When it comes to modern-day technology tools, procurement officers have a wide variety from which to choose. Walter Charles, vice president and chief procurement officer with Allergan, lays out the most valuable options for driving better outcomes.
Q: What are some of the tools out there that can help procurement officers to do a better job today?
Charles: There’s a raft of tools to solve almost any problem that you would be confronted with in a procurement space. I tend to focus on those tools that drive the most impact, the source-to-contract work. That gets down to a pretty narrow group of players. Ninety percent of the value is created for procurement when we're doing negotiations.
Q: How do you get your arms around all of the possibilities that might arise from a supplier relationship?
Charles: The lawyers will give you a standard template that's probably 80 pages long, and has all of the stuff that you could possibly imagine. It isn't that difficult. When you talk about the permutations of choosing multiple aspects of how you construct the deal, though, that's where you get more complicated stuff. So we use optimization engines at our business.
Most procurement teams use Excel today. It has limitations in terms of being labor-intensive, extraordinarily slow to get to insights, and unable to handle very large data sets effectively. There are big-data analytics engines now that can help you unlock the value in those deals, and figure out the combinatorial math problems so you can select the right number of options to get to the best outcome.
Q: What about the challenge of supplier onboarding? Is there an applicable technology that helps you?
Charles: No. With onboarding, whatever the contracted term is, it's a pretty trivial task. There's some value that can be unlocked in continuous day-to-day management. But again, 90-plus percent of the value created by procurement is in the negotiation interface. There's a lot of stuff for CPOs to consider in the first 100 days. If you're not driving impact there, you're probably not going to survive the long journey.
Q: What kind of technology helps you to monitor the supplier’s performance on an ongoing basis?
Charles: There aren't any really good holistic solutions yet for supplier monitoring. If you charted supplier compliance, you'd find your folks delivering 99.9 percent of the time. The challenge is that one-tenth of a percent, which is driving millions of dollars worth of lost revenues that you don’t have visibility of. The best tools are exception-based. They only address the stuff that's material.
Q: How has management of the multi-tier supply chain been enabled by technology?
Charles: We’ve used a number of different tools. But you still have to go through the arduous task of mapping your supply chain down to the point of origin. And you've got an adoption challenge. The question is, how do you get people that you don't have a financial relationship with to disclose where they are, and how best can they support you in your supply chain? How do you manage stuff that’s two or three tiers removed from the sourcing problem? Seeing it is one thing — being able to take action once you see it is the challenge.
Q: Blockchain has been touted as a solution to some of the things we're talking about today in terms of the creation of so-called smart contracts. Do you see that as a future solution?
Charles: I see the potential of a future solution. There has to be an ecosystem beyond just the technology solution provider. As both the technology and ecosystem around it mature, it has the potential of meaningfully disrupting the standard order of how we do things. Contracts will be embedded in a technology solution, people will agree on what they'll pay and what that transaction needs to look like, and the transaction will flow reasonably simply. No checks and no banks, except at the back end when you need to cash out. But we’re not there yet.
Q: What about artificial intelligence? Can it replace human judgment? Can it handle the big data that supposedly is required to make supplier evaluations?
Charles: I believe A.I. is going to be a material disrupter. It's going to fundamentally change what we do, how we do it, and whether there's a human interface. Imagine asking Google Home Assistant, "I just did a bid three years ago in labels. It had 450 million data elements. Tell me how many of those SKUs have a forward-looking volume associated with them." And it might respond, "Seventy-fix percent of that is already done. Would you like me contact suppliers and get that done for you?" It's coming.
Q: For procurement officers who might be intimated by this raft of technology options, where do they start, and what should they be thinking about?
Charles: You start where your biggest spend is. I started in the source-to-contract journey. [In the future,] there will be an enterprise procurement platform that will tether not only big data analytics on the back end, but also supplier discovery and next-generation supplier discovery tools on the front end. It will fundamentally change how sourcing gets done.
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