Finding Wealth in the Year of the Pig

In yesterday’s post we noted that next year is the year of the pig, and that it could bring greed and obnoxiousness to Procurement, as per the western stigma, or it could bring wealth and good fortune, as per the eastern stigma, but that your fortunes all depend on whether or not you make the effort to acquire a next-generation best-of-breed system. If you acquire a next-generation best of breed system that uses analytics, optimization, advanced modelling, machine learning and/or AI, you can realize value and wealth. If you don’t, well …

So what should you look for? As per our upcoming series on AI in Procurement Tomorrow on Spend Matters Pro [membership required], there are a number of advanced functionalities coming your way that will add value. These include [but are not necessarily limited to]:

  • Overspend Prevention
  • Invisible Buying (of all types of MRO products and services)
  • Automatic Buying (including basic sourcing)
  • Automatic Opportunity Identification
  • Automatic Category Analysis and Emergent Category Identification
  • Procurement Method Identification

To convince you of the need for advanced (AI-based) applications to find the wealth you need to make Procurement profitable again, and the importance of reading the doctor‘s in-depth thought leadership pieces (if you have Spend Matters Pro membership), we’re going to give you a preview of the power of a platform with invisible buying capability.

While current systems can automatically re-order MRO and stock room items when minimum inventory levels and EOQs are defined, the reality is that MRO and stock room items change over time as old products are retired, new products are selected, and organizational needs change. And it can be a lot of work to maintain these items accurately over time.

But why should you have to? After all, the system can infer when a product is retired … as orders stopped being placed. The system can infer what product replaced it, as it’s not only in the same sub-category but ordered when the previously item would have been ordered by the same department and stocked at the same location in a similar quantity (under an appropriate metric). And so on.

But a modern Procurement platform, with augmented intelligence technology, can:

  • Auto-detect regularly needed items through repeated orders
  • Auto-compute usage schedules by tracking inventory levels and computing trends
  • Auto-predict best order quantities based on projected trends, re-order times, shipping costs, and inventory costs
  • Add the items to the MRO repository with minimum stock thresholds and projected EOQs
  • Use the embedded assisted intelligence to re-order the MRO items on schedule
  • And re-calculate the inventory levels and EOQs on a monthly basis using actual usage data to update the trends

And you don’t have to do tactical inventory review and re-ordering when that time can be better spent on value-generating strategic sourcing events.

So keep your eyes open for the doctor‘s upcoming series on AI in Procurement Tomorrow over on Spend Matters Pro [membership required] and, if you haven’t already, read the doctor‘s series on AI in Procurement Today (Part I and Part II) if you haven’t already.

The Year of the Pig

While us westerners tend to give pigs a bad stigma — they are lazy, filthy, obnoxious, greedy, and ugly — and even use their name in vain — calling those we feel are lazy, filthy, greedy, obnoxious, and even (sexually) predatorial pigs, in eastern mythology (and Chinese culture), they are the symbols of wealth, and those born in the year of the pig are supposed to have a beautiful personality and be blessed with good fortune in life.

So what is 2019, the year of the pig, going to bring us in Procurement? Is it going to bring wealth and good fortune from the East or greed and obnoxiousness from the West?

The sad reality is that it’s going to bring both, but unless you’re one of the lucky ones, you won’t see the wealth … or at least not enough to make the greed and obnoxiousness worthwhile.

Why?

Because we’re still in the age of iZombie-enabling platforms that cost too much, and often return too little. But that doesn’t mean you have to be free of return. You live through the pain (of Procurement systems that haven’t kept up), you should get the gain.

So how can you do that?

Acquire point-based best-of-breed solutions that can augment your existing platforms and make use of advanced modelling, analytics, market intelligence, machine learning, and even optimization to find ways to save more than you spend on the platforms you have and more than you lose on the manpower time it takes to do all the tactical processing the systems force on you.

This blog has covered a lot on analytics, optimization, and advanced modelling over the years, and for more insights on what machine learning / AI will do for you, keep your eyes peeled for the doctor‘s upcoming series on AI in Procurement tomorrow over on Spend Matters Pro which will help you identify next generation systems that can take your Procurement up a notch. (While no system will have all the capabilities we describe for a while, there are a few systems with fledgling capabilities that will give you value today and take you into tomorrow.)

