The next
BriefingsDirect technology innovation thought leadership discussion explores how rapid advances in
artificial intelligence (AI) and
machine learning are poised to reshape procurement -- like a fast-forwarding to a once-fanciful vision of the future.
Whereas
George Jetson
of the 1960s cartoon portrayed a world of household robots, flying
cars, and push-button corporate jobs -- the 2017 procurement landscape
has its own impressive retinue of decision bots, automated processes,
and data-driven insights.
We won’t need to wait long
for this vision of futuristic business to arrive. As we enter 2017,
applied intelligence derived from entirely new data analysis benefits
has redefined productivity and provided business leaders with
unprecedented tools for managing procurement, supply chains, and
continuity risks.
To learn more about the future of predictive -- and even proactive -- procurement technologies, please welcome
Chris Haydon, Chief Strategy Officer at
SAP Ariba. The discussion is moderated by
BriefingsDirect's Dana Gardner, Principal Analyst at
Interarbor Solutions.
Here are some excerpts:
Gardner:
It seems like only yesterday that we were content to gain a common view
of the customer or develop an end-to-end bead on a single business
process. These were our goals in refining business in general, but today
we've leapfrogged to a future where we're using words like “predictive”
and “proactive” to define what business function should do and be
about. Chris, what's altered our reality to account for this rapid
advancement from visibility into predictive -- and on to proactive?
Haydon:
There are a couple of things. The acceleration of the smarts, the
intelligence, or the artificial intelligence, whatever the terminology
that you identify with, has really exploded. It’s a lot more real,
and you see these use-cases on television all the time. The business
world is just looking to go in and adopt that.
And then there’s this notion of the Lego block of being able to
string multiple processes together via an
API is really exciting -- that coupled with the ability to have insight. The last piece, the ability to make sense of
big data, either from a visualization perspective or from a machine-learning perspective, has accelerated things.
These trends are starting to come together in the
business-to-business (B2B) world, and today, we're seeing them manifest themselves in procurement.
Gardner:
What is it about procurement as a
function that’s especially ripe for taking advantage of these
technologies?
Transaction intense
Haydon:
Procurement is obviously very transaction-intense. Historically, what
transaction intensity means is people, processing, exceptions. When we
talk about these trends now, the ability to componentize services, the
ability to look at big data or machine learning, and the input on top of
this contextualizes intelligence. It's cognitive and predictive by its very
nature, a bigger data set, and [improves] historically inefficient human-based
processes. That’s why procurement is starting to be at the forefront.
Gardner: Procurement itself has changed from
the days of when we were highly vertically integrated as corporations.
We had long lead times on product cycles and fulfillment.
Nowadays, it’s all about agility and compressing the time across the
board. So, procurement has elevated its position. Anything more to add?
Haydon: Everyone
needs to be closer to the customer, and you need
live business. So,
procurement is live now. This change in dynamic -- speed and
responsiveness -- is closer to your point. It’s also these other dimensions
of the consumer experience that now has to be the business-to-business
experience. All that means same-day shipping, real-time visibility, and
changing dynamically. That's what we have to deliver.
Gardner:
If we go back to our George Jetson reference, what is it about this
coming year, 2017? Do you think it's an important inception point when it comes
to factoring things like the rising role of procurement, the rising
role of analytics, and the fact that the
Internet of Things (IoT) is going to bring more relevant data to bear? Why now?
Haydon:
There are a couple of things. The procurement function is becoming more
mature. Procurement leaders have extracted those first and second levels of savings
from sourcing and the like. And they have control of their processes.
With
cloud-based
technologies and more of control of their processes, they're looking
now to how they're going to serve their internal customers by being value-generators and
risk-reducers.
How do you forward the business, how do
you de-risk, how do you get supply continuity, how do you protect your
brand? You do that by having better insight, real-time insight into your
supply base, and that’s what’s driving this investment.
Gardner: We've been talking about Ariba being
a 20-year-old company. Congratulations on your anniversary of 20 years.
Haydon: Thank you.
AI and bots
Gardner:
You're also, of course, part of SAP. Not only have you been focused on
procurement for 20 years, but you've got a large global player with lots
of other technologies and platform of benefits to avail yourselves of.
So, that brings me to the point of AI and bots.
It
seems to me that right at the time when procurement needs help, when
procurement is more important than ever, that we're also in a position
technically to start doing some innovative things that get us into those
words "predictive" and more "intelligent."
Set the
stage for how these things come together.
Haydon:
You allude to being part of SAP, and that's really a great strength and
advantage for a domain-focused procurement expertise company.
The machine-learning capabilities that are part of a native
SAP HANA
platform, which we naturally adopt and get access to, put us on the
forefront of not having to invest in that part of the platform, but to
focus on how we take that platform and put it into the context of
procurement.
