AI has NOT changed the fundamentals of Procurement. It HAS Strengthened Them.

Procurement, one of the last-areas of the back-office to be hit, is still drowning in the AI-Hype machine that is going full-force 24/7/365, as a result of the self-propagating A.S.S.H.O.L.E. that does nothing but excrete derivative nonsense on a continuous basis, piling it so high that it’s hard not be be Blinded By The Hype!

But, as we’ve seen, this new age of Agentic AI is not accelerating us into the Intelligence Age, but instead devolving us into the Neolithic Age (as it’s now been proven that these technologies are eroding [our] critical thinking skills, and only a few critical thinkers seem to realize that AI is dulling our minds).

Plus, it’s not effective. Studies by MIT and McKinsey last year demonstrated that only 5%/6% of early adopters saw a return. That’s a 94% failure rate, which is even worse than the general technology failure rate of 88% that is the highest it’s ever been in two and a half decades of project failure.

All AI has proven is that you can fail much faster than ever before, but still lost just as much money. That’s because the situation in Procurement is the same as in every other back-office function. Results come from the classic formula of:

  1. PEOPLE first
  2. PROCESS second
  3. TECHNOLOGY third

You need good people more than ever. Sure AI can “process” mounds of data at speeds we’ve never seen, but that doesn’t mean it can extract meaningful intelligence, and even if the intelligence is accurate, that it’s actually useful. Remember, these systems not only process data faster, they hallucinate faster than a field full of hippies at a Woodstock revival concert. But since their grammar and paragraph construction is now better than 90% of the population thanks to the social media revolution that has resulted in the average person having an attention span less than a goldfish and an IQ significantly less than our great-great-great Victorian grandparents, the majority of the population is willing to accept anything they pump out as accurate (even when it’s not).

Only top trained people can properly process complex situations, come up with the right solutions, and execute them. They should be using the most advanced tools available to them to process and make sense of the data using modern Augmented Intelligence technologies, but they should NOT be doing what a dumb system, guaranteed to hallucinate on a regular basis, tells them.

Once you have good people, they need to implement good processes that ensure best practice execution not only by them, but by everyone else who is involved in the process, inside and outside the organization (in partners, providers, and clients). Process allows emerging talent (with good education, great cognitive capacity, and an exceptional [dumb AI free] work ethic) to execute at the level of top talent with the guidance the top talent built into the process, and get the experience they need to become the next generation top talent in the organization.

Finally, once you have the right people, who know what to do, and the right processes, that help them get things done, then, and only then, do you identify the right technology to fit into, and accelerate, the processes. Maybe it’s AI, but chances are it’s traditional, domain-specific, (A)RPA that supports the process to automation levels of 95% to 99%. Dependable, fit-for-purpose, technology is always faster, better, and significantly cheaper than general purpose hallucinatory AI that may, or may not, work on any particular problem.

If you want to survive the current chaos, remember these fundamentals.

And if you can’t remember more than one fundamental, just remember PEOPLE first!

(While you can still find, and hire, people who know what they’re doing. Those of us who grew up before tech took over are getting older and greyer. Without us, not only will you not survive today, but you’ll have no one to train your staff for tomorrow. To think that, as a race, we survived The Great Extinction and, more recently, the The Great Decline during the Younger Dryas era only to risk global civilization collapse as a result of The Great Retardation.)

Hansen’s Models are a Great Addition to the Pool of Analyst Offerings …

… but they still don’t solve your solution selection problem end to end. As per my successful vendor selection, Assisted Solution Selection is a Seven Stair Methodology, and many of those steps aren’t covered.

Backing up, Hansen just launched his new Hansen Procurement site where he centralizes his three new offerings around Organizational Maturity, Vendor Fit Measurement, and Strategy — all of which are sorely needed in our space as the consultancies and analyst firms don’t really address this (or at least don’t address these aspects to the level they need to be addressed to flip the script and turn the 80%+ chance of failure with every new technology project into an 80%+ chance of success).

