Category Archives: Procurement Innovation

Wham Up Your Direct Sourcing with EffiGO!

EffiGO might not be a name you know, as they spent the first decade building, deploying, and growing primarily in India (where they have over 150 enterprise customers including some of the largest names in India in Construction, Manufacturing, CPG, Automotive, IT, Pharma, and Chemicals and have sourced and procured over 25 Billion in Spend), but they now have a growing presence across Asia, the Middle East, and are just starting to expand into Europe (with America coming soon).

However, it now is a name you should know because they built the system from the ground-up to be a complete purchase requisition to invoice approval system with all of the key sourcing and procurement steps in between for indirect (and tail spend), direct, rate-card based services AND complex (project) procurements for their customers — whatever their customers needed. And the foundational “plan to pay” from purchase requisition to ok-to-pay suite can be obtained by a LMM or SE (Large MidMarket/Small Enterprise) at an annual license cost starting at 100K. Integrations, and they highly recommend integrating to the ERP (where they have integrated with most major ERPs multiple times including, but not limited to SAP, Oracle, Infor, Dynamics, etc.), custom configurations, and services are extra, as with any other major player, but the license cost makes it affordable for the mid-markets who need a direct/complete sourcing solution.

The core of the EffiGO platform is broken into two main modules that cover the two main work streams:

Plan to PO

The Plan to PO component consists of the creation/acceptance of the Purchase Requisitions (which can be pushed from the ERP or manually created in the platform), the creation and execution of the sourcing events, the selection of the award, and the definition of the contract that orders will be made against.

Once a Purchase Requisition is pulled in from the ERP or manually created by a user in another organizational department, the user will see it in EffiGO and can pull it up, see all the details, edit those details (including, but not limited to the goods and services requested, the units, the delivery dates requested, the payment terms, etc.) or request an edit if they don’t have the authority, and approve it for sourcing.

With respect to core sourcing, the platform supports:

  • RFX – Quick
  • RFX – Full (with or without TechnoCommercial Evaluation)
  • Auction
  • Reorder (from a past RFX created in the last quarter)
  • Order from Catalog (for products where [rate] contracts are in effect)

RFX (and auction) creation starts by selecting one or more approved requisitions to kick-off an RFX (or auction) process, selecting the event type, entering basic information (name, business unit, event owners, business unit, desired delivery locations, currency, etc.), and determining whether the event only requires commercial specifications and terms or detailed engineering/technical review and a weight-based award based on commercial terms and product/supplier review.

Note that the system will inform the buyer if one or more parts or items in one or more of the requisitions they select is either in inventory and/or already under contract and can just be fulfilled without going through a sourcing event.

Once the basic event criteria have been defined, and the items and quantities confirmed, the user is walked through the remaining configuration steps that include:

  • documentation – standard organizational terms and conditions, NDAs, and other project specific documents (which can be pulled in from a central library) or uploaded
  • price tables – the platform supports pre-configured bidding templates for different categories and products (that can be associated with any level of the product and service hierarchy they support), which can include non-price components, and the user just needs to select one
  • vendor selection – the buyer can search for vendors by group, category, location, etc. and add them one at a time or in groups
  • dates: clarification questions, bids, follow-ups (if requested), notifications, etc.
  • review criteria: techno only – select the template that will be used for product/services/vendor review and scoring

Note that since the requisitions can be pushed in by the ERP, they can range from a requisition for a single item to a requisition for a complete bill of materials, each item or part can be associated with its own cost breakdown table defined in the EffiGO platform, each part can have its own associated documents, including drawings and detailed product specifications, which can be included in the ERP push, pulled in from the EffiGO library, or even pulled in from a (n optional) PLM integration, and the cost tables can also include service cost rate tables as well. To make bidding easy for the suppliers, the bid sheets can be pulled down into Excel (and then re-uploaded), and that can be done on a product or event basis (and then the workbook will be multi-tab if different cost models are required for different parts and/or service rate cards).

