Supply managers oversee an enterprise’s expenditures, with dollar amounts exceeding millions. Responsible for an ever-growing overload of data and complexity, these managers enter the negotiation process with suppliers facing the likelihood of leaving savings on the table. That’s because these managers lack visibility into the data stream created by a growing number of global suppliers. With the stress of knowing the logisitical information of on fleet movement, tracking warehouse inventory and balancing the amount of detail against the gross margin savings demanded by the CFO, it’s no wonder procurement managers lay awake at night.
Consider the toolkit that sourcing teams typically rely on. They seek to gain leverage and gain ground during infrequent negotiations, armed only with manually crunched spreadsheet data, outdated forecasts and personal relationships. This is an inherently reactive process that lacks insight into fast-changing business intelligence that exposes managers to unnecessary risks.
What if it could be different? What if procurement managers could uncover the kind of savings associated with innovations driven by operational and capital investments? That world is upon us. Cloud-based AI cognitive tools are transforming the practice of global procurement in substantial ways.
Here are the key ways applied AI analytics can transform inefficiencies into opportunities:
Conduct ongoing negotiations. Procurement managers must weigh the costs of negotiating against perceived benefits. Every deep dive into supply chain data requires time and resources, often limiting the process to a yearly event. Cognitive computing culls insight and analysis on a daily basis. These tools empower managers to work across department silos and collect spreadsheet sales and accounting data without having to crunch the numbers for weeks. With such easy access to business intelligence, a procurement manager can enter into contract negotiations far more frequently.
Obtain a competitive advantage. In the manufacturing realm, the digital revolution enables supply managers to undertake strategic sourcing by using tools that cull profit-and-cost insights from terabytes and petabytes of raw data. Managers can obtain real-time data on different global supplier markets, gather enterprise data and community-based information and act on variable pricing as it changes on a daily basis. Price reductions on sourced commodities make a real impact on the company’s bottom line.
Remove the guesswork. The industrial world has grown too complex to just rely on experience alone. Augmented intelligence tools seek fresh patterns while processing up-to-the-minute community data, market intelligence feeds, procurement cycle time and economic performance by sector. They can automatically alert managers by providing updated benchmarks by commodity, supplier or corporate level. After all, benchmarks are not static. They are derived from market assessments made in real time.
Targeted actions. Consider the procurement officer who accepted a 3 percent price reduction from a mechanical supplier over several years. AI benchmarking data revealed a widely accepted 5 percent savings for this sub-commodity. Data-driven insights will quickly improve any manager’s ability to find savings throughout the enterprise’s spend.
Eliminate data blindness. Managers can be handicapped by the lack of sufficient data and not even realize it. Cost-saving opportunities may be buried in details that track compliance, quality, delivery or cycle time within the managed spend. Savings can be captured from market conditions or suppliers outside normal review. Like finding the proverbial needle in a haystack, augmented business intelligence zooms in on these hard-to-see targets, providing new discussion points for procurement managers during negotiations.
Earn a seat at the table. Oftentimes, the company’s CFO hands down cost reductions based on a gross margin percentage of past results. Procurement managers use this target to execute the supplier side strategy in the new fiscal year. A better way is to use cognitive computing tools to set expectations within the company. Procurement managers can change the dynamic from taking reactive steps to keep supply chains moving to making intelligent predictions and forecasting. When sitting down with internal stakeholders, supply managers can use AI-enabled business intelligence to provide context and justification for actions. Managers can spot early indicators, discuss strategy and take proactive steps to mitigate risks.
The purchasing department has a significant impact on the financial success of an organization. Whether one is conducting internal negotiations with stakeholders or having external discussions with suppliers, access to deeply sourced data upends the status quo. Harnessing the power of Big Data gives procurement managers the ability to deliver material impact for their company. When accurately deployed, strategic insight is heroic. Performance on this level earns procurement managers a place at the table, crafting strategy for the year ahead.
Rajesh has over 12 years of experience managing strategic sourcing and supplier management for multiple commodities and third-party manufacturing operations. He’s delivered significant bottom line savings through data-driven procurement practices for Cisco and Palm. An MBA with concentrations in supply chain management and information systems from Michigan State University, he is a thought leader on fusing human with artificial intelligence for procurement innovation.