Why Strategy, not Just Technology, is the Real Driver of Procure-to-Pay Innovation
Wednesday, 18 Oct 2017
Senior Product Manager
It’s not often you hear from someone who works for a software company that software is not the answer to everything. But that was precisely my opening gambit as I addressed a packed room at last month’s eWorld Procurement and Supply event in London. The session covered today’s key tech trends, how to make technology work for procurement, and why organizations should lean harder on their software vendors to help build an effective long-term strategy.
Separating the hope from the hype
There are four dominant pieces of jargon flying around at the moment – RPA, AI, ML and IoT (not to be confused with teens’ chat and text message shorthand). It’s not always easy to see how these technologies can be applied in the procurement sphere, so it’s worth tackling the terminology first.
Robotic Process Automation is the use of software “robots” to automate repetitive processing tasks that involve transferring information between systems, like opening up an email attachment, extracting information and putting it into an ERP system.
Artificial Intelligence involves the development of computer systems that can perform tasks usually dependent on human traits, such as speech recognition, planning, problem-solving or strategic reasoning.
Machine Learning is the statistical arm of AI, and uses algorithms to process huge amounts of data to help computers “learn” to do things without being explicitly programmed, such as spotting patterns within data or predicting outcomes.
The Internet of Things is a network of objects that use embedded sensors and an internet connection to “talk” to other web-enabled systems, enabling scenarios such as automatically placing orders when inventory falls below a threshold.
Associated with these technologies are the mega-trends I talked around, which no procurement organization can afford to ignore:
Cloud services with data
Cloud is now the de facto way we provide our software, because it makes sense for the vast majority of business users, and indeed Basware itself is moving to the cloud. When we talk about cloud agility, what we mean is that businesses can get what they need faster – whether that’s adding new services or users, deploying upgrades, or consolidating data for analysis. We are now able to work within far narrower timescales than ever thanks to the instant-on nature of cloud services.
Contrary to lingering perceptions, cloud providers typically have better security practices and tighter data policies than most on-premise data centres can realistically achieve. They also tend to attract the best minds in cyber security industry, which is in itself a ringing endorsement.
The Internet of Things in procurement
Interconnected “things” – the systems, devices and suppliers your people use – can give you greater visibility into the needs and activities of your business. At a basic level, approving an invoice on your smart phone and seeing the reconciliation in your ERP system is an example of IoT in practice.
Beyond that, when your sourcing tool can talk to your procure-to-pay system, all this data can flow through an analytics tool which can generate insights about your customers, suppliers, employees and purchases. Knowing exactly what is used and the ability to predict what will be needed can give your procurement team a clear direction to improve catalogue content, spend management, and budget and contract management.
Robotics and automation
RPA, ML and AI represent a continuum from reactive to self-aware. Or, put simply, from systems that do, to systems that learn, to systems that think. It’s a bit like the difference between a car with rain sensors automatically turning on the wipers, and the autonomous vehicle which anticipates and avoids a collision.
Organizations are currently investing a lot of time and effort into RPA, which replaces or replicates repetitive human actions (freeing up people to do more purposeful work, by the way, rather than eliminating jobs wholesale). But these systems can only work with structured inputs and hard-coded business rules, so while they meet the brief for doing what you do already faster and more efficiently, they don’t spur real innovation.
Systems that learn use historical data, including unstructured data, in combination with embedded algorithms and logic to improve future decision making, and their performance gets better over time. Systems that think, based on artificial intelligence, go a step further by understanding context, making predictions and executing processes that are highly dynamic, adapting the rules in response to changing variables.
During the session, I took a quick poll among the audience by asking for a show of hands. While around 70% of those assembled claimed to have analysed their procure-to-pay systems and strategy and thought about these technologies, only a single hand went up in agreement that technologies like artificial intelligence could benefit their source-to-pay activities. So where is the message getting lost?
Potential vs. realised value
There are two sources of ROI: one is the actual savings you see on paper, show to your board and say “See! That investment was worth it – those paperclips are cheaper!”. Then there are the hidden pockets of savings that take a bit more finesse: sourcing, supplier management and contract management. It’s all very well having beautiful KPIs that show how much you’ve potentially saved through astute sourcing. But just because you negotiated better prices doesn’t mean your employees are using those contracts when buying.
The key to realised value throughout the chain is not simply to have an integrated source-to-pay system, but to get everyone using it and everything going through it. That means adopting 100% of your suppliers, capturing 100% of your spend, automating 100% of your invoices, and making 100% of this activity visible through analytics. Only once you have all your financial data in one place can you begin taking advantage of innovative add-ons like predictive or prescriptive analytics, robotics and AI to multiply the ROI.
To bring this concept to life, imagine that you are looking for a new paper supplier. Can your current technology tell you:
How much you spent on paper?
Who made the highest volume of purchases?
What are the high volume periods?
How many invoices were higher than the original PO amount, and by how much on average?
Where was the paper delivered to?
What is the average delivery time?
And what if that information could be applied to make better decisions in future? You could negotiate better overall pricing by indicating spend volumes with greater accuracy, or determine a better payment option, perhaps using discount tools and e-payments to maximize your working capital based on the risk in your past payment history. Or you could ensure your contract has a warehousing option, allowing you to buy paper at the best price in anticipation of peak demand, then call down the warehouse inventory first through your purchasing tool.
Building a lasting strategy
Technology is the golden thread that stitches everything together: analytics to support end-to-end visibility; supplier metrics to monitor performance across the wider network; tools to maximize working capital and identify the best route for any given category or supplier; insight-based guidance to steer employees towards what to buy and how to buy it.
But centralized data is the foundation for building a robust, long-term technology strategy. If you’re not capturing 100% of transactional data, machines can’t learn, artificial intelligence can’t think, and analytics can’t predict or prescribe what happens next. And it makes no difference what kind of capabilities you deploy unless all employees use them, which means any solutions need to offer a familiar, intuitive, consumer-style shopping or user experience on any device.
Putting your technology investments to work for your organization means leaning on your software vendor partnerships – working with companies like Basware and people like me. You bring the business problem, then it’s our job to figure out a long-term strategy to solve it. While continuously evolving, the technologies I’ve covered are here to stay – it will be a matter of when, rather than if, you harness them for competitive advantage. We’re here to help you look at procurement technology beyond the tip of your nose – to transcend the short-term re-engineering of processes, fixing of screens or handling of email attachments – and equip you with the vision and know-how to lead real procure-to-pay transformation.
Read more about trending technologies and the implications for procure to pay in our whitepaper, 3 Disruptive Trends for Finance & Procurment.