Advanced Procurement Tomorrow — No Gen-AI Needed!

Back in late 2018 and early 2019, before the GENizah Artificial Idiocy craze began, the doctor did a sequence of AI Series (totalling 22 articles) on Spend Matters on AI in X Today, Tomorrow, and The Day After Tomorrow for Procurement, Sourcing, Sourcing Optimization, Supplier Discovery, and Supplier Management. All of which was implemented, about to be implemented, capable of being implemented, and most definitely not doable with, Gen-AI.

To make it abundantly clear that you don’t need Gen-AI for any advanced back-office (fin)tech, and that, in fact, you should never even consider it for advanced tech in these categories (because it cannot reason, cannot guarantee consistency, and confidence on the quality of its outputs can’t even measured), we’re going to talk about all the advanced features enabled by Assisted and Augmented Intelligence that are (or soon will be) in development (now) and you will see in leading best of breed platforms over the next few years.

Unlike prior series, we’re identifying the sound, ML/AI technologies that are, or can, be used to implement the advanced capabilities that are currently emerging, and will soon be found, in Source to Pay technologies that are truly AI-enhanced. (Which, FYI, may not match one-to-one with what the doctor chronicled five years ago because, like time, tech marches on.)

Today we continue with AI-Enhanced Procurement that is in development “today” (and expected to be in development by now when the first series was penned five years ago) and will soon be a staple in best of breed platforms. (This article sort of corresponds with AI in Procurement The Day After Tomorrow that was published in November, 2018 on Spend Matters.)

TOMORROW

AUTOMATIC CATEGORY IDENTIFICATION

Building on the above, there’s no reason it can’t look at common product / service characteristics from BOMs (bills of materials) and descriptions, find commonalities, and suggest new sourcing/procurement categories that would maximize opportunity and leverage. This is just building on last-gen tech with more encoded human intelligence (HI!), RPA, and (gasp!) math. This is especially useful for identifying when tail-spend should go to 3-bids-and-a-buy tactical sourcing and when mid-tier tactical categories are large enough for full blown strategic sourcing with strategy identification, in-depth market research, multi-round bids and negotiations, etc.

AUTOMATIC PROCUREMENT METHOD IDENTIFICATION

When we are talking about mid-tier tactical sourcing, when a category (currently in the tail) goes beyond a simple catalog / e-comm-like site buy, determining whether it should be a 3-bids-and-a-buy RFQ, auction, or negotiation with an incumbent (whom you have a relationship with in another category or who is currently getting most of the business off-contract) can be automated based on an assessment of current market conditions (supply vs. demand, price trends, category risk, etc.) and encoded Human Intelligence (HI!) on best-practice (and the conditions that tilt one method in the favour of another baed on past savings against similar market conditions). While it won’t be perfect, it will better than most buyers in most organizations will be able to do without deep category expertise and/or a lot of experience in strategy selection and implementation — and more than good enough for an average mid-market enterprise for the majority of their mid-tier spend.

ELIMINATION OF UNMANAGED TAIL SPEND

Tail Spend can be 30% to 40% of spend in some organizations, and overspend (as determined by a variance analysis, market prices across marketplaces, and/or average savings from a 3-bids-and-a-buy RFP or even just a bulk discount on standard catalog pricing) in the 15% to 30% range.

(That’s why so many laggards are getting bamboozled by the new generation of fake-take [better known as intake] procurement applications that make it easy to process requisitions and do one-time buys, because they often see a 10% savings on spend out of the gate and think they are doing fantastic, even when they aren’t. First of all, they are only getting market-price [because they aren’t doing real procurement, which requires a basic level of strategy, and definitely not doing strategic sourcing], which means they are leaving money on the table. Secondly, by not identifying items that should be bundled across requisitions from the week OR managed as MRO / commodity inventory [which can be managed automatically], they are wasting time (and thus money) processing essentially the same requisition over and over [and over]. And so on.)

