Daily Archives: August 15, 2023

Overpriced “AI” You Don’t Need in Source-to-Pay (S2P)

Everyone and their dog is trying to sell you an “AI” solution. Most of which, as we continually lament is “Automated Idiocy” at best (and “Applied Indirection” at worst, see our article on the April Fools joke vendors are playing on you year round that relaunched SI full time). Some vendors, for select capabilities, actually have the first stage of AI, Assisted Intelligence and a few, for very select capabilities, actually have the second stage of AI, “Augmented Intelligence”, but, and this is what they won’t tell you, especially if you’re a mid-market (MM), you probably don’t need it.

In fact, if you don’t yet have complete S2P, we’d wager that you absolutely don’t need it and likely won’t get an ROI from it, at least not with respect to the price tag they try to charge. (Just like spending more than 120K a year on S2P as a MM generally decreases your Return On Investment [ROI].)

While what is and is not effective and valuable can be situation dependent (just like certain high-priced capabilities can be highly valuable in 10M+ categories but detrimental in 1M categories), there are some capabilities that are almost never valuable, and in this post we will give you some examples, and the reasons therefore, so that you will be able to both analyze whether or not a solution actually has AI AND whether that AI will provide any value.

While there are dozens of capabilities being marketed as AI (which, if implemented using advanced techniques could fall under Level 1 AI), we’ll pick one from three (3) areas as our goal is exposition and not an all-inclusive treatise (that’s a novella, not an article).

Sourcing: Sourcing Automation

What is this? At its simplest, it’s the ability to auto-source a (set of) product(s) or service(s) once the need has been identified or the request approved. It’s useful, but you don’t need AI to accomplish this, just good-old rule-based (workflow) automation. After all, it’s just

  • instantiating a new RFP (which can be done if you have a template tied to the product/service types)
  • distributing it to known, approved suppliers (which is easily done if you have supplier management that tracks approval status and associated products/services)
  • collecting the bids (automated submission management through a portal or provided spreadsheet for upload)
  • selecting the lowest bids and marking it as an approved award (simple analytics)
  • assembling the contracts (with templates, it’s just sucking in the supplier details, product details, and bids using tag-based search and replace)
  • push it into the e-Signature portal (via the API)
  • alert the buyer when the contract is ready for signature (via alerting)

And while very useful for non-strategic and/or low-value categories, no AI is needed. Now, the vendor will counter with multi-round, but guess what, you just implement ceiling, best X, or mandatory response rules before allowing a supplier to progress to the next round and close round one and open round 2 on pre-set dates.

Low bid prediction? i.e. when should the RFX be ended? Guess what, if the platform has anonymized community intelligence, integrates with market data feeds, or supports should-cost modelling (and knows industry average margins), it’s pretty easy to calculate what the low-bid should be (and any bidder that bids lower has likely made an unsustainable bid that should be ignored), and end bidding when you hit that. No AI needed for any of this.

Contract Management: Contract Generation

The ability to auto-assemble a contract is cool, but leading platforms have had it for almost 15 years. How?

  1. A contract template for the category that specifies the clauses that are required, the data that needs to be included, and the meta-data that is needed to assemble the contract correctly.
  2. Default clause templates for each clause, with variants for each geography or industry of interest

That’s it. Then, the system just uses rules to select the template and the clauses and fill in the required supplier, product, and price data from the RFP.

Invoice-to-Pay: Automated Invoice Parsing

Yes, it’s great if you can reduce the number of invoices you need to review from an average of 15% with issues to 1.5%, but let’s face it, you can reduce it to 5% or less with just a little bit of automation, no AI needed.

Almost all invoices are coming in electronic these days, and suppliers that invoice regularly and want to be paid fast will use EDI, XML, or PO-flip through the portal, which means the invoices will come in electronic in an easily parseble format. Missing data / errors will be easily detectable in address, PO field, line items, amounts, etc. when there is an empty field or a mis-match between expected and received data (based on the PO, etc.), etc. and the invoice can be flipped back with notifications of issues for the supplier to correct. Most of the time it will be an honest mistake or oversight and the supplier will happily make the correction to get paid.

The remaining problems will fall into two categories.
1) Those few suppliers that don’t have a solution and have to send PDFs (or images) through e-mail, but those aren’t the suppliers doing massive business (as we’re talking about one time suppliers or consultants for the most part)
2) Those suppliers who don’t accept the requested corrections and have a dispute that needs manual intervention.

With respect to these two categories.
1) An “AI” parsing solution with 80% accuracy is just going to create more manual work, since you will have to correct all the errors anyway (which will be just as much work as entering the data in the first place). (And if the invoice automatically flows through, then it flows through with errors, and that touchless system leads to overspend. Better to touch an extra 3% of invoices and get it right than trust AI that, instead of saving you money, overpays suppliers or sends money to non-existent fraudulent suppliers.)
2) No AI will resolve a dispute. In fact, it will just annoy the h3ck out of the supplier representative and make the dispute worse.

So don’t fall for “AI” in the sales-pitch, even if it isn’t automated idiocy. The vast majority of it you don’t need as good rules-based workflow, configuration, and human ingenuity in the solution still gets the job done (and as the vendors get smarter, the software gets better, and that manually driven best-of-breed software optimized for the process doesn’t make company ending mistakes).