There are a couple of pretty obvious
areas. There's no doubt that when you’ve got the largest B2B network,
billions in spend, and hundreds and millions of transactions on
invoicing, you apply some machine learning on that. We can start doing a
lot smarter matching an exception management on that, pretty
straightforward. That's at one end of the chain.
It's not about upstream and downstream, it's about end-to-end process, and re-imagining and reinventing that.
On the other end of the chain, we have
bots.
Some people get a little bit wired about the word “bot,” “robotics,” or
whatever, maybe it's a digital assistant or it's a smart app. But, it's
this notion of helping with decisions, helping with real-time
decisions, whether it's identifying a new source of supply because
there's a problem, and the problem is identified because you’ve got a
live network. It's saying that you have a risk or you have a continuity
problem, and not just that it's happening, but here's an alternative,
here are other sources of a qualified supply.
Gardner:
So, it strikes me that 2017 is such a pivotal year in business. This is
the year where we're going to start to really define what machines do
well, and what people do well, and not to confuse them. What is it about
an end-to-end process in procurement that the machine can do better
that we can then elevate the value in the decision-making process of the
people?
Haydon: Machines can do better in just
identifying patterns -- clusters, if you want to use a more technical
word. They transform category management and enables procurement to be
at the front of their internal customer set by looking not just at their
traditional
total cost of ownership (TCO), but total value and use. That's a part of that real dynamic change.
What
we call end-to-end, or even what SAP Ariba defined in a very loose way
when we talked about upstream, it was about outsourcing and contracting,
and downstream was about procurement, purchasing, and invoicing. That's
gone, Dana. It's not about upstream and downstream, it's about
end-to-end process, and re-imagining and reinventing that.
The role of people
Gardner:
When we give more power to a procurement professional by having highly
elevated and intelligent tools, their role within the organization
advances and the amount of improvement they can make financially
advances. But I wonder where there's risk if we automate too much and
whether companies might be thinking that they still want people in
charge of these decisions. Where do we begin experimenting with
how much automation to bring, now that we know how capable these
machines have been, or is this going to be a period of exploration for
the next few years?
Haydon: It will be a period
of exploration, just because businesses have different risk tolerances
and there are actually different parts of their life cycle. If you're in
a hyper growth mode and you're pretty profitable, that's a little bit
different than if you're under a very big margin pressure.
For example, maybe if you're in high tech in
the Silicon Valley, and some big names that we could all talk about are, you're prepared to be able to go at it, and let it all come.
If you're in a natural-resource environment, every dollar is even more precious than it was a year ago.
That’s
also the beauty, though, with technology. If you want to do it for this
category, this supplier, this business unit, or this division you can
do that a lot easier than ever before and so you go on a journey.
If
you're in a hyper growth mode and you're pretty profitable, that's a
little bit different than if you're under a very big margin pressure.
Gardner:
That’s an important point that people might not appreciate, that
there's a tolerance for your appetite for automation, intelligence,
using machine learning, and AI. They might even change, given the
context of the certain procurement activity you're doing within the same
company. Maybe you could help people who are a little bit leery of
this, thinking that they're losing control. It sounds to me like they're
actually gaining more control.
Haydon: They
gain more control, because they can do more and see more. To me, it’s
layered. Does the first bot automatically requisition something -- yes
or no? So, you put tolerances on it. I'm okay to do it if it is less
than $50,000, $5,000, or whatever the limit is, and it's very simple. If
the event is less than $5,000 and it’s within one percent of the last
time I did it, go and do it. But tell me that you are going to do it or
let’s have a cooling-off period.
If you don't tell me
or if you don’t stop me, I'm going to do it, and that’s the little bit
of this predictive as well. So you still control the gate, you just
don’t have to be involved in all the sub-processes and all that stuff to
get to the gate. That’s interesting.
Gardner:
What’s interesting to me as well, Chris, is because the data is such a
core element of how successful this is, it means that companies in a
procurement intelligence drive will want more data, so they can make
better decisions. Suppliers who want to be competitive in that
environment will naturally be incentivized to provide more data, more
quickly, with more openness. Tell us some of the implications for
intelligence brought to procurement on the supplier? What we should
expect suppliers to do differently as a result?
Notion of content
Haydon:
There's no doubt that, at a couple of levels, suppliers will need to
let the buyers know even more about themselves than they have ever known
before.
That goes to the notion of content. It’s like
there is unique content to be discovered, which is whom am I, what do I
do well and demonstrate that I do well. That’s being discovered. Then,
there is the notion of being able to transact. What do I need to be able
to do to transact with you efficiently whether that's a payment, a bank
account, or just the way in which I can consume this?
Then,
there is also this last notion of the content. What content do I need
to be able to provide to my customer, aka the end user, for them to be
able to initiate the business with them?
These three
dimensions of being discovered, how to be dynamically transacted with,
and then actually providing the content of what you do even as a
material of service to the end user via the channel. You have to have
all of these dimensions right.
