Procurement is NOT a Place of Comfort!

A while ago, Garry made a great point in one of his post on how a surprising amount of leadership is simply holding the line on reality.

And, more importantly, a surprising amount of leadership is the acceptance and confrontation of uncomfortable reality. You see, in most organizations, leaders believe it’s their job to be optimistic and keep the team happy and comfortable. They tell the team “we’re almost there … the project’s almost done” even when it’s a dumpster fire. “The pipeline is strong” when all the pipeline consists of is a list of companies who indicated they might be interested in a solution that falls in the category of solutions the company offers and they have not been vetted beyond a third party discovery call. “It’s just timing” when the RFP only gets 3 responses from 7 suppliers after extending the deadline by two weeks. “Once we hire X, it’ll be fine” when the reality is that things will get worse since “X” won’t know how to fix anything until trained (and someone will have to stop fire-fighting to train X, which will allow the fires to consume even more).

A good leader addresses the discomfort.

“Okay, things went to sh!t with this project but we succeeded in the root cause analysis, we can get back on track in two months, and, more important, we also identified three other oversights in the project plan, corrected those, and forced the vendor to upgrade capabilities that will allow us to be more productive than planned when we go live. We’ll just have to work harder to ensure the revised plan doesn’t hiccup“.

“Losing MegaCo to our biggest competitor, whom we know can’t serve MegaCo, was a big hit. We had to cut our simultaneous sales efforts in half and what’s left in RFP stages doesn’t even equal MegaCo’s potential when combined, and we know we’re only batting 50% when we get to that stage. We need to refill the pipeline with active targets fast, and we know that the leads given to us by DealSourcingCo are not well qualified based on our few conversations. Since we also didn’t have time to review many leads the past quarter, those wankers really slacked. We have to shape up, do our own pre-sales and qualification, work overtime, and re-jig the entire pipeline over the next two weeks. However, even if only a third of the “pre-qualified” leads pan out, which is the current success ratio, the good news is that we’ll have more than enough to keep us busy and get back on track for next quarter.”

“It’s not timing. If 4 / 7 potential suppliers didn’t answer the RFQ, then we really f*cked something up. We need to contact each of them, and find out why. We’re we not specific enough on our requirements? Was our guaranteed commitment too low? Was the timeframe too short for them to respond? Were we asking too much in the RFQ for no guarantee? Did we misjudge the supply/demand and they just don’t need us? However, I just licensed us a category management system where we can encode all the knowledge we gain from every sourcing exercise to make sure this situation doesn’t (unnecessarily) happen again as we will know what we need to get it right“.

“Bob quitting and taking all his knowledge was a big loss. We’re totally underwater as we don’t have his category knowledge, know which of the 10,000 spreadsheets he was using for the last events, or who really managed the relationship at the supplier. The fact my predecessor never made Bob properly track anything left me with a hole I’ve ben struggling to figure out how to fill, especially since every time I pushed for better data organization he kept being more insistent he just didn’t have the time with his workload.
However, I did license an AI tool that will scan all his files, attempt a categorization by category, and extract the likely supplier, contact, products, and prices. I did license a category management tool that all of this data, once reviewed by an independent expert, will be pushed into.
And I did go out and find a few independent consultants who are real veterans with 20 years of category experience and engage them for the next quarter to sit down and help us get everything organized. (Independent, not fresh-faced known-nothing MBAs from a big consulting co.) The next three months will be hell, but then things will be better than they ever will before because we’ll all know where all the key category knowledge is at all times and we’ll be able to bring Bob’s replacement on and have that person be effective day one. For now it sucks, but if we can hit our targets, I’m going to expand your bonus pool by giving you some of mine“.

That’s leadership. Telling the team as it is, making sure they understand it’s not going to be comfortable for a while, but that they will get through, you’ll be there with them, and you’re doing whatever you can to make it possible.

A Key Leadership Skill for Procurement … Is NOT What You Think.

There’s a lot of great posts on leadership, so we’re not going to discuss what a leader is. (And if you don’t know, go find them and come back.)