However, given that we have made great advances in trend analysis, community intelligence, market price intelligence, demand management, market dynamics classification, etc., there’s no reason that, for any tail spend item, the system can’t, with high probability, identify the appropriate methodology for any requisition, which, for tail spend, should include:

  • fulfill from inventory (and auto manage / order the inventory)
  • fulfill from catalog (from contract / preferred suppliers)
  • combine requisitions and fulfill via RFQ
  • combine requisitions and fulfill via e-Auction
  • fulfill as standalone RFQ
  • fulfill as standalone e-Auction
  • promote to a tactical sourcing / strategic procurement category

PERFORMANCE IMPROVEMENT

Procurement is always overworked and under-resourced from a people, capital, and technological perspective, so performance is critical. A great system will increase performance not just along the “cost savings” dimension (as that’s a given with Procurement, whoever said “I have been tasked to spend more” in Procurement), but also along the time, risk, and sustainability measurements.

A great system will monitor utilization and not only allow itself to be configured to minimize steps and effort for everyday tasks through built in configuration capabilities in the dashboards, workflows, rules, etc., but will suggest to the admin changes to configuration, process, or policy over time as the metrics indicate that changes would reduce process time. Process analysis systems already exist, it’s just a matter of integrating them into procurement systems and integrating the analytics necessary to do the suggestions and linking them to the workflow.

But procurement systems aren’t limited to identifying savings opportunities across money and time, they can also identify opportunity across risk if appropriate risk metrics are incorporated (and suggest strategies, suppliers, or products with lower risk) using trend and comparison analytics.

Similarly, they can integrate carbon models and carbon data and identify the (expected) carbon cost of every product or service being considered (depending on whether the data comes from an industry data base, country database, supplier measurement, or third party auditor, will determine how accurate the carbon value is), and identify suppliers or products that would reduce carbon, as well as the cost decrease and/or risk increase of any carbon improvements.

SUMMARY

Now, we realize some of these descriptions are dense, but that’s because our primary goal is to demonstrate that one can use the more advanced ML technologies that already exist, harmonized with market and corporate data, to create even smarter Procurement applications than most people (and last generation suites) realize, without any need (or use) for Gen-AI, that the organization can rely upon to reduce time, tactical data processing, spend, and risk while increasing output and overall organizational performance. It just requires smart vendors who hire very smart people who use their human intelligence (HI!) to full potential to create brilliant Procurement applications that buyers can rely on with confidence no matter what category or organization size, always knowing that the application will know when a human has to be involved, and why!

Procurement Is NOT Hard — But You Do Need The Right System! (Part 2)

As we ended off in Part 1, nothing about the Procurement process is complex, because, as we said, the foundations of Procurement and Purchasing haven’t changed since the first manual was published 137 years ago, its just that more steps were added and, more importantly, the introduction of bad Procurement systems that took a simple, but involved, process and turned it into a nightmare.

It is upon these nightmares, and the fears they inspire, that the marketing madmen and consulting con-men are playing up the madness, and, even worse, vendors with new systems with no real functionality, a slick UI and easy organization-wide SaaS access are promising to reduce the complexity when all their system does is increase the visibility into the utter lack of capability these all sizzle and no steak intake/orchestrate/easy-punchout systems offer.

The reality is that while many of the first, and some of the second-generation, monolith systems didn’t give a lot of visibility beyond the requisition, or only did if you bought licenses for everyone who needed to make a req (so they could have full read access system wide, which, of course, made the system too expensive for any but a F500/G3000; for e.g. Coupa was designed since its launch on Procurement Independence Day to allow anyone in the organization to do Procurement and have complete visibility into where every req is at all times, but the Coupa model is pay by seat and the platform requires user accounts to configure the right visibility access across the platform).

However, most of the true SaaS e-Procurement systems that were built from the ground up in the 2010s were built with full visibility and organization wide access in mind, mitigating the need for these modern intake systems. First problem solved.

