A new study by SAP and Oxford Economics on managing procurement spend finds that the discipline is well behind the curve in shedding manual processes and embracing automation. Only 23% of procurement and supply chain executives said they’re able to gain a clear view of their overall spend automatically and in real time. In this conversation with SupplyChainBrain Editor-in-Chief Bob Bowman, John Wookey, president of Intelligent Spend and Business Network with SAP, describes the progress of automation in procurement, and what must be done to speed it up.
SCB: Whom did you survey for this study that SAP conducted with Oxford Economics?
Wookey: It was over a thousand organizations, leading executives from supply chain and procurement across a variety of industries on a global basis.
SCB: The findings aren’t especially encouraging when it comes to the degree to which these companies have embraced various aspects of automation. Why do you think the results were so relatively poor?
Wookey: That’s probably the great question for all of us to answer. Over the last few months, I've talked to a lot of chief procurement officers and supply chain executives. One of the interesting things that came up as part of the pandemic and subsequent lockdowns that happened last year was an understanding of the criticality of the supply chain on a global basis, and of procurement within that. If you talk to CPOs, there's a lot more support for looking at procurement as a corporate-wide requirement and opportunity. In many businesses, it’s controlled by product development. In a pharmaceutical company, for example, the people doing the drug development are the ones driving the overall strategy. They want to optimize everything to their specific requirements, which means that in many cases each of these areas would have their own procurement practices and technologies. CPOs would try to do their best at a global level to integrate, coordinate and align, but in the end it was the product developers who were making the decisions.
SCB: Is the situation changing now?
Wookey: There’s a lot more interest and support for moving to more global processes. That means gaining the ability to look at the broad requirements of an organization — think about ways to support the business while at the same time put more consistency and standardization into procurement processes. The idea is to create more supply chain resiliency, and the ability to adapt when marketplace conditions change in a way they hadn’t anticipated. In some ways, the crisis has created more awareness of how fragile these systems were, because they were so fragmented inside of organizations.
SCB: Looking specifically at process automation, 38% of executives say that most or all of their procurement processes are manual. We've heard so much about the need for supply chain digitization over the last year or so, and yet a substantial number of processes still aren’t automated. Why is that?
Wookey: Part of the reason is that the different business areas had a lot of autonomy over how they chose to invest in procurement. For them, using manual systems was easy and flexible. Employees bought what they needed for whatever reason. Each business unit was left to make its own decisions, and the centralized procurement function often would be looked at as a service center that an organization could choose to use or not use. Increasingly, people now see that their ability to apply procurement on a broad, strategic level is hugely undermined by having manual processes. That was really exposed over the last year. Although everybody recognized it before, the pain just became more acute.
SCB: Many companies in the survey revealed that they've been slow to adopt artificial intelligence. Why is that?
Wookey: Talking about AI when you haven't completely automated your systems, or are using a different procurement system for every product area or geography, is like working on your Ph.D. when you haven't graduated from high school. There are two key things you need to make AI work. The first is data. Without integrated data that’s consistently represented, it's very difficult to build algorithms using machine learning and AI technology. The second question is more intriguing, and is true for AI everywhere, not just in spend management: What question are you trying to answer? With AI, like a lot of next-generation technologies, there's always a two-wave adoption curve. Wave one tends to be about incrementalism. Where I think AI becomes more interesting is when you reformulate the problem statement and say, "If our objective is to have a more balanced sourcing process in terms of supplier diversity or environmental impact, how should we think about a system at that point? And how do we employ the patterns in our data to help answer those questions?"
AI requires a tremendous amount of discipline, with truly integrated systems and a volume of data that will make the learning algorithms work properly. The real opportunity around AI is to solve a much broader and more interesting category of problems than we've ever done with traditional systems. Frankly, that just takes time, both for the marketplace to understand the kind of questions they'd like to ask, and for technology practitioners to deliver the answers.
SCB: So how is AI being deployed today?
Wookey: We're doing some really interesting things in AI in a couple of areas. One is strategic sourcing, where we're starting to use it to become more intelligent about how auction events are created. We're also using it in some areas of fraud detection around expense management and receipt verification, which is typically a very manual process.
SCB: The whole discussion seems to be kind of a chicken-and-egg proposition. Do we have to break down functional silos in order to make use of this technology? Or do we have to acquire the technology in order to break down silos? What comes first?
Wookey: There are three parts of the plan. Part one is how CPOs and supply chain leaders are aligning their spend-management strategy with the business strategy. CPOs are saying, "Here are the challenges our company has. Here's our ecosystem strategy. Here's how we think about the market in the future, and here's what we need to do as an organization to make that happen." It starts with that.
The second step is to paint a vision of where you would like to be in your global procurement processes. You need an integrated system, but that doesn’t necessarily mean there’s just one. It may be a federated system, built around a set of agreed standards and processes so that you still allow agility in the businesses, but it's done in such a way that you have visibility of your supplier risk profile on a global basis, you understand your best supplier performance, and you know how to integrate them into your processes. You need to build a picture of the end state.
The third and hardest piece is asking, “What are my steps to get there that add business value every single step of the way?” You don't go from fragmented silos to one system in one step. Almost invariably, you'll have one or more businesses that actually have good procurement technology, and have done a pretty good job within those groups. Then you start asking, "Where are the logical adjacencies where we get the most immediate value by bringing other businesses into this model?" You work through a stepwise process of moving from many to one along the way.
Another challenge is that many customers are trying to go from customized, homegrown systems running on-premise to cloud-based systems. That creates another dimension. But those three steps that I talked about — align to business strategy, build a plan for where you want to be in the future, and build a logical plan with the steps to get there — are the three key things I talk to folks about all the time.
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