If
you don't have the context of the business process between a buyer and
a seller and what they are trying to affect through the network, how
does it add value?
That’s why we fundamentally
believe that a network-based approach, when it's end to end, meaning a
supplier can do it once to all of the customers across the [
Ariba] Discovery
channel, across the transactional channel, across the content channel is
really value adding. In a digital economy, that's the only way to do
it.
Gardner: So this idea of the business
network, which is a virtual repository for all of this information isn't
just quantity, but it's really about the quality of the relationship.
We hear about different business networks vying for attention. It seems
to me that understanding that quality aspect is something you shouldn't
lose track of.
Haydon: It’s the quality. It’s
also the context of the business process. If you don't have the context
of the business process between a buyer and a seller and what they are
trying to affect through the network, how does it add value? The
leading-practice networks, and we're a leading-practice network, are
thinking about Discovery. We're thinking about content; we're thinking
about transactions.
Gardner: Again, going back
to the George Jetson view of the future, for organizations that want to
see the return on their energy and devotion to these concepts around AI,
bots, and intelligence. What sort of low-hanging fruit do we look for,
for assuring them that they are on the right path? I'm going to answer
my own question, but I want you to illustrate it a bit better, and
that’s risk and compliance and being able to adjust to unforeseen
circumstances seems to me an immediate payoff for doing this.
Severance of pleadings
Haydon:
The United Kingdom is enacting a law before the end of the year for
severance of pleadings. It’s the law, and you have to comply. The real
question is how you comply.
You eye your brand, you
eye your supply chain, and having the supply-chain profile information
at hand right now is top of mind. If you're a
Chief Procurement Officer (CPO) and you walk into the
CEO’s office, the CEO could ask, "Can you tell me that I don’t have any
forced labor, I don’t have any denied parties, and I'm
Office of Foreign Assets Control (OFAC) compliant? Can you tell me that now?"
You
might be able to do it for your top 50 suppliers or top 100 suppliers,
and that’s great, but unfortunately, a small, $2,000 supplier who uses
some forced labor in any part of the world is potentially a problem in
this extended supply chain. We've seen brands boycotted very quickly.
These things roll.
So yes, I think that’s just right at
the forefront. Then, it's applying intelligence to that to give that
risk threshold and to think about where those challenges are. It's being
smart and saying, "Here is a high risk category. Look at this category
first and all the suppliers in the category. We're not saying that the
suppliers are bad, but you better have a double or triple look at that,
because you're at high risk just because of the nature of the category."
Think larger than yourself in trying to solve that problem differently. Those cloud deployment models really help you.
Gardner:
Technically, what should organizations be thinking about in terms of
what they have in place in order for their systems and processes to take
advantage of these business network intelligence values? If I'm
intrigued by this concept, if I see the benefits in reducing risk and
additional efficiency, what might I be thinking about in terms of my own
architecture, my own technologies in order to be in the best position
to take advantage of this?
Haydon: You have to
question how much of that you think you can build yourself. If you think
you're asking different questions than most of your competitors, you're
probably not. I'm sure there are specific categories and specific areas
on tight supplier relationships and co-innovation development, but when
it comes to the core risk questions, more often, they're about an
industry, a geography, or the intersection of both.
Our
recommendation to corporations is never try and build it
yourself. You might need to have some degree of privacy, but look to
have it as more industry-based. Think larger than yourself in trying to
solve that problem differently. Those cloud deployment models really
help you.
Gardner: So it really is less of a
technical preparatory thought process than process being a digital
organization, availing yourself of cloud models, being ready to think
about acting intelligently and finding that right demarcation between
what the machines do best and what the people do best.
More visible
Haydon:
By making things digital they are actually more visible. You have to be
able to balance the pure nature of visibility to get at the product;
that's the first step. That’s why people are on a digital journey.
Gardner: Machines can’t help you with a paper-based process, right?
Haydon: Not as much. You have to scan it and throw it in. Then, you are then digitizing it.
Gardner: We heard about
Guided Buying
last year from SAP Ariba. It sounds like we're going to be getting a
sort of "Guided Buying-Plus" next year and we should keep an eye on
that.
Haydon: We're very excited. We announced that earlier this year. We're trying to solve two problems quickly through Guided Buying.
Our
Guided Buying has a beautiful consumer-based look and feel, but with
embedded compliance. We hide the complexity. We just show the user what
they need to know at the time, and the flow is very powerful.
One
is the nature of the ad-hoc user. We're all ad-hoc users in the
business today. I need to buy things, but I don’t want to read the
policy, I don’t want to open the PDF on some corporate portal on some
threshold limit that, quite honestly, I really need to know about once
or twice a year.
So our Guided Buying has a beautiful
consumer-based look and feel, but with embedded compliance. We hide the
complexity. We just show the user what they need to know at the time,
and the flow is very powerful.
Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.
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