But leadership is more than just what you think about. It’s not just the attributes you associate with command, authority, and communication … and the greatness you expect from people that attain the position. It’s also the attributes you associate with submission, anarchy, and concealment … which you might associate with followers, lack of leadership, or walled organizations. (But that’s another post.)

But the most overlooked skill for Procurement, as Garry point out in a LinkedIn post on the leadership skill no one talks about, is the ability to end things. In fact, a CPO’s ability to end things is more important than a CEO’s ability to end things. (But that’s likely another post as well.)

In Procurement, especially a poorly functioning Procurement organization, a lot of things will need to be ended:

  • the people who were placed in, but don’t belong in, Procurement will need to be removed — if the organization won’t transfer them, they’ll need to be let go
  • the supplier relationships that aren’t working will need to be ended as soon as possible
  • the consulting relationships offering no value (and just billing hours for nothing) need to be axed
  • the processes that aren’t working need to stop (and they will need to be replaced with modern processes that do)
  • the data silos that aren’t connected, aren’t up to date, and aren’t usable need to be connected and updated or deleted
  • the systems and software not meeting Procurement needs must be disposed of

That’s a lot of endings that need to occur before new beginnings can take place.

And if these endings don’t happen, Procurement will collapse and maybe even take the organization with it. As Garry notes, organizations don’t collapse from lack of beginnings, they collapse from an inability to stop!

Turst is Real Procurement Currency — And That’s Why AI CANNOT Do Procurement!

A couple of months ago Garry addressed a point made by the Peter Smith, the Bad Buying Bard, which boiled down to an issue more important than anything technical where AI is concerned … and that point is Trust.

In his original post, Gary asked if AI would change Procurement. However, after reading Peter’s comment, he realized the real question is whether Procurement is trusted enough that the organization will accept Procurement setting the rules around how AI is used. As Garry notes, that’s the crux.

When it comes to trust, it’s not whether or not the suppliers trust Procurement that’s the real issue, it’s whether Procurement is trusted internally. If Procurement is not trusted, it will be bypassed, ignored, and even sabotaged. This includes the (mis)use of AI. If Procurement is not trusted, it will not have any authority, and the organization will not heed their warnings (based on logic and the research they are used to doing), charge ahead with AI, and become yet another failure contributing to the 94%+ failure rate (while costing the organization millions upon millions of dollars and wiping out any savings Procurement may generate, especially if the C-Suite dictates an AI-first solution for Procurement).

Furthermore, you can’t use tools that you cannot trust. And you can’t trust any Gen-AI Procurement platforms built on hallucinatory LLMs. Since hallucinations are a core feature, results can’t be guaranteed, and LLMs can’t even be counted on to follow explicit instructions (and will corrupt your documents and data even when explicitly told not to), you can’t use Gen-AI/LLM-based AI.

And, unless your data is clean, categorized, up-to-date, and easily accessible through modern APIs, “classic” AI won’t work either. Good Procurement Pros will remind you that you can’t jump straight to AI. Just like you couldn’t expect a tribesmen from a culture with no written word who never set foot in modern civilization to begin reading lessons on the works of Shakespeare accessible only on a modern tablet, you can’t jump decades of technology. Or process.

Successful Procurement requires:

  1. getting your processes in order
  2. getting the supporting data in order
  3. implementing classic technology with high-degrees of deterministic, dependable, determination

And then, and only then, do you sit down, identify where there are still inefficiencies and/or a lot of tactical bit-pushing work, and try to figure out where AI will actually help. This means that most organizations are still years behind where they need to be to successfully implement any AI. In the classic Hackett journey to best-in-class, which will take an average large multi-national 8 years, it will be at least 4 years before the organization is far enough along on any process to consider advanced AI. (For a mid-size, this journey can be reduced to 6 years, and then it’s 3 years before Procurement is ready for advanced AI. It’s always People, Process, and Data before AI!)

Procurement Needs a PUBLIC AI Incident Log

Not that long ago Garry published a great article on why Procurement Needs an “AI Incident Log”.