The best way to see this is to outline the steps of a solution selection project, define what they are, and indicate where various analyst and consultancy offerings come into play.

Step Goal Offerings
Organization Maturity Determine if the Organization is Ready for Process Change that will Involve New Tech Hansen Phase 0 Readiness Assessment
Actual Need Identification Expert review of current processes and problems to identify real process and automation needs, not parroted buzzword descriptions from non-expert executives. Any Niche Consultancy or Expert Advisory Firm Engagement
Holistic Solution Assessment Translation of the need to actual process improvements, platform and automation needs, and service requirements. Any Niche Consultancy or Expert Advisory Firm Engagement
Vendor Pool Selection Starting vendor pool where the vendors meet the minimum platform, automation, and service requirements specified. Spend Matters Tech (only) Match &
Hansen Fit Score Vendor Assessment (Actual Performance)
Vendor Assessment Process RFX cycle management, response and demo analysis, and overall vendor suitability for the client to find the best match. Any Niche Consultancy or Expert Advisory Firm Engagement
Project Assurance Guidance on implementation plan creation, project monitoring, and vendor and partner management with a focus on client success, not the vendor or implementation partner! Engagement with select niche consultants and experts who understand both modern platforms and process requirements of Procurement and Supply Chain.
Strategic Post-Implementation Training, Monitoring, and Advisory A successful implementation does not guarantee success -— that requires adoption, continued utilization, and results. Engagement with select niche consultants and experts who understand both modern platforms and process requirements of Procurement and Supply Chain and why adoption is critical.

As you can see, with the Hansen Models, you finally have a way to judge your organizational maturity and readiness for a new tech-based solution before you start done a path you aren’t ready for (as that always ends in failure), and you finally have a way to determine a potential vendor’s ability to support you in achieving your goals in addition to whether or not the technical core is up to the challenge (which you didn’t have until Spend Matters introduced Solution Map, which powers their Tech Match).

These are key additions because without them,

  1. it’s almost impossible to judge organizational readiness
    you can’t bring an expert in, do a few interviews, and reach a conclusion because you have nothing to compare against (and, moreover, you need scale … at least 30 to 50 related, relevant, projects for any level of confidence in your assessment)
  2. it’s hard to zero in on the best vendors for a selection
    as the best tech fits from both a capability AND a vendor support perspective

The Strategy offering from niche professionals who understand where the organization actually is from a maturity perspective is a nice touch, as they can create more appropriate plans for you more efficiently, but other niche firms could also offer you the same level of strategic advice if they ran the models from Hansen and Spend Matters — although it might take them longer and cost you more depending on their change management and transformation chops vs. Hansen’s chops.

But, as we said above, it’s not end to end, and you’ll still have to do a lot of manual work to get from beginning to end, and possibly need a lot of guidance. But it’s getting you a step (or two) closer to a good assisted solution selection methodology in practice.

Today is the One Day Procurement Doesn’t Have to Worry About Purchasing Software and Services …

… because vendors try to make a fool of them every day of the year.

As per our recent 3-part series on Now is NOT a Good Time To Buy (1, 2, and 3), vendors across the board are trying to overcharge you on a daily basis, by as much as 900% of the software’s actual value.

Services vendors are constantly trying to push you towards the most expensive offerings (that give them the greatest kickbacks, sorry, partner commissions), upsell you on as many modules (that you don’t need) as possible, drag out the implementation (which they know will be easy because they know you’re not organizationally ready to support an implementation because they didn’t prepare you because you didn’t ask), insist on extraneous integrations using custom connectors, and then up-sell you on training for an overly complex system you weren’t ready for.

Then there are GPOs who are claiming they can save you dollars you can’t save on your own, and that you should hand over a whole host of categories to them for an annual six figure access fee and a slice of every transaction, even though you could do just as good on your own managing the larger categories they want to hand over (by the time you factor in the transaction fee and the amortized GPO access fee) and handing the rest over to low cost Amazon Business.