Second, these systems were built from the ground up to support the processes a Procurement Department needs to actually do real Procurement. Second problem solved.

Third, the best systems were designed to be usable and make Procurement easier than doing it by hand (but they had to be properly selected and configured). Third problem solved.

And these problems have been solved for over a decade. For example, Vroozi met all these requirements a decade ago. (And they aren’t the only ones!) You just have to look beyond the same-old, same-old big suites that are covered by the same old analyst firms year-over-year, and the marketing madness being pumped out on a daily basis by the new age sizzle that raised way too much money and hired way too little intelligence. If you look beyond the hype, you’ll find there are quite a few smaller, quieter vendors out there that have been working hard for years to build real tech that solves real problems in a really usable way — solutions that are also affordable (because if you don’t raise too much money, you don’t have to raise the price tag ridiculously either to generate the returns needed to keep your jobs and the costs of the inflated marketing and sales budgets). (And remember, there are more vendors than you think. Likely 646 more vendors. With hundreds covered on SI over the past eighteen years, summarized in the Vendor Post Index and Vendor Posts Archives as well as hundreds more covered by the doctor over on Spend Matters between ’16 and ’22 IF you have a Content Hub subscription.)

You just need to know what to look for.

Procurement Is NOT Hard — But You Do Need The Right System! (Part 1)

Not that long ago, SI published a piece that Procurement Should NOT Be Reimagined!. While there was little public response, there was some private response as some, like the doctor, wondered why some people were stating that Procurement needed to be reimagined (besides the mad marketers trying to spread the marketing madness) while a couple of old grey beards (who have been around since before S2P systems hit the scene) offered some deep insight having seen the progression of Procurement since the first custom Procurement solutions hit the market until the present day.

The insights centered around the facts that:

  • grand proclamations make for grand marketing
  • over complications of relatively simple processes makes for big consultancy projects (just because something requires a lot of steps or a lot of paperwork doesn’t mean that it’s complex, but if you think it does …)
  • if you say it enough, Procurement Pros start to believe it
  • if they believe it, don’t have the training to do the job, or, are just lazy, convincing management that it’s complex minimizes their accountability if they screw up (or don’t have the training to do it right)
  • hiring overpriced consultants allows them to pass the buck

With the exceptions of:

  • marketers wanting to add to the madness
  • consultants wanting to make another six to eight figures

The two roots of the problem are that:

  • many Procurement Pros, for one reason or another, believe it is complex
  • some don’t want the responsibility or the workload (which can be heavy without the right system)

So why do they think it is complex?

The Procurement process is very involved. Even the identification of a new commodity vendor is quite a process. First you have to identify suppliers that supply a product that meets the specification. That means a lot of searches, a lot of specification reviews, and then the creation of a list of potential suppliers.

Then an RFP has to be created that defines all the specifications for the product, as well as all the requirements a supplier has to meet to be considered. This requires more work.

Then the winning supplier(s), and back-ups, have to be onboarded (in case negotiations fail with one or more of the winners), and, these days, that’s quite an ordeal. Verify the supplier’s business details, their insurance, their regulatory compliance, their risk profile, their banking information, etc. etc. etc.

Then, when you make the award, you have to populate the catalog, define the budget categories, preferred status, etc.; define the rules on who can buy/reserve from inventory; define the rules when the (combined) purchase orders are placed; define the approval rules/chains; etc. And then set up the invoice processing and verification rules, the matching rules, and the payment rules.

And then, when the orders come in, verify them, approve them, deal with the match discrepancies, authorize and make the payments, and then manage the inventory.

Nothing about this is complex, because, as we said, the foundations of Procurement and Purchasing haven’t changed since the first manual was published 137 years ago, its just that more steps were added and, more importantly, the introduction of bad Procurement systems that took a simple, but involved, process and turned it into a nightmare.

… to be continued.