If the sourcing event is being awarded on commercial terms only, then the application will select the lowest bids at the part, bundle (grouping), or RFQ level for award, and if the buyer approves, the award selection(s) can be output for offers, letters of intent, and contract negotiations, one per supplier. If the sourcing event is on commercial and technical, the commercial are auto-scored and the buyer scores the technical components, and then the award can be auto-computed in the application according to the award level.

Once a contract has been signed, it can be uploaded with all of the terms and conditions defined (and all meta-data from an associated event can be associated with the contract), and custom completion requirements can be specified in the meta-data to make sure that all POs go out with those requirements (and they are not forgotten — more on this in our discussion of the PO to Pay module).

PO to Pay

The PO to Pay component consists of the creation of the purchase orders, the management of the purchase order and assurance of contract terms and conditions, the management of associated communications (acknowledgements, change requests, ASNs, etc.), the acceptance of the invoices against the orders, the processing and approvals, and the creation of an ok-to-pay push notification to the payment system.

When a buyer is ready to place an order, the buyer can create a purchase order:

  • off of an RFQ
  • off of one or more catalog items which may or may not be under contract (but are approved for purchase)

As with sourcing, if the buyer selects an item that is already in inventory or under contract (and can be requisitioned without any approvals), the system will inform the buyer.

As with any other system, a purchase order consists of items, units, approved pricing, delivery locations, dates, and other key pieces of information. Unlike other systems, the buyer can specify a full host of requirements that must be met before the PO can be issued, acknowledged, and dispatched against which include, but are not limited to:

  • whether an Ack(nowledgement) is required
  • whether acceptance is mandatory
  • whether an ABG (Advanced Bank Guarantee) is required
  • whether a [C]PBG ([Contract] Performance Bank Guarantee) is required
  • whether a LC (Letter of Credit) is required
  • whether the vendor needs to submit any technical documentation
  • whether the requesting buyer needs to provide the vendor with any instructions or documents
  • whether stage monitoring is required (and what the stages are; these can be selected from pre-configured or PLM lists)
  • whether transportation is in the scope of the buyer or vendor
  • whether the vendor is required to submit dispatch instructions
  • other potential organizational specific requirements around purchase orders (for certain products, services, or categories)

When a vendor receives the purchase order, they also receive all of the associated documents and information provided by the buyer along with all the instructions they need to follow and requirements they need to meet to make a delivery AND get paid for it.

Once a vendor has dispatched (part of) a purchase order (which is also tracked against an RFQ to make sure that they never dispatch more units than they have been approved for), they can submit an invoice, which is associated with the order, which goes into an approval queue. Approval chains can be configured to be as simple, or complex, as needed, with as many steps as necessary.

Catalogs are buyer maintained. Suppliers can upload and submit catalogs to the buyer, but they don’t go live until approved by the buyer, who can accept or reject items and pricing. Once awards have been made and/or contracts have been signed after the issuance of a sourcing event, the buyers can create catalog items with the details and pricing, and mark them as under contract if a contract is signed or the rates are approved (if the supplier is willing to honour the quotes in the latter case).

Catalog items can have as many buyer standardized fields as needed to completely specify the item, which can be searched by type, category, supplier, location, status, and keywords against key fields. All items can be associated with their proper place in the organizational category hierarchy, which can be as deep as required. (Note that vendors can identify the categories they service up to Level 4 in their profile.)

Vendor Management

Required vendor information management is embedded throughout the process and is included with both of the core modules and includes vendor onboarding as well as ongoing information management, reviews, status updates (which can block on a category, unit, or organizational level), and insights (through the built-in reporting).

Vendors can be loaded from the ERP on implementation or created inside the platform. Vendor profiles in EffiGO consist of basic corporate details (type, corporate id, taxation registration, primary category, HQ, etc.), deep business details (registered and correspondence details, production locations, etc.), financial info, registration & certifications (statutory, documents, etc.), sustainability information, declarations, and audit log. Additional forms can be configured on implementation to capture any additional information that the buyer needs to track.

In addition, the buyer can maintain the vendor status and whether or not they are approved on a division, or even category basis. Unapproved vendors can be invited to events by an authorized user, but cannot be sent POs, or approved for payment.