Simply put, because most failures will be quiet.

(And, even worse, to the extent possible, they will be covered up.)

For example, as Garry states a supplier gets mis-classified as low risk for months. A category recommendation nudges the organization towards convenience over resilience. A contract summary misses a clause that only matters when something goes wrong. A “temporary” exception becomes the new normal because the tool makes it easy to repeat. And as long as nothing explodes, standards and practices get to keep drifting from well designed and established norms that were designed to be best practice for the organization.

These are failures, even if they don’t result in disasters in the near-term, and in many ways, they are the worst kind of failures. That’s because, by the time something goes significantly wrong, it will not only be a disaster but it won’t be one that can be quickly recovered from as the data, process, monitoring, and mitigations will be so bad as to be unusable.

And, as Garry points out, this will all be due to AI influence as its permeation is literally causing organizational decay as a result of the cognitive atrophy, curiosity decay, false memories, and overall cognitive offloading and general acceptance of the enshittification it is bringing with it. The easier the tools make it to do nothing, the more likely that is what is done as we are wired to be lazy as a species and, sadly, most of white-collar humanity gives into that wiring.

So unless you want your performance to suffer from AI-induced enshittification, you need to prevent the enshittification from happening in the first place. To do that, you need to stop the process drift that is a result of humans shifting decisions to systems that should stay with them.

And, according to Garry, that means adopting an AI incident log to track signals that take them off course to make sure mistakes are not repeated. The system should tell you four things early:

  1. where humans are overriding the system and why — not because this is a bad thing, it’s typically a good thing as it means humans are dealing with exceptions, validating decision suggestions before they get accepted and executed, or cutting off AI where it shouldn’t be used; the lack of these overrides is the signal that’s scary where AI has been deployed
  2. where exceptions are repeating — good systems allow exception resolutions to be turned into rules and automatically processed going forward; if that’s not happening, the cast iron ball is being dropped repeatedly and at some point it’s going to break someone’s toes when it’s not caught in time
  3. where speed has increased but clarity decreased — hard to detect, unless you ask actions to be explained … when there is no instant explanation, there was no thought, just a system recommendation (which you hope wasn’t the result of a lazy employee asking clod or chat, j’ai pété and sharing your confidential data
  4. where accountability has blurred — when something goes wrong, you need to know who precisely was responsible for the decision, not a role shared between multiple people or a team, a person who made the decision and accepted the authority for it

Now, this incident log, as Garry states, doesn’t need to be heavy or overbearing. Just a short description of “system/AI used, by who, when, result generated, human response/override, consequence, suggestion/rule to prevent future occurrences”. Short and sweet so the incident log actually gets used.

You can’t improve as an organization if you can’t learn from near misses to prevent foreseeable mistakes. Otherwise, your successes will just be wiped out from inevitable failures. Because, as Garry states, in the beginning, it’s unlikely that AI will break Procurement with one big failure as most organizations will start small with the odds in their favour.

But of course, given time, without proper monitoring and intervention, that failure will happen. And when it does and the incident is significant, two things need to happen.

1. A very detailed end-to-end (root cause) analysis needs to be conducted, along with a detailed mitigation plan with executable data capture, process, and system changes to prevent it from ever happening again.

2. Full publication in a Public Procurement Incident log (perhaps maintained by one of the major associations) where an organization shares what happened, how it all went wrong, and what might be done to prevent future failures of that type. (Which will often be “don’t use this [Gen-]AI tool AT ALL for this type of problem or process”.)

Unless the failure was so bad that it reaches the public by its very nature, most businesses, especially in the B2B world, will try to sweep the AI failure under the rug, especially when the consultants claim it’s just a “growing pain” and will “not happen again” with more training data and model tweaks and finance claims it will sink the stock price.

But this will only lead to more failures and even worse ramifications if the story gets out that AI cost the company millions (or billions) and the company tried to hide it.

In the Age of BS AI Overpromises and Hype, the only solution is a public forum where companies come together and share their war stories to help each other cut through the hype and understand precisely what modern “AI” tools can and can do, to what degree, and how to use those that do work in some situations in a way that won’t result in disaster.

