Category Archives: Technology

AI Will Make Your Talent More Efficient and Effective!

… but, as per our post last week, AI won’t solve your talent problem, so let’s get that out of the way right now!

AI, regardless of whether it’s being sold as assisted intelligence, augmented intelligence, or amplified intelligence, is valuable It’s powerful, and in some domains, essential to the modern day enterprise. In fact, without it, some enterprises won’t survive because the efficiency improvements and related cost reductions it can bring are so significant that competitors who invest will be able to reduce prices and leave their breathren in the dust.

And while it won’t ever replace a workforce, as it will not only allow that workforce to be 2, 3, or 10 times as effective, it will allow you to control the size of your workforce and associated costs where it can be properly applied, leaving more money to hire workers in areas of the business where AI can’t be employed and you are understaffed and/or not operating at full efficiency.

A great example we’re all familiar with is automated invoice matching and processing. A lot of vendors have automated 3-way match and kick out an invoice for manual review when something is off. This allows the department to focus on the 10% to 15% of invoices that have errors instead of spot checking 10% to 15% of invoices they have time to manually review, allowing all errors to be caught and dealt with if the manpower is efficient (and all invoice-based overspend to be prevented, which prevents costly recovery efforts down the road).

But the reality is that only 10% of these invoices have errors that need to be manually addressed. In many cases its missing PO numbers, missing bill to or ship to addresses, unrecognized line items due to OCR errors, etc. which can easily be corrected by an assisted intelligence system which can search the PO database and find out that there’s only one PO for that supplier which is for the same item (quantity, and price) shipped, one address in the vendor master, or a 95% fuzzy match due to a simple OCR error of reading an “O” as a “0” or dropping a character. Why should a human waste time on that? Good AI can handle this, and handle bouncing back an invoice to a vendor when a price is wrong (and allow the vendor to correct or open a dispute), when there are no associated shipping notices or receipts (and tell the vendor the invoice is rejected until such time as one or the other are received), etc. At the end, all the procurement professional or AP clerk is left with are invoices where there are no corresponding contracts, POs, or work orders; invoices from unknown suppliers; invoices with unapproved payment terms (or unknown accounts), and other situations that need to be manually handled. About 1% to 1.5% of invoices, on average for a large organization. For an organization with 1M invoices a year, this is 1,000 – and can be fully dealt with by 2-3 staff members, in comparison to an average organization which would have 20 who couldn’t properly review 20% of the invoices.

There are similar situations where AI can greatly speed up Sourcing Events. For example, new supplier discovery efforts often take 40 to 60 hours of manpower, and a supplier discovery platform like Tealbook can sometimes reduce that to as little as 4 hours and achieve the same result.

There are other examples in sourcing and procurement, but the point is proper AI technology is worth its weight in gold. (But relying on AI to entirely replace part of your workforce will yield an investment less valuable than lumps of coal, which at least you can burn for heat when your business goes bankrupt due to one bad decision on the part of an AI without a complete world-view or real intelligence to process it.)

AI Won’t Solve Your Talent Problem!

Talent is Still the Biggest Issue Facing Procurement Today … so what are you doing about it? (Besides still cutting the training budget as soon as cashflow gets tight and delaying necessary system purchases because you can’t take a long term view.)

As SI has repeatedly said, Procurement Pros need to be jacks of all trades and (almost masters of all but in reality) masters of one (Procurement) (Trend #17), and that’s no easy feat when the skills and knowledge a Procurement pro needs to do her job effectively increases every year.

And new AI / Cognitive technology doesn’t decrease the skill sets and knowledge required, despite what one may think. In fact, it only increases it Why? First of all, do you have assisted intelligence, augmented intelligence, or a cognitive system that is as close to true AI (artificial intelligence) as one can get with today’s technology? And, more importantly, does your Procurement Pro understand what you have, what the differences are, and what the respective limitations are.

If the solution is just assisted intelligence, then it’s an automation solution (RPA) with some expert knowledge encoded to handle typical situations with certain assumptions. If the assumptions are invalid, will the software detect them? If the situation goes beyond the realm of typical, will the software detect it? And even if the software does, will it be able to do anything without expect guidance? An example of assisted intelligence is an automated auction where the platform automates the sourcing of an item or service designated for auction among pre-approved bidders and goes from demand specification to final award without human input. But will it detect if the bids are complete? Within expectations? That bidders are bidding on the right product or service? Maybe the buyer assumes shipping included, but the bidders aren’t including shipping, and since the system only has a ceiling, it doesn’t know that the bids are way too low, and awards to the lowest bidder, that is actually the highest as the bidder is the furthest away and has the highest transportation cost.

Same goes for augmented intelligence. However, with augmented intelligence, the software goes beyond simple RPA with fixed expert rules — it is able to analyze a lot of parameters and pick the closest matching scenario and associated workflow. For example, an opportunity analyzer that takes into account current market pricing, supply availability, bidder responsiveness, current market trends (upward and downward), projected demand, etc. and advises the buyer on the type and timing of the sourcing event as well as the best workflow. But what if the market pricing is a week out of date and the market price just jumped up 20% (due to a fire in a major supplier’s plant) and reversed the trend? That changes everything, but the solution may not detect it and instead advise the worse sourcing event.

Cognitive platforms that continually monitor the situation are better, and if they learn from the actions the expert users take over time, better still, but they still can’t cope with an exception al situation they haven’t been coded for, or trained for. For instance, even if they detected that last minute spike in pricing that reversed the pricing trend and, thus, changed the optimal sourcing strategy, will they understand why the spike happened and the best alternate strategy? Or will they default back to the recommending the default strategy in a situation where costs are increasing … e.g. switching from auction to multi-stage RFI with optimization-backed analysis? Neither is right in this situation. In this situation, its extend the current contracts with your non-affected suppliers, increase the number of units, and lock in supply early, even if cost is higher.