Vendor Portal

A vendor has their own portal to interact with the buyers on the EffiGO platform. While they will get email notifications of every sourcing event, change, award, contract offer, purchase order, change, information request, etc., many actions will need to be taken through their portal (for which they will get a direct link to do so in the e-mail). This is because communications, acknowledgements, change requests, etc. need to be associated with the right event or purchase order, key documents need to be secure, and the organization needs to make sure invoices (with payment instructions) are not tampered with.

Summary

EffiGO is a very different kind of platform — one that was built to serve manufacturing clients in Construction, CPG, Automotive, IT, Pharma, and Chemicals from the ground up and one that ended up being a direct-focussed system that can also handle indirect, services, and complex project procurements as well! It’s a name you don’t know, but if you have a mix of direct, service, and indirect needs, one you should know — especially if you are based in EMEA where EffiGO is currently expanding to!

Technobug
Technobug
Technobug
Technobug

It puts the boom-boom into my heart (hoo-hoo)
It sends my soul sky-high
When the PR starts
Technobug into my brain (yeah, yeah)
Goes bang-bang-bang
‘Til my keys do the same

But something’s bugging me
Something ain’t right
My best friend told me
What he did last night
When I was sleeping in my bed
I was dreaming
But I should’ve been Sourcing instead

Wake me up for EffiGO-go
Don’t leave me hanging on like a yo-yo
Wake me up for EffiGO-go
I don’t wanna miss it when we hit that high
Wake me up for EffiGO-go
‘Cause I’m not planning on Sourcing solo
Wake me up for EffiGO-go
Lets get Sourcing tonight
I wanna hit that high, yeah yeah!

ERP Procurement Not Working? Then I Ask Ya: Why Don’t You Look At Axya!

Axya was founded in 2019 to help traditional direct (custom) manufacturing companies modernize procurement and supplier management and become more effective and efficient in both processes than traditional ERPs — that barely allow a customer to send purchase orders, track inventories, and maintain basic supplier profiles — will allow. This, of course, is a far, far, cry from where manufacturers need to be today (but where many are stuck when the majority of S2P solutions were designed for indirect and few were designed with traditional custom manufacturing in mind).

The Axya solution has 3 primary modules / capabilities on the buy-side:

  • sourcing
  • order management / procurement
  • supplier management

All designed to supplement the ERP where it is weak and help a contract manufacturer manage its direct sourcing, procurement, and supplier management. We’ll take the modules one by one and discuss their core capabilities.

Sourcing

The sourcing module is designed to take a part or bill of material from the ERP, create an RFQ, and allow a buyer to complete that RFQ and execute a sourcing project. When a requisition is created in the ERP, it is automatically pushed to Axya through direct integration, and will include any attached part or component diagrams. (Axya supports most of the major ERPs — including SAP, Infor, Epicor, etc. — and has integrated with them numerous times across its 100+ customer base.)

The RFX module is quite straightforward. When a buyer logs in, they see the RFQs assigned to them, including the ones newly created by an ERP push that needs to be completed, and can select one to work on. The RFP consists of the header information (name and number, dates, master documents, and status), the part list (populated from the Bill of Materials), and suppliers — which the platform can be configured to auto-select based on the part or components or to force manual selection. The buyer can alter the list to their liking from suppliers loaded into the application and each supplier will receive their own, secure, copy of the RFQ.

The platform supports internal chat between team members and external chat between team members and suppliers, each in the supplier’s own portal and/or e-mail box (more later). In addition, if not all of the required documents needed to detail the part creation are in the ERP, the buyer can upload additional documents before the RFQ is sent. In addition, the portal tracks which documents are accessed, when, and by which suppliers. (And if any part of the BoM needs to be updated, the change can be made through the Axya platform.)

Once the quotes are in, the buyer can see them side by side for easy comparison. At a part level, the buyers can then select a supplier for an award, or have the platform auto-select the the lowest cost supplier for each part and then generate an award that can be saved and pushed back into the ERP.