AI in Procurement Today

As per yesterday’s post, there is no true AI in procurement, at least with respect to the traditional definition of AI as artificial intelligence, but there is AI out there if you interpret AI as assisted intelligence, and some of it is pretty good.

What is there? If you check the doctor‘s 2-part in-depth piece over on Spend Matters on AI in Procurement Today (Part I and Part II) [membership required], you’ll see there are six areas where at least on one or two providers add a lot of value. They are:

  • True Automation
  • Smart Auto-Reorder of MRO / retail stock
  • Enhanced Mobile Support
  • Guided (and sometimes Guilted) Buying
  • M-Way Match And Error Prevention
  • Smart (Automatic) Approvals

And, in some cases, a system will integrate its automation, m-way match, and smart approvals to determine when an invoice with a small fluctuation can be automatically paid and when it can’t. For example, when an invoice comes in for services at a rate 10% higher than the last invoice, most m-way match systems would block it and bubble it up to the lead buyer / requisitioner. But a smarter system with integrated checks, behavioural analysis, and a history of override decisions might do the following:

  • check the PO and see it referenced a master contract with an evergreen clause where the original term had expired and the supplier had the right to increase rates up to 15%
  • check the user’s past overrides and see that they generally approve rate increases of 10% or less
  • check the user’s approval authority and see that they have the ability to make that approval
  • calculate the probability of automatic approval by the buyer and if it’s 90% or greater, queue the invoice for automatic payment, with a notification to the user that they may want to explicitly renegotiate the contract as the next invoice from the supplier might be at a 15% increase

Now, this is not going to help you in all cases, but every time you waste time investigating an overage you can’t do anything about, it’s a waste of time and, thus, any assisted intelligence solution that can prevent a waste of your time is valuable.

For more details on what the best systems can do today, if you have a Pro membership, the doctor strongly encourages you to check out AI in Procurement Today (Part I and Part II) and find out what your Procurement system should be doing for you.

When A Vendor is Selling (Cognitive) AI, What Are You Really Buying?

AI is the buzzword, or, more precisely, the buzz acronym. Just about every enterprise vendor is claiming they have AI, even if all they have is RPA (and even if what they have is pushing the definition of RPA). However, whether your vendor has AI or not (and the answer is that they probably don’t, as most of the best vendors just have ML, possibly enabled by AR, but probably not), it is coming, and if you don’t adopt (at least) the (precursor) technology available today, your Sourcing and Procurement organization may be left in the dust.

And by now you are probably firmly bamboozled, so let’s set the record straight, starting at the bottom of the AI technology ladder.

At the bottom of the technology ladder we have RPA, short for robotic process automation, which is generally used to automate what would otherwise be very manual processes, usually by way of a rules-based workflow engine.

On the next rung we have ML, short for machine learning, which applies (usually improvements on, or variations of) open-source or standard algorithms that can extract a model from a set of inputs to produce the associated outputs with high probability. The better platforms use machine learning to tune, if not define, the rules used by the workflow engines embedded in the platforms.

Sometimes the mix of ML and RPA is so good that for certain, focussed, applications that the platforms almost seems intelligent, and this is often what passes for AI these days. But it’s not real artificial intelligence, it’s assisted intelligence as it helps you do a better job, but your intelligence is still required to identify the right recommendations and approve the right actions.

The next rung up is AR, automated reasoning, which can take a set of assumptions, encodings of logical rules and predictive models, and compute derivations that can surpass even a human expert most of the time for very well (and narrowly) defined applications or problems. It’s basically the modern equivalent of an expert system that can compute millions of inter-related logical inferences until new realizations are discovered.

The next rung up is the version of AI that exists today, augmented intelligence, which expertly integrates RPA, ML, and AR to produce applications that more-or-less mimic what an expert would do the majority (but not all of) the time. And that allows an organization to automate some low-value tasks that would otherwise require manual effort as they were generally identified as strategic, but not always worth the effort.

If it existed, the next rung would be the AI that is touted, true artificial intelligence, which does not exist today. (And that’s a good thing, because if there was true AI, would the C-Suite need you? Yes. But would they realize it? Probably not.)

But the final rung, and where everyone wants to get to, is cognitive. AI technology that is not only intelligent, and that can make great decisions unassisted every time, but make the decisions the best human buyer for every situation would make considering all hard and soft variables.

And that’s the technology ladder you are dealing with, and now you know that where you are is likely not where you want to be. But don’t fret, things are getting better. Stay tuned!