Then there are the marketplaces you need to use for your tail spend that try to convince you to pay preferred access fees, priority order processing fees, expedited shipping fees (for carriers they control), etc. All extra costs for non-priority goods and MRO.

And, of course, when the sales person at the supplier thinks that you don’t have any other immediate options, they come up with fees you never heard of in order to guarantee that order.

In other words, every vendor and supplier is trying to make a fool out of you every day. There’s nothing else they can try to pull on April Fools day that they haven’t already. Multiple times.

In other words, we’re the one profession that doesn’t have to worry about being an April fool, as we deal with tricksters, cons, and frauds every other day of the year.

The optimization era is finally beginning!

In a recent article, Koray Köse states that the EU just killed global supply chain optimization.

When, actually, they just ushered in the real optimization era.

If you are a true multi-national, as Koray has said, you have to pick 2 options out of the 3 options available since you can not simultaneously satisfy US CHIPS Act, EU IAA origin/low-carbon requirements, and Chinese local content rules. So you have to decide which 2 options are the most valuable to you (based on costs and revenue opportunity in the market). That’s an expected profit optimization based on predicted sale prices and the localized supply chain optimizations for cost computation.

So you have to run 3 different sets of scenarios against different assumptions and Pareto efficiencies — and as humans we just can’t do that, and today’s AI can’t do that either (despite the over-hyped claim to the contrary). You need optimization to pick/justify your options, and then ongoing optimization to keep costs, and revenue, in line with prediction as global events force you to reroute regionalized and localized supply chains, substitute materials due to shortages, etc.

What was killed was the simple concept of global optimization that was relatively easy to do without optimization (and what passed as optimization for the past 25 years). Up until now, the reality was that, if you had even a few constraints, and the ability to do simple math, you could quickly eliminate the most expensive suppliers and the suppliers that couldn’t meet your constraints, and then, using your constraints, cherry pick the lowest or second-lowest cost supplier/distributor, and come up with a solution that was within 1% to 2% of theoretical optimal, but that was actually more optimal in practice as it was more stable and easier to maintain.

Optimization is only needed when you need to make choices that can’t be made without considering multiple sub-cases, regionalizations, and localizations — and this is exactly what this messed up world has given us!

It becomes even more important if you are a true multi-national with business in, and government commitments in, the US, EU, and China. You have to adhere to all of the rules globally, but you can’t with any one product formulation, so you have to create at least 2 different products where you figure out what 2 of the three combinations are easiest AND cheapest to make, where to make them, and how to supply them to the countries you serve (with there will be one country each mix cannot be imported into). This requires a host of scenarios to be run before a selection to be made, and a host of models to be continually run during production and distribution to ensure everything aligns with changing market conditions.

So while the classic optimization vendors who can’t do anything more than minimally constrained global optimization are now dead, it’s finally opened up the era of real optimization. The question is, what vendors are going to step up to fill the void?

While Your Supply Chains Are Impacted by War, They are Not At War!

And just because autonomous AI has become a standard tool of the current conflicts, that doesn’t mean that autonomous AI should be a standard tool in your supply chains. AI, defined properly, most definitely should, but not autonomous AI. And even then, only with human oversight!

This rant is inspired by THE PROPHET who tells us that The War in Iran is an AI War. Your Procurement and Supply Chain War Should Be as Well. And, despite parts of it appearing in LinkedIn comments, it is being expanded and reposted now to emphasize our previous article (on Friday) that essentially stated YOU SHOULD NEVER TRUST YOUR AI.

First of all, procurement and supply chain management isn’t a war. It’s a tense conflict between buyer needs and supplier leverage, but not a war.

Secondly, the fact that “AI never stops for a coffee break or to complain about leave not being granted.” is not on its own a valid justification for using it.

