In our last couple of posts, since They Terk Er Jerbs!, we have been discussing Procurement Innovation today and how automation and tactical data processing is actually a good thing for robots and software to take over, since most of it is mind-numbingly dull and hinders our creativity and productivity — and as that is about the only area we can truly best the machine (although they are making a damned good effort to take over there too), we better focus it on it now when we can.

(Even though it’s not likely we’ll see true AI in our lifetime, as processing power and parallel computing continues to improve, the prediction capability of machines will eventually get so high that some people might be tempted to say eh, good enough and let machines take over jobs and make decisions in areas they will be 95% accurate and sufficiently successful, or at least, good enough, on average. (Moreover, by the time they make one mistake so catastrophic that people die in a situation where no human would ever have made that mistake [as they can’t see what they are not coded to see], it will be too late as we will be living in the world of E.M. Forster, The Machine Will Stop, and that will be it … and then, in a few dozen millennia, Earth will again be the Planet of the Apes).

But the power that comes from the machine’s ability to number crunch is going to go beyond number crunching, m-way matching, and guided buying with visual guilt. For example, one of the common innovations you are going to see tomorrow is invisible buying. And the invisible touch of the machine once it takes over some of the most boring buying tasks will be such that it will crawl under your skin, you’ll fall for it, it will take control, and if it ever gets taken away, it will take you apart. (And your only recourse will be to play Genesis.)

Just what do we mean by invisible buying? Basically stock room and MRO ordering, the bane of your buying existence, will be a thing of the past.

Who is better able to analyze purchase and inventory data and:

• Auto-detect regularly needed items
• Auto-compute typical usage schedules
• Auto-predict best order quantities
• Auto-re-order on reaching an auto-computed minimum threshold
• Auto-adjust inventory levels using RFID, Arduino, & IoT
• Auto-m-way match between all e-docs and auto-pay

Us? Or the software-driven machines?

That’s right, the software driven machines. Besides, what value is there wasting our time doing regular re-orders off of established contracts. None. Our time is better spent identifying the next contract to get in place to avoid cost, achieve savings, and, hopefully, provide more value to the organization. So the machines will take this over. And that’s fine. Because, at the end of the day, there is too much spend falling into the tail costing us big $$$. In most organizations, tail spend, which can be as much as 30% of the spend, is, on average, 15% to 30% over best market cost. 20% of 30% is 6%. That could be hurting your bottom line more than your top spend that is strategically sourced every three years and typically only has 2% to 3% left to shave off through smarter sourcing. Think about that.

As hinted at in yesterday’s post, Procurement Innovation today mainly revolves around automation, but when that automation allows us to focus more time on analysis, strategy, and actual relationships than just pushing paper and matching numbers, that’s a very good thing.

The truth is you don’t even get savings by matching numbers because, in effect, what you are doing is preventing overpayments. Thus, all matching paper does is prevent loss. To save, you have to find a way to reduce costs below current baselines, and, to be really aggressive about the definition, reduce costs below expected baselines through the identification of an appropriate business strategy or process improvement.

Furthermore, if you really want to get analytical, you cannot claim cost avoidance as savings unless that cost avoidance is the result of a strategic or smart decision that allows volume to be reduced through actual need without the process improvement. For example, if you generally order 110 crates of ingredients, 10 spoil in the storage locker before they get sold, and you identify this and alter your order size so you are only ordering 101 crates and losing 1, that is not cost avoidance. This is loss prevention. But, if you realize that your current supplier is packing such that only 95% of the ingredients can be used (because the tomato paste sticks to the containers, the containers are too large and when customs does its random inspections, 5 times the food is wasted) and you switch to a new supplier where 98% of the ingredients can be used, (because the containers are non stick, smaller, or the spices are stronger), that is cost avoidance as you can now reduce the order size by 3% and serve the same need. Similarly, it’s not cost avoidance if you invest in printers that print double sided to reduce paper, as you are still using the same amount of ink (which costs more than blood) and the increased printer cost dwarfs the paper cost. It’s only cost avoidance if you can figure out how to reduce the total printing done by the organization (such as double monitors to prevent print outs, more online materials, etc.).

And automated m-way match is only one area where automation is helping us get more tactical. Another is automated price comparison, feature comparison, contract item identification, and what is emerging as guided buying in many of the catalog-enabled P2P solutions. If there is a contract item, it appears first (and the system can even be configured to prevent a user ordering anything but the contract item if it is in stock). If not, then items from preferred suppliers are shown. If no contract or preferred items, then either the lowest cost items that meet the need or items most ordered by the peer group are displayed. And so on. And the better solutions will even pop-up visual guilt information that shows a requisitioner how much it’s costing the organization if they don’t use a contract, preferred, or low-cost item (in hard dollar savings or missed volume/discount opportunities).

Automation, when properly used, is always a good thing. Of course, proper use is key. Automation never replaces the human element, it only enhances it. And any manager that doesn’t get that should be the first employee of an organization to be let go. Because any manager that can’t see how to use automation to make her people more valuable is not one worth having.

And for the record, I’m not saying that automation won’t displace some people – it will. Some people may not be willing or able to adapt to the new role, and will need to be replaced. And while this is unfortunate, that doesn’t mean that the organization can’t find them a different role in a different department or that they can’t go do something else more suited to them. What I am saying is that automation, properly applied, doesn’t reduce overall headcount. It just makes that overall headcount considerably more productive and value generating. And that should be the focus.