So You Admit You Might Be a Dead-Company Walking. How Do You Avoid the Graveyard? Part 1

Good for you. It takes a lot of guts to admit you’re screwing up badly, burning cash faster than you’re taking it in (or able to raise it), and that you boarded the hype bus heading straight for the edge of the cliff before making sure the brakes and steering wheel worked! (So much so that the doctor wasn’t really expecting you to admit it. That’s why, this time around, his dead company walking series was targetted at buyers to help them avoid companies who won’t do what it takes to survive the coming market crash in our space.)

Fortunately, the fact that you admit it now, before the market situation gets really bad, means that you likely still have time to get treated, recover, and make a comeback before you bleed to death. So what do you do?

In short, you

  1. start by admitting to every mistake you are making and do something about it, even if it means ousting part (or all) of the founding team (assuming they don’t still have a majority control, in which case you jump to the next ship while there are still ships sailing to jump to) then
  2. continue by looking for cost-effective opportunities for improvement and pursue them and finally
  3. never, ever, ever forget the timeless basics.

Today, we’ll start with describing what you do when you identify, and admit to, the first mistake we chronicled in our two part introduction to our “dead company walking” (Part 1 and Part 2) series (where we helped your potential customers identify problems that signify you are a SaaS supplier they should be walking away from).

1) Too Many Assumptions, Too Few Verifications

Double Down on Market Research – Know Your Competition

You’re not selling in a blue ocean. You’re selling in a very crowded ocean, and if you did your market research (or even glanced at the Mega Map, you’d know it! Depending on your core offering, you have at least 50 competitors, and even if you focus in on an industry niche or market size, at least a dozen, if not two. And there’s only so many customers to go around, which means there’s only room for a handful of companies with your specific focus to be smashingly successful.

So learn who they are, what they do, and, most importantly what they don’t do that they should do, and then do that, because, at the end of the day, you need to sell on core and differentiated value.

Double Down on Market Research – Know Your Target Customer’s Pain Points

Your customers don’t want cool. They don’t want custom Aston Martin’s that need to be tuned by a high price mechanic every month to keep running and can’t be driven on anything but the smoothest of roads. They want Ford tough F150s that only need maintenance every six months and can withstand the rugged terrain they work in.

They want a platform that helps them do the job they have to do everyday, the 80%, not the frilly 20% and nothing else. Learn their pain, and, most importantly, after the core pain is solved, focus on their frustrations that your competitors aren’t. That’s the core and differentiated value that will make you super successful, not whatever technology is currently hyped to be in Vogue. After all, like real fashion, tech fashion changes (and in some cases goes out of style) every few years, and doesn’t necessarily solve any problems in the first place (like Gen-AI).

Get Help! You’ll Only Identify So Much On Your Own.

Especially if you’re new to the space and started your company because you were a purchaser forced to use tool X that didn’t do function Y at your last job. You know one tool well, the two competitors who were finalists in the RFX okay, and that’s it … especially since your lack of understanding of Procurement (marketing) terminology led you to believe that the first few results of a Google search and the Gartner/Forrester maps chronicled every vendor you need to know. Which, as one glance at the Mega Map should convey, is not even close.

Plus, you knew your company’s processes, and, if you were involved in an association and actually went to meetings and roundtables, maybe a couple others. But now you have to serve industries and quench the thirst of multiple types of buyers. You need the help of someone who has seen the rise and fall of companies in this space from 1.0 through the current 3.0+ offerings and knows the products, the players, and the pain well if you want to quickly zero in on what the core and the differentiation actually is for your company.

Stay tuned for Part 2!

Dear Americans …

You need to understand what Project 2025 is BEFORE the election.

At 922 pages, it’s unreadable. Fortunately, you don’t have to!

A group of people read it and summarized it for you in a 4:32 video!

It’s within your maximum attention span! Enjoy!

Direct Link

Also: you can start with the Wikipedia Page:
Project 2025