In all these situations, only a knowledgeable, experienced, and sometimes expert Procurement Pro is going to be able to make the right decisions … and a novice relying on the systems is going to make the worst, and most costly, decision imaginable.

There’s no true AI, no all knowing software, and no replacement for a real expert.

The reality is that, at the end of the day, these systems make your experts more efficient — and multiply their productivity — they don’t replace their expertise.

Visibility is Key to Managing Suppliers

For the first part of this week, we have been talking about the significant overlap between sourcing and supplier management and the necessary platform elements needed to support both. Key elements included performance, relationship, and risk management, because all are necessary for sourcing and supplier success.

Spend Matters recently ran a 3-part series on a sub-set of the issue, based on a recent interview with Ecovadis, that talked about how Visibility is Key to Managing CSR Risks in Indirect Spend (Part I, Part II, and Part III). But visibility is needed for more than just addressing risks in indirect spend. It’s also needed for addressing risks in direct spend.

Direct spend has all the same risks, they just aren’t one step removed through an intermediary. And you have to trace all of the products down to the raw materials to identify not only in your supply base, but your supplier’s supply base, their supplier’s supply base, and their supplier’s down to the mine, the farm, or the harvester.

But it’s not just the suppliers you need visibility into, it’s the environment that surrounds them. After all, a natural disaster can cut them off. An economic downturn can render them bankrupt if the currency they do business in (and keep the majority of their cash on hand in) crashes. A geo-political uprising can cut them off at the border. A port strike can cut off their primary shipping routes. And so on. You need a full 360-degree view around the supplier to ensure success.

But how do you get that? You can’t watch everything everywhere, and when you consider the extent of the global supply chain, you almost have to.

That’s why it’s key to have a platform that can integrate with 3rd party sources as you will need to integrate dozens, if not hundreds, of data sources to keep on top of all of the data you need to populate the models to evaluate and track the risks.

And that’s why two of the key elements we look for in a platform are integration and dynamic data model extensibility. You never have enough data. Without the right data, you don’t have the visibility, and that’s key to success. Or at least to preventing major unexpected disruptions.

Digging Into Significant Sourcing Supplier Management Synchronization Part II

Earlier this week we started to describe the second most significant change to the upcoming Q2 Release of the Spend Matters Solution Map, and that is the introduction of a new common sourcing – supplier management section because you can’t do sourcing without suppliers and you don’t manage suppliers without the ultimate goal of doing business with them

This new section contains the following common sub-categories:

  • Enhanced Information Management for discovery and onboarding
  • Performance Management for tracking performance
  • Relationship Management for managing the relationship
  • Risk Management for keeping tabs on, and managing, the risk
  • Enhanced Portal for information management and collaboration

Our first post explained why these sub-categories were relevant. In our last post we covered the first three sub-categories. Today we’re going to start discussing what’s important to consider in the remaining two categories.

So what are the key capabilities we’re looking for in the risk management and enhanced portal sub-categories?

Risk Management

  • Assessment because if you can’t assess a risk, you can’t properly identify the magnitude of the risk and the need to monitor it
  • Mitigation Planning because credible risks need to be planned for and mitigated
  • Model Definition to allow you to quantify both the likelihood of the risk and the expected cost should the risk materialize
  • Monitoring & Identification to allow for the events that could (potentially) materialize to be monitored for and detected
  • Regulatory Compliance to quantify the extent to which the platform can track compliance requirements and a supplier’s ability to conform to them
  • Supplier Risk Management to model overall supplier risk based on assessment, models, external monitoring, third party data, compliance, and performance

Supplier Portal

  • Information Management to allow a supplier to maintain, or at least comment on, their data (and data related to them)
  • Performance Management to allow a supplier to respond to their performance review’s and conduct 360-degree reviews on the buyer
  • Relationship Management to allow the supplier to raise issues, respond to issues, and collaborate on corrective action plans
  • Collaboration to allow full interaction and feedback

These are also all key capabilities for sourcing and for successful supplier management.

Digging Into Significant Sourcing Supplier Management Synchronization Part I

In our last post we started to describe the second most significant change to the upcoming Q2 Release of the Spend Matters Solution Map, and that is the introduction of a new common sourcing – supplier management section because you can’t do sourcing without suppliers and you don’t manage suppliers without the ultimate goal of doing business with them

This new section contains the following common sub-categories:

  • Enhanced Information Management for discovery and on-boarding
  • Performance Management for tracking performance
  • Relationship Management for managing the relationship
  • Risk Management for keeping tabs on, and managing, the risk
  • Enhanced Portal for information management and collaboration

And our last post explained why these sub-categories were relevant. Today we’re going to start discussing what’s important to consider in each of these categories.

Enhanced Information Management
There are three main categories of functionality we are looking for:

  • Discovery and the ability to find suppliers beyond the platform
  • On-boarding Support and the ability to get new suppliers quickly into the platform
  • Supply Base Profiling and the ability to create holistic supplier profiles

Performance Management

  • KPIs and the ability to define and manage them
  • Preferred & Blacklisted Suppliers and the ability to define and manage them appropriately

Relationship Management

  • Issue Management and the ability to define, track, and manage issues
  • Plan Management and the ability to define, track, manage, and resolve plans to manage and resolve issues

These are all key capabilities for sourcing and for successful supplier management. Tomorrow we’ll review the last two joint categories.