unit), functions for which the service provider cannot achieve economy of scale, or functions that have not been optimized for outsourcing (which will result in an efficiency decrease as a best-practice provider will not be able to optimize inefficient workflows) willy-nilly, Supply Management will have quite a third party management mess to deal with.

In a nutshell, services are good, but, as clearly illustrated in our second damnation post on the subject, Everything-as-a-Service is a ridiculous concept and any organization that buys into it is just asking for trouble.

So what can you do when you are pushed to buy into this latest outsourcing craze?

1. Get an organizational policy in place that all services spending goes through Procurement.

This will be very hard, but unless Procurement knows about an outsourcing initiative or a XaaS buy, it can’t make sure that the organization makes the right buy, if a buy is even required at all!

2. Do your homework on each request.

Why is the service being requested. What does it do and what processes or services does it replace. Why could a third party do it better and are the third parties being considered capable of doing it better. If the process is outsourced, will the organization lose important skills or knowledge. Should a traditional product to enhance in-house be considered instead?

3. Figure out what processes are truly strategic and what process are just tactical.

Strategic processes should be kept, or at least managed, in house while tactical processes are the prime candidates for XaaS providers. From the list of tactical processes, identify those that would be best suited for outsourcing through efficiency gains or cost savings.

In other words, the key to sustentation is not jumping on the bandwagon and doing everything you can to prevent the rest of the organization from jumping on when you’re not looking.

Environmental Sustentation 20: Oil & Natural Gas

Oil and Natural Gas is an environmental damnation in more ways than one. It’s dirty fuel, that is regularly subject to price shocks, and it’s collection and transport often result in significant disasters to the environment, your bank account, and your reputation.

And even though you should move to greener power, in some cases you can’t. Biofuel is not always a viable alternative for transportation, especially for ocean freight (where it takes a lot of combustion to move those mega-carriers) or air travel. And you still need to power your current energy production systems until the new ones come online. So you are stuck with using oil & natural gas for at least some of your energy needs for the time being. (But hopefully with a plan to use less and less over time.)

And, as a result, have to live with the risks of shortages, price spikes, disasters, and the resulting financial and reputational damage that will result. So how do you survive?

Accurately predict future needs.

If your demand is going to spike because of expected sales spikes, or projected energy shortages in other areas, that is something you want to know in advance so you can be sure to contract for sufficient supply. Similarly, if demand is dropping, that is also good to know as maybe you can cut shorter contracts and buy more on the spot market without serious repercussions.

Acquire expert supply and price projections — from various sources.

Don’t just monitor supply and prices, try to understand where it is going so you can source, or re-source, at the best times. While an unexpected disaster, political decision, or pumping slowdown can change everything, the more informed you are, the better off you’ll be.

Have disaster recovery plans in place.

If there is a shortage due to a disaster, you want an alternate source. Don’t sole source if you can avoid it, and make sure you include a provision with the provider who gets the smaller award to increase business over time and that they can support a spike if you need it. If there is a transportation disaster, hopefully you don’t take possession or responsibility until it’s in your storage tank, but either way, you better have a plan to get another shipment sent through an alternate carrier, possibly from your other supplier, ASAP.

Start sourcing clean power and building your own power plants.

Most places in the world can produce a lot of power from wind, solar, or hydro-power, and not only should you be looking to buy from energy companies that produce this power, which can power your equipment, buildings, and even short-haul transportation (that run on battery packs), but if you are a large factor or office building that uses the equivalent of a small power plant of energy, you should be building your own, and only taking off the grid when you need supplemental. With so many regular failures in overtaxed and antiquated power grids, this is just good planning.

While we can’t rid our dependence on oil and natural gas just yet, we can certainly reduce our need for it and this type of planning will not only make it more affordable (if demand lessens), but also make energy consumption and transportation safer and more reliable.

Authoritative Sustenation 65: Solution Partners

In our post on authoritative damnation 65: solution partners, we noted that solution partners are their own breed of damnation and can be much more annoying than activist investors and boards of directors, that you might only hear from at quarterly or annual meetings (who will stomp their feet, bang their drum, but eventually settle down and go away for a while), as they could be a pain in the backside on a daily basis.

We said this was because you often depend on these solution partners to serve your customers, run (parts of) your organization, and bring you innovation that you can’t develop in-house (due to lack of time, money, or external ideas). As a result you can’t just tell them to sit-down, shut-up, and wait their turn … especially if their support is essential to keeping a million dollar client happy or a multi-million dollar category stocked and selling.

So what is an organization to do? Especially if it can’t reasonably meet all their demands, err, requests in a short time frame?

Include them in roadmap planning for products and services.

If you include them in roadmap sessions, where they can see all the requests and demands being placed upon you by the organization, customers, and other solution partners, they will understand better that you can’t do everything they want now and that will focus them onto platform, product, or support enhancements that they really need versus those that they think they really want. For example, they might want more do-it-yourself configuration options when they are supporting your software in their country or in their client bases, but if you can typically turn requests around in 2 business days and they see how new features could benefit the customer base more and possibly help them sell more (and earn more commission), they will quiet down about saving 24 hours on a new configuration or install.

Offer them your innovations in Procurement, Planning, and CRM.

Chances are your solution partners are great in manufacturing, production, solution delivery, support, etc. but pretty bad in procurement, project management, or CRM (and why even their best bid doesn’t match your should-cost model with a fair margin). Offer to help them innovate their processes and platforms in exchange for product innovation, production cost savings innovation, and service level improvements.

Help them sell to your customer base.

If it’s a product provider, offer to help them understand what your customer base values most in terms of product purchases (low cost, reliability, innovation, etc.) and what the supplier needs to do to win more of your business. If it’s a service provider, help them understand not only what you need of them to support your customers, but what common services your customers need that you don’t provide, that the provider might be able to up-sell to them (without violating the terms of agreement). This will be a big plus in their eyes and they will start treating you as a customer of choice (who is their favourite customer to work with) and the complaints will go away, with only the odd helpful suggestion here and there.

Solution Partners can be a pain in the backside, but inclusion and support can replae the thorn with the rose. It’s up to you.