Procurement

When a purchase order is created in the ERP (off of an award), it can automatically be pushed to the Axya platform where, like an RFQ, it can be managed through the platform. In the Axya platform, the buyer can see the status of an order (sent, acknowledged, in process, shipped, in receipt, complete). The buyer can, through the portal, communicate with the supplier, review change requests, track order (and revision) history, and do 2-way order-receipt matches.

All supplier communication, directly or indirectly, goes through the platform, the buyer can make manual updates at any time, and can set up automatic reminders to notify the supplier if a certain time has passed since receipt, acknowledgement, last shipment, etc. to make sure the suppliers are reminded on a timely basis.

Supplier Management

The supplier management module allows the buyer to maintain extensive supplier profiles that go much broader, and deeper, than what the ERP supports. Supplier profiles can be customized on implementation and can contain deep details on certifications, insurance, specializations, technology, locations, etc. It can support metrics, documents, notes, custom forms, specifics per shop, and any other requirement the organization needs to track.

In addition, the platform can be used to store all contracts related to the supplier (but the platform does not support contract negotiation, signature, or lifecycle management) for quick search and retrieval.

The platform also associates all RFQs, active POs, and metrics with the supplier. These metrics are operational metrics and include total requests sent, responded, awarded, and their value; orders sent, in process, shipped, and complete; and overall success rates.

Dashboard

A buyer logs into the dashboard where they can see a summary of the RFQs, orders, and supplier requests in the system (where information is gathered/updated through forms), as well as see a summary of critical information that includes:

  • new orders pulled in from the ERP
  • unacknowledged orders
  • orders that need attention (revision requests, late)
  • new requisitions pulled in from the ERP (which templated new RFQs)
  • RFQs in progress
  • RFQs requiring attention
  • unread messages
  • … other tasks that need to be performed

In addition, the buyer sees key summary information through widgets that can be drilled into for quick task access, which include (but are not limited to):

  • various order status dashboards
  • various RFQ status dashboards
  • various request status dashboards
  • (active) supplier summary (in the Axya platform, only active suppliers are pulled in during integration)
  • team (member) summary
  • basic performance/execution-based analytics across RFQs, orders, and suppliers

On the supplier side, they have three solutions:

  • supplier portal
  • email, Excel, and PDF
  • weekly recaps

Supplier Portal

Like most sourcing platforms, Axya has a modern supplier interface where they can log in and see their RFQs, Purchase Orders, and communications and can manually respond to each of them through the platform. However …

Email, Excel, and PDF

Unlike most sourcing platforms, Axya was built to support traditional manufacturers who are engineering geniuses but technological novices when it comes to modern SaaS platforms and who like to work in Email, Excel, and PDF — making it one of a select few platforms that doesn’t require a supplier to ever access the portal.

All RFQs, Purchase Orders, and Messages are sent to the supplier through e-mail, with attachments they can download, fill out, and send back for RFQs and Purchase Orders (and they can simply respond to the email for messaging). Since the Axya platform directly integrates with Microsoft Outlook in addition to directly integrating with the ERP, it can track, monitor, and replicate all communications that flow through email in the Axya platform as long as they contain the RFQ id, order id, or communication id.

The platform will also automatically import and process any Excel or PDF attachment, and if it is a bid file, extract the bids; an order acknowledgement, capture it; a shipment, note it; a response, associate it with the question. This is one of the most unique, and powerful features of Axya — allowing sellers (and buyers) to work in their familiar, preferred environments.

On the buyer’s side, they can access the Axya panel inside Outlook at any time and associate any communication from a supplier with an active RFQ, order, (survey) form, or question (from a chat) as needed. Moreover, a buyer can also handle the majority of communications with a supplier who prefers to use email, Excel, and PDF through email, with limited need to log into the portal once the RFQ, order, etc. has been issued (until it is complete and time to make an award or complete an order).

Weekly Recaps

The system automatically creates a weekly recap for all suppliers with open orders, survey form requests, RFQs, or questions (not responded to); that summarizes all of them with direct single-click links that will take the supplier to the appropriate RFQ, order, survey, or question; and once in the RFQ, order, survey, or question they can submit a quote, submit an acknowledgement or update, answer the survey quickly and easily.

