A few weeks ago, we not only told you that Exact Purchasing is a Pocket Cube, but we broke it down and defined each octant for you, as well as indicating which categories of goods and services were most likely to fall in each octant (with the disclaimer that there is variation between industry and sometimes even companies in the same industry based on size and focus).
This was a great start, but once you understand the breakdown, the next step is understanding how you go about sourcing and procuring the categories in each octant. Today we continue our deep dive into the core technologies you will use with the Architecture focussed-octants.
High Complexity, High Risk, High Impact: Supply Chain Architecture
This is the most critical of all the octants — the far upper, upper right no matter which way you look at the pocket cube. These are your most critical, most complex, and most risky purchases where any interruption can be devastating, and a long term interruption could even bring the risk of bankruptcy (as you lose your key product line and/or ability to serve your customers).
While a lot of automation (and hardened AI) is used for constant monitoring, this is the category where the least automation is employed in the sourcing, contracting, supplier management, procurement, and analysis. Every decision needs to be human made and human reviewed as these are the categories where a single slip-up (or automation mistake because someone miskeyed data somewhere along the chain) can cost millions.
This isn’t to say that advanced technology isn’t extensively deployed — as it most certainly is at every single step of the process, just that the focus is on Augmented Intelligence (and making your employees super-human in their productivity and decision making prowess).
For example, best-of-breed multi-objective strategic sourcing decision optimization that can handle not only multiple providers and product options but also multiple carriers using multiple modes while balancing overall landed cost, supplier and supply chain risk, and compliance is a key requirement of RFP analysis and multi-regional dual-source award definition (as two suppliers in the same province of China that use the same port that could both be taken out by a single natural disaster, port shutdown, or local energy plant failure is NOT dual-sourcing and NOT risk mitigation).
AI might be used to pull together the first pass of the RFP, but the specs will have to be human reviewed and validated, key aspects of the response will have to be human reviewed and validated, and the award analyzed by multiple stakeholders before approval. AI can assemble a contract off of templates, but due to the complexity and risk, legal and risk management will have to carefully review that all risks that can be covered are (and mitigated to the extent possible from a legal perspective) and engineering that product/project management that the specs are complete and the obligation timeline appropriate.
Constant risk monitoring on every signal available will need to be employed, and alerts propagated on the detection of an event that could lead to an issue, not days, weeks, or months later when the issue finally materializes. (And if a human doesn’t review and respond in the system — not an issue, keep monitoring, escalate, etc., escalate the alert up the human command chain.)
- (Strategic) Sourcing: Strategic Sourcing with Multi-Objective Optimization that balances cost, risk, compliance, and organizational objectives
- Supplier Management: Compliance, Risk, and Performance
- Catalog Management: Detailed product (sample) review and verification
- Contract Management: Manually constructed off of templates, LLM and Human Reviewed to ensure all required obligations captured and risks addressed
- Procurement (Channel)*: Goods PO (Catalog), Contract Invoice (Payment Schedule), Framework PO (Fixed Delivery Schedule), Consignment PO (VMI)
- Monitoring: ACK, ASN, Receipt in the Procurement System; Lead Time, Delivery, Quality Trends in the Inventory Management and Production Systems; Financial Status, Litigation Monitoring, Sanction Monitoring, News, Event, and Sentiment Monitoring; Commodity markets, marketplaces, and currency exchanges;
High Complexity, High Risk, Low Impact: Cost-First Architecture
The only difference between this category and the last category is that the impact, while likely relatively significant if any disruption or issue is not resolved promptly, is not as severe (and not organizational life-threatening). It’s still a complicated category to manage due to the high complexity of the products and services, and the high risk they carry due to the supply chain or (current) market conditions, but one that you don’t need to spend nearly as much time.
You’re still doing everything at least semi-manual every step of the way, but you’re not going nearly as deep — you’re covering all the angles, but you’re not triple measuring and verifying them. You’re still using decision optimization, but it’s merely a two-factor cost vs compliance optimization. You’re reviewing the award recommendation, but you don’t need to get the stakeholders involved once you have collected their requirements. You’re verifying specs, but unless it’s a component to be integrated, you don’t have to review samples. And so on.
Also, by continually monitoring for new products and suppliers, and verifying these as they are selected, it’s pretty quick on a disruption to spin up a new event using automation that will essentially recreate the last event but send the RFP to new suppliers as well as suppliers that didn’t win last time (pre-populating with their last responses and bids to make it super easy for them to participate).
And once the key risks that have be captured in a contract are defined, and acceptable clauses created, Legal doesn’t have to review every contract (and you can handle it), and Engineering only has to get involved if a supplier is proposing a change to the spec, material composition, or obligation timeline.
- (Strategic) Sourcing: Strategic Sourcing with Decision Optimization that balances cost and compliance
- Supplier Management: Compliance
- Catalog Management: Product Spec Verification
- Contract Management: Automatically constructed off of templates, LLM and Human Reviewed to ensure all required obligations captured and risks addressed
- Procurement (Channel)*: Goods PO (Catalog), Contract Invoice (Payment Schedule), Framework PO (Fixed Delivery Schedule), Non-PO Invoice (Emergency Replacement)
- Monitoring: ACK, ASN, Receipt in the Procurement System; Lead Time, Delivery, Quality Trends in the Inventory Management and Production Systems; Sanction Monitoring, News and Event Monitoring; Commodity markets, marketplaces, and currency exchanges;
* Unless the Channel-Master Joël Collin-Demers says otherwise.
