Disruptive Technologies in the Procurement Function
A couple of weeks back I was lucky enough to be part of an Alchemy Club event where senior Procurement execs came together to discuss the future role of the CPO. The Club hosts regular events, merging business with pleasure, championing free-thinking and industry-advancement. Led by our Chair, the brilliant Peter Smith of Spend Matters, guests explored the idea of how CPOs should respond to the disruptive technologies headed their way. The debate touched on AI, Machine Learning, how to respond to changing expectations and where the procurement function can add value. In this blog, I’ve tried to capture the discussion from a high level. As dictated by club rules, all quotes have been anonymized and no idea is attributed to any one person.
THE DISCUSSION TOPIC
The CPO role today is barely recognisable from the same position 20 years ago.
Wider automation and the emergence of intelligent technologies will further alter the role of the CPO. As more processes are automated, increasingly we’ll see responsibility shift to the budget holders, aided by machine learning technology such as guided buying.
Technology-driven efficiency increases could lead to procurement focusing on higher value strategic work – but do we really understand what that new role will look like? Have we got the right people to deliver the necessary value? And do we have the right tools, data and information?
Over the course of the evening, we were asked:
- What will be the role of the CPO following increased digitalisation?
- Why are some CPOs slow to embrace change?
- And, is it possible to thrive as a CPO without adopting new technologies?
To kick off the debate, our Chair for the evening began by asking: what is digitalisation going to do to the procurement function?
Our chair for the evening was Peter Smith, Managing Editor of Spend Matters. Since 2010, Peter has been Managing Editor of Spend Matters UK/Europe, read by thousands of procurement professionals and a leading source of procurement information, analysis and insight. He is also involved with Public Spend Forum, an initiative aimed at improving public sector procurement globally. Previously, Peter has been Procurement Director for Dun & Bradstreet Europe, the Department of Social Security and NatWest Group. Peter has advised public organisations such as the Office of Government Commerce, the UK National Audit Office as well as a range of private sector firms. In 2003 he was President of the Chartered Institute of Purchasing & Supply.
Blasé about automation?
Peter, our Chair, began the evening by calling on our club members to go further and faster in defining what the future skills, activities and roles of the CPO will be.
“We are quite blasé about some aspects of automation,” said Peter. He took us back to his first job in procurement when he had to complete a six-part carbon paper form to make the point that we are all now digitised in some ways.
“Some of the things that are coming are obvious,” Peter told the group. “For instance, electronic invoicing is really just a question of timing. If you were starting a business from scratch today, you’d start with electronic invoicing. It’s a question of when, not if.”
However, Peter also made the point that “when you look at the core procurement role, it gets more interesting about where it’s going to go.”
Artificial Intelligence and machine learning
Peter argued that the next big change will be in AI and ML; suggesting these technologies could help at every stage of the core sourcing process.
“What won’t change,” said Peter, “is the fundamental premise of what procurement is about at an organisational level. Procurement is about how we use external markets and suppliers to generate competitive advantage for our businesses – or, in the public sector, to deliver policy objectives – and that’s not going to change… what will change is how it’s done and who does it.”
New roles for the procurement team
One guest suggested their three-year goal was to use technology to replace all the repetitive tasks, saying: “Anything you can put together into a workflow AI will probably be able to do as well, if not better.”
“What’s left?” asked another guest, “We need a bit of perspective on that.”
The notion that technology will free procurement professionals to concentrate on more strategic work was challenged by our Chair, who suggested it is more likely the CEO will just want the job to be done with half as many people.
Our Chair asked, “What activities is procurement actually going to do? What are the skills we’re going to bring that the budget holders and the line managers and the CIO, the CEO and the factory manager can’t do for themselves because they don’t have the technology? What do we need to do to persuade the CEO that procurement really can add value?”
The possibilities of data
One guest raised the potential of AI and data analytics, outlining how it is helping him to optimise strategy, people and how the business takes advantage of technology.
Our Chair shared another example of a sourcing centre of excellence that was using data-driven analytics to power procurement process improvements. For example, it knew the best day of the week to run an auction and the optimum number of suppliers to have bidding on an RFP.
However, another guest argued that “it is not as simple as taking the lowest tender and accepting that is what will drive business value. We need to look at the question commercially.”
This is the future role of the CPO, suggested several of our guests.
“It is the sourcing and engagement with suppliers,” proposed one guest. “Educating people about how they proscribe: is that the right question you’re asking? Being that internal provocation that asks: is tomorrow going to be the same as yesterday?”
The future role of the CPO
“We can’t just fulfil someone’s procurement needs and then say it’s their problem if it doesn’t deliver value later on… I have that internal responsibility not just for the procurement process but for value creation,” said one of our guests.
“AI isn’t going to add value to relationships at the top,” came the agreement.
“But say I’m the CEO and let’s say I buy the importance of that relationship building in terms of adding value,” challenged our Chair, “why should procurement do that? Rather than me as the CEO? Or the CIO? Or the line manager, or whoever?”
“That’s why we need to grasp that understanding and lead with it,” answered a guest.
While there was a recognition that commodity spending is important, there was general agreement that it represents only a small part of overall spend.
“Complex services are the most interesting part of procurement,” said our Chair. “and I can’t see Amazon doing that.”
He asked whether negotiation would return to being the major part of procurement again.
A guest thought, instead, that the governance role will take on greater importance: “I see that coming from our customers, who want to know our policies around sourcing, anti-slavery, etc. But just issuing policies to suppliers isn’t enough; we need to be more proactive with governance and, with that, we’re going to have to have a smaller supplier base.”
The group debated the role of benchmarking, the sharing of external information and the need for blockchain to validate this data – and how this could save millions of man hours of effort, particularly when onboarding suppliers and, most notably, when onboarding auditors.
Overall, there was agreement that where technology could help us to use resources more wisely, we have to use it – with the CPO developing the procurement team so they can focus on more qualitative measures and value-add.
The Alchemy Club unites Chief Procurement Officers, Procurement Directors, and other senior procurement executives from companies including Pearson, Essentra, Unilever, EDF Energy, Virgin Media and select others – on this occasion at Covent Garden Hotel, London – to discuss how procurement must evolve. During the evening, we considered many more aspects of technology and procurement strategy than I can cover here. To gain the in-depth insights from which the guests benefited, book your place for next time via the Alchemy Club website: www.alchemyclub.org