Implementation and Integration

Axya takes a staged approach to implementation, starting with one buying team and their active suppliers to quickly get the client up and running, verify the implementation and integration, and give them time to help the client identify the buying teams, suppliers, products, and profile requirements that the client needs which they will work on for phase 2, which will quickly be implemented once phase 1 is complete. The timeframe is client dependent, but depending on the ERP and complexity of the integration requirements, initial implementation is doable in a few weeks, and phase 2 can be completed in a few months.

Conclusion

Axya is a very powerful direct sourcing, procurement, and supplier management solution …

that is almost a complete solution for direct / custom manufacturers, with only a few small pieces needed. The first is DIY (do-it-yourself) form capability, because right now Axya has to create all the supplier surveys a buyer wants to send to the supplier (which will soon become burdensome on Axya if not addressed), and the second is invoice acceptance, 3-way matching, and ok-to-pay.

Axya has realized both of these, and has already started building a DIY form builder for supplier surveys and information gathering, which will be released later this year, and just started researching advanced technology for invoice processing, as direct invoices are significantly more difficult to parse as indirect (due to the need for very precise low-level part mappings), as they recognize the need for invoice processing and 3-way match.

And while there is more that could be done, there is little the average mid-sized direct/custom manufacturer will need, at least not for a few years while they progress up the Source-to-Pay maturity curve. As a result, Axya is a great solution for a MM custom manufacturer struggling in the modern digital world due to lack of modern Procurement support in the ERP.

Follow the Money to Find Future Opportunity — Which Will NOT Be Fully Found With Autonomous Sourcing!

Spend Matters has thrown caution to the wind and followed Gartner’s lead jumping onto the AI Hype Bus (with no steering and no brakes) that is still heading straight for the cliff and are wheeling out webinars on AI faster than a prairie fire with a tailwind. (Needless to say Sourcing Innovation does not think this is a good thing. There are valid uses for AI and automated processing, but fully handing over financial decisions is like wheeling in the Trojan Horse and leaving it unguarded in the server room with unrestricted access to your bank integration.)

Recently, The Maverick advertised yet another Spend Matters webinar on Autonomous and AI Sourcing where he said we should “follow the money”. Which we should, but there are a few things we need to clarify first.

1. No Money Changes Hands In Sourcing

It changes hands in Procurement … and it’s because most companies don’t follow the money after the contract is signed that 30 to 40 cents of negotiated savings never materialize in many companies, which The Maverick should remember from his AMR and Hackett days, as it was laid clear in Mickey North Rizza‘s famous 2009 “Reaching Sourcing Excellence” series, which we know is in his archives.

2. “Speed” is NOT a strategic edge if you don’t get it right!

If you don’t go out with the right strategy, don’t know the current market price, don’t know the reason for the current market price, and don’t have the knowledge to project if the trend is going to continue, stabilize or reverse, going to market is not a good decision … and it’s an even worse decision to automate the sourcing project and secure an award as fast as possible if you don’t know if it’s the best you could have done or the worst you could have done.

3. “Pecunia non olet”, but yet these vendors are asking you to treat it like it does!

They want you to automate spend analysis, sourcing, contracts, purchases, and everything else that involves money by turning over everything to their Agentric AI because, apparently, money stinks and you don’t want to touch it. (But they are quite happy to not only spend yours for you but takes as much of it as they can for their services.)

But here’s what they don’t tell you.

  • AI is NOT Intelligent.
    The level of intelligence in their “AI” is equivalent to the level of intelligence in a carpenter’s hammer. The level of effectiveness is entirely dependent on how skilled the person “training” the system and how skilled the person “using” the system is, just like the effectiveness of a hammer is dependent on how well the carpenter was trained and how experienced he is in it’s use.
  • AI Does Not Know What it Does Not Know.
    If the data is incomplete, the recommendation is very likely incorrect.
  • AI Cannot Do Better than the Best A Human Has Ever Done in Decision Making.
    So, if none of the situations it was trained on led to great results, neither will what it recommends for you.

