News & Activities
Why Procurement Is Not Advancing To the Next Level

Global competition has changed the way executives value the improvements reached by Purchasing and Supply Management processes. What are the benefits? Many: A more competitive Supply Chain (SC), improved-product development, plus the low-cost advantages related to sourcing from other countries, and quicker times to market, to mention a few.

However, a shortage of talent, the lack of alignment between purchasing and other areas within the company, as well as with far-reaching-company strategies, or fragile or mistaken aspirations, all of these inconveniences disrupting the attempts of countless businesses.

A global survey carried out to Procurement executives puts forward that the function of purchasing has not advanced far enough to move it to the next level and integrate their actions closer to their internal customers; some purchasing units have achieved sustainable cost reductions in areas like Marketing or Health benefits; some others use purchasing as a facilitator for innovation.

It is difficult for almost all enterprises to reach their full capability in Purchasing and Supply Management. Top purchasers must embrace a more thorough attitude towards talent byways of modernising and elevating the Procurement skills in their companies, studying better ways to link employees inside their businesses working together to sharing-collective purposes.

The main problems restraining Procurement

Low aspirations and transactional mentality are big, common problems.

When enterprises fall short to encompassing purchasing in the initial stage of strategic planning, affect the entire business.

To stay behind in your efforts to include product innovation, widely embraced by the competition, due to the company purchasers single-minded focus on price, resulting in a lack of collaboration.

Lack of collaborative work; a poor alignment with other areas of your business, especially to the Finance-group priorities put off the savings and avoid accomplishing the company goals.

How do we achieve it?

  •     Executives