Now is the time to go for procurement automation

Now is the time to go for procurement automation

March 14, 2018 Off By Aval Sethi

Many organisations are embracing digital technologies catalysing the pace of automation, especially in their routine procurement processes, in the next 3-5 years. This is also set to impact employment in procurement as it has in IT. But that should not deter technology practitioners from leapfrogging.

Automation is the key to efficiency and transparency and helps create new opportunities to bring out creativity and add value in non-automatic areas. With an eye on the long-term, procurement leaders can be the game-changer in end-to-end processes with a strategic perspective much like production managers in modern and digitised organisations. High value activities such as re-engineering products and forming vendor partnerships helps technology take over routine transactional work.

Though procurement in the near future looks believable and familiar in some ways, it looks different in others. For transactional services like supplier selection and sourcing, procurement will always meet basic user needs. Turning supplier capabilities and improving products and services, digitally-enabled procurement teams will help organisations gain an edge in the marketplace.

It is not uncommon to dismiss new technologies such as Artificial Intelligence (AI) as just another technology that has been hyped without any logical improvement in procurement. This is significant to note considering that procurement tools of software vendors such as IBM or SAP has not been picked up for the past 20 years. It is no secret that only a few procurement processes are automated fully or have end-to-end information transparency which is not limited. Manual processes continue to persist for companies that haven’t automated at all or for indirect expenditures, though manufacturers have direct spending categories and automated replenishment.

Procurement has been held back by lagging technology adoption as there is resistance to new technology or conventional software vendors are sluggish in innovation or both. Most of the times, procurement organisations are incapable of identifying their full catalog systems, entire spends and even completely utilising sourcing softwares. Procurement leaders are often waiting and hoping for user-friendly technologies for critical-mass adoption to come to their rescue.

Now is that tipping point of technology with elements like blockchain, AI and Internet of Things (IoT) which transform users’ relationship. Fully automated procurement tools including contract generation are being run for the procure-to-pay process. For instance, now there are systems to evaluate responses, solicit bids and award contracts. Transactions can be executed more independently if data input and classifications are done accurately. Some organisations have already started using AI to classify spends and introducing internal controls. Even contract compliances can be tracked in real-time using the potential of blockchain and AI.

There is no doubt that the outcomes are considerably huge for procurement organisations. In order to more accurately understand or gauge the future implications, consider the scenario of the past 20 years in the corporate IT departments. Automation only entered IT slowly and subtly without any disruptions. When we talk about 2000, well-paid system administrators in data centres were responsible for IT networks running smoothly. The hands-on work kept on-site servers in check locally. For every 10 servers, there was only one system administrator. But after 10 years, there was just one administrator for every 100 servers. As transformations were brought about by cloud computing and visualisations, the automation processes enabled and aided human effort by doing the most basic tasks including responding to point-and-click problems as well as deploying new servers. Now the systems have only become more independent considering they are self-diagnosing, self-managing and self-repairing.

AI is literally to be found everywhere. It decides when to add more capacity, deploys new servers, fixes broken machines, tracks usage and spots troubles sans human effort. And the ratio of system administrators to servers is one to 35,000. Few system administrators are there for automated systems who are still keeping a tab on the work that was used to be done. It is not wrong to say that system administrators with high-skill and lucrative careers have lost to the technological progress. Procurement is set to meet a similar fate as information transparency and automation continue to expand in almost all categories such that organisations now hold an edge to coerce vendors to adopt new technologies. The future is bleak for procurement workers on the lower end of the scale who specialise in reports, basic negotiations and writing statements of work. Software is all set to take up these jobs for organisations in real –time in a huge way.

This is anticipated to bring a change in talent needs as employment levels shrink and look for individuals who can work across functional boundaries and can solve issues. This will change procurement’s focus to categories where suppliers have an upper hand because there would be a demand for skills like managing negotiations and alliances as well as rethinking specifications.