You need to remember how Gen-AI does its work (or should we say does not work). It is large document search and summarization and chain of compute. Now, the more advanced players are trying to embed knowledge graphs into this, but these are not perfect either. With good training examples, and a very similar situation, the probability it will work well is very good, but it’s still only a probability. As a result, nothing should ever be fully automated where money is concerned. The tools should be used for their recommendations, and if the recommendations are good, and the risk is low, most of the tactical data processing and event management should be automated, but the decisions should ALWAYS be made by a human, who should be involved at every decision point. Even if that decision is verifying the system recommendation. It only takes one miscalculation due to an incomplete data source to project a wrong trend, rush an auction, lock in a price 3X what you are paying now, only for it to fall in a month later when a factory (which went offline temporarily due to a manmade or natural disaster) comes back online and the supply-demand balance returns to normal. And while you may have stocked out for two weeks, those losses will be orders of magnitude less than paying 3X at a contract you have to honour (unless you want to get dragged into court).

Now, if you really want to make money, forget all this Autonomous and Agentric AI BS, look for Augmented Intelligence solutions that make your staff two, three, five, and even ten times more efficient, purchase those, and, remembering that the US infrastructure is crumbling fast (and not going to get renewed under a Republican administration that is more interest in trickle-on economic tax cuts for its billionaires than ensuring you have running water), it’s time to remember how the smart made money in ancient Rome — public bathhouses and latrines. Time to invest in your own desalination facilities and be ready when the public wells run dry. After all, “Pecunia Non Olet“.

With Great Data Comes Great Opportunity!

In fact, it can quadruple your ROI from a major suite.

Not long ago, Stephany Lapierre posted that your team may only be realizing <50% of the ROI from your Ariba or Coupa investment, to which, of course, my response was:

50% of value on average? WOW!

Let’s break some things down.

A suite will typically cost 4X a leaner mid-market offering which is often enough even for an enterprise just starting it’s Best in Class journey (that will take at least 8 years, as per Hackett group research in the 2000s).

Moreover, even if the enterprise can make full use of the suite it buys for 4X, at least 80% of the “opportunity” comes from just having a good process, technology, baseline capability and automation behind it. That says you’re paying 4X to squeeze an additional 20% worth of opportunity in the best case.

On average, it takes 2 to 3 years to implement a suite (on a 3 to 5 year deal). So maybe you’re seeing an average of 66% functionality over the contract duration.

As Stephany pointed out, bad data leads to

  • increased supplier discovery and management times
  • invoice processing delays and errors
  • increased risk and decreased performance insight

As well as an

  • inability to take advantage of advanced (spend) analytics
  • inability to build detailed optimization models
  • decreased accuracy in cost modelling and market prediction

This is even more problematic! Why? These are the only technologies found to deliver year-over-year 10%+ savings! (This is where the extra value a suite can offer comes from, but only with good data. Otherwise, at most half of the opportunity will be realized.)

Thus, one can argue an average organization is only getting 66% of 25% of 80% of its investment against peers (based on 2/3rd functionality, the 4X suite cost, and the baseline savings available from a basic mid-market application that instills good process and cost intelligence) and 50% of 20% (as it is able to take advantage of at most half of the advanced functionality offered by the suite due to poor and incomplete data). In other words, at the end of the day, we’d argue an average company is only realizing 23% of the potential value from an opportunity perspective!

However, as one should rightly point out, the true value of a suite is not the value you get on the base, it’s the ROI on that extra spend that allows for 20% more opportunity than a customer can get from lesser peer ProcureTech solutions.

For example, let’s say you are a company with 1B of spend with a 100M opportunity.

If tackling 20M of that opportunity requires advanced analytics, optimization, and extensive end-to-end data, it’s likely that you’ll never see that with an average mid-market solution with limited analytics, no optimization, and only baseline transactional data. If the company paid an extra 1.5M over 3 years for this enhanced functionality, then the ROI on that is 13X, which is definitely worth it.