Because, by the same token, it also doesn’t care if a strike accidentally hits a school and murders hundreds of innocent children. (Al Jazeera, BBC, and Haaretz)

Nor does it care if multiple civilians get killed in a drone strike just to relieve a human soldier of a guilty conscience as they didn’t order the killing of the target and make the decision that resulted in civilian deaths. (NPR, The Guardian, The Times of Israel)

Given that AI has no ethics and no real intelligence to evaluate a situation beyond data it is provided and the question it is asked, is it really good enough to plan an operation on its own? I’d say it is not. (And also that it was applied without a full understanding of its weak points and how to use it properly.) (And if you want a great post about how critical human command decisions are, check out Michael Salehi‘s post and how the right decision always requires judgement, experience, and accountability — which an AI does not have.)

This is why Anthropic wants some safeguards, why you should too, and why you should be just as careful about where and how you use it in your supply chain. There are two realities with AI:

Properly applied augmented intelligence is a gift from heaven.

If you take the augmented intelligence approach, it can process all the data, give you recommendations, give you a synopsis of the reasoning, and allow you to dig into that reasoning, ask questions about risk and indirect ramifications, and explore the broader picture when you need to.

AI is not human, not ethical, not flawless, and not responsible.

You still need to review the synopsis, dig in when something appears to be off (and even if it’s just an uneasy feeling — your “intuition” can often be just as valid as the AI output), and verify the decision. And often these tools will allow what would take weeks to be done in minutes. But sometimes you’ll find there isn’t enough data, and you won’t be able to act confidently right away.

Now, THE PROPHET didn’t like my response, and countered with a number of questions, which I gladly answered and will repeat here because two of those questions missed the point, and including them helps illustrate what the real questions are.

“Would you take action?”: Yes!
(I don’t care if you agree or disagree with my viewpoint, or THE PROPHET‘s viewpoint, as this is not the point.)

“Would you use all tools available?”: YES!
(Again, I don’t care if you agree or disagree with my viewpoint, or THE PROPHET‘s viewpoint, as this not the point either.)

“Would you trust the tools blindly?“: No!

“Would you rush them into deployment without proper field testing and safeguards?”: NO!

That’s the point. All the hype and promises are resulting in an implicit trust of AI when it should be “Trust … But Verify!“. It’s usually the omission of just one extra step, which is usually just a few minutes of extra human review, that is the difference between success and accuracy vs. failure and widespread destruction. And this is true both in war and in business decisions that impact your supply chain.

This is why I continue to so strongly caution against the use of “autonomous AI” when it is largely built on systems that are flawed at the core, where hallucinations are part of the core function, and one subtle change in a prompt or query can result in a completely different output.

The reality is that, while you need modern tech platforms, constant intelligence monitoring, and pre-defined mitigation strategies just to survive, you usually don’t need AI. (Or at least not the “AI” they are selling … which, as you guessed, isn’t “AI” at all.)

What you do need to do is prepare for AI. If you do that, which involves:

  • getting your data under control
  • building an infrastructure for connectivity, process, and data integration
  • updating your processes for modern environments
  • training your talent accordingly

You will find that you have

  • put data at the core of not just category strategy, but overall operations
  • expanded your definition of risk to include price, partners, and related information flows
  • identified where automation fits; where optimization, analytics, and machine learning fits; and where “AI” doesn’t actually add any additional value
  • figured out that Employees backed by Augmented Intelligence and agents with escalating, but still restricted in critical situations, automation privileges as they learn from those human are best
  • developed a much better understanding of multi-tier exposure
  • begun the process of transitioning to a new, alert, organizational state where you are continually monitoring, optimizing, and re-planning your supply chain in response to emerging disruptive threats … and, as Koray Köse (who we may have to start calling The Oracle due to the insightful nature of his posts) points out, this is where you need to be

… and this is everything THE PROPHET says you need. Most importantly, all of this just might be accomplished without any modern AI (and definitely no BS AI Employees) at all!