Now we know it will likely never happen, but this is why we have continual boom-and-bust cycles in the IT sector and more failures than we should 150 years after the Gilded Age began and the railroad barons built successful multi-national companies that could manage their entire supply chains from source to sink(ing of the tie in the railway). And do it with an efficiency that wasn’t seen again until Toyota started to implement lean in its Production System (TPS) development over 50 years later. (Look, they wrote the first purchasing manual. They knew their stuff!) If Engineers could manage global supply chains in the industrial age using only pen, paper, letter mail, and their intelligence and do so with more predictability than our most advanced systems today, that tells us something — that the answers don’t lie with AI but HI (Human Intelligence) and that we need systems in place to ensure HI is always used when decisions need to be made and learnings are publicly shared.

Or we can give in to the AI, let our IQs recess faster than we ever thought possible (and they are recessing — roughly 14 points over a 120 year period between the Victorian Age and the end of the first decade of the century), and becoming drooling idiots just waiting to be plugged into the Matrix. (Recent studies have shown that heavy AI users perform up to 17% worse in conceptual tasks compared to non-users. Given that an average IQ should be 100, that’s a 17 point decline in a year or so, meaning that AI is making us stupider 100 times faster than every technology that came before! [Source: Psychology Today.])

(Remember, while it is our right to dare to be stupid, it’s not the smart thing to do, and there will be consequences. So if you think it’s pretty fly that Gen-AI, we strongly suggest you think again.)

Buyers Are Not Process Operators!

In a LinkedIn post from a while back, Garry makes a very important point: many procurement operating models still treat buyers as process operators.

Run the event. Collect the bids. Populate the template. Push it through governance. Negotiate hard. Close the file. Move on.

Tech (which may include AI but doesn’t need to as you can do quite a lot with ARPA and do it better, faster, and cheaper than humans AND Gen-AI can do it) will make the traditional buyer role less central because all of this, except for the finer points of negotiation, can be done by the tech. (The brute force points, collecting all the data to defend your offer can be done by the tech.)

Once you adopt Busch-Lamoureux Exact Purchasing, it becomes easy to not only map your categories to the octants, but identify the processes you should use for sourcing and procuring those categories, as well as monitoring the procurement activities to determine if there is a situation where a human has to intervene.

It also becomes clear what you need to do at each step.

  • Sourcing: identify what needs to be sourced vs procured, what categories and items will be included in an event, what suppliers, what products, what requirements, etc. etc. etc. — all of the decisions you can’t risk automated (which can still only be automated from encoded knowledge from prior decisions)
  • CLM: key contract requirements and acceptance criteria; etc.
  • SXM: key (compliance) requirements, key risk mitigation clauses, need for no vs. internal vs. external review, etc.
  • Analysis: historical spend/volume/prices; current prices/volume requirements; predicted prices/volume requirements; opportunities for demand shaping/control; etc.
  • e-Pro: available channels and under what conditions; what gets in the catalogue; who can buy out-of-catalogue/non-preferred; processes for overrides (to budget limits; cost limits; etc.)
  • I2P: m-way match requirements and tolerances; ok-to-pay / auto-pay requirements; when early-payment discounts can be offered/applied; etc.

As Garry states, a buyer is not a buyer — a buyer is a decision architect and makes the decisions necessary for successful Procurement. A decision architect that designs how a decision should be made. An intelligent human who maps the organization’s categories to the pocket cube of Exact Purchasing, determines what can be automated, what systems will be used to automate, what qualifies as exceptions, how those exceptions will be monitored for, and how they will be alerted.

But a buyer is more than that — it’s a decision architect and relationship management. Procurement is about managing stakeholders and suppliers. Dumb systems cannot do that. Only HUMAN INTELLIGENCE can.

In an AI-Hype world, Procurement will be measured on its success, and that success will require Human Intelligence leading Procurement to glory. So acquire real pros if you want to not only survive, but thrive in, the Age of Retardation the AI-Hype is ushering in!