Moreover, if the suite supports the creation of enhanced automations, you could get more throughput per employee and realize the base 80M with half or one quarter of the workforce, which would lead to a lowering of the HR budget that more than covers the baseline cost.

However, ALL of this requires great data, advanced capability, and the in-house knowledge to use both. This is only the case in the market leaders. As a result, we’d argue that the majority of clients are only realizing about 25% of the suite’s potential — when sometimes the only thing standing in their way of realizing the rest is good data.

To Manage Innovation, Governments Must Fix Procurement … And Take Care Where AI is Concerned!

A recent article on Civil Service World noted two things that attracted my attention:

  1. To manage innovation, governments must fix procurement
  2. Too often, contracts in AI do not give governments powers to investigate algorithms or the data they are trained on. As a result, they risk taking the blame when things go wrong without the means to find out why.

Public Procurement is expensive. Very expensive. Given that it represents 12% of the annual GDP of an average developed economy, that is a huge amount of spend. Given that the overspend in most departments of most jurisdictions is likely as bad as in the private sector, which means, depending on the category, is likely in the 4% to 6% range at a minimum (based on the results high performing organizations see when implementing best-in-class processes and technology), that means a minimum of 1/2% of GDP is being wasted annually, but based on the fact that most public sector projects exceed initial budgets and timelines, we’d bet that the overspend is double that and at least 1% of the annual GDP. That’s a lot of waste — 770 Billion on the top 10 economies. Furthermore, that assumes that all of the spend is necessary and well planned. (There is likely considerably more savings with better demand planning, more operational efficiency, better project planning, etc. We’re just stating that the savings on committed spend alone is likely 10%.)

The article notes that despite the strategic importance of Procurement, it’s rarely seen as a priority and is more often treated as a standardized compliance function, rather than a tool for strategic investment and, in some cases, has become synonaomous with absurdity, due to an accumulation of rules so complex that even those administering them cannot interpret them creates the perverse incentive of doing the least risky thing to avoid individual liability. As a result, governments end up buying obsolete technologies that make them vulnerable, because innovation evolves so rapidly, and forces them to buy more. The cycle repeats, budgets balloon, and public capabilities diminish.

And, unfortunately, public procurement is a brick-and-mortar process, still more suited to bulk-buying precisely describable goods, accounting for them, and moving onto the next purchase. Innovation is different: you do not know today what is going to be possible tomorrow, even when you are the one inventing the tech. While governments work in one-off projects, innovation is made of ever-changing, always-fleeting products.

Furthermore, those in charge of procuring these technologies are not technologists. Public procurement is professionalized in only 38% of OECD countries, so even if officials had the incentive to experiment, they would not have the expertise.

To combat this, the authors of the article propose that Procurement systems should be like good software, fluid, flexible, and constantly evolving. However, as they note, this will take more than changing rules. As they note, it will take talent that are experts in what they are buying. It will take the treatment of Procurement as a strategic function, with clear lines for advancement for all personnel (as studies have shown that even a marginal improvement in skill can yield significant reductions in costs, times, and contracting complexity). Thirdly, they will need a federated data environment to make use of modern technology. (Especially if they want to use AI.)

This is just the start of what is necessary. There needs to be regular training. There needs to be specialization to different types of functions and purposes. There needs to be a rewrite of rules to focus on the right outcomes, not just a plethora of rules designed to prevent previously undesirable outcomes. There needs to be clear paths from buyer to public organization CPO to department head, not just paths of advancement within the Procurement function. There needs to be a focus on what’s best for the public being served, not best to minimize the risk to the buyer. And a willingness to accept that their may be a few mistakes made here and there as new buyers learn the ropes, while a willingness to weed out anyone that “makes a mistake” in order to give a contract to a supplier who is not the best fit (and do so in exchange for a kickback).

But most importantly, if they acquire AI technology, they also need to acquire the right to investigate the algorithms being used, the data it is trained on, the results of prior training, and the right to inspect any changes to the algorithms, data, and training. Otherwise, you can never trust any AI technology you might want to acquire.

Because governments need to apply the most appropriate AI-enhanced technology more than the private sector, but are the least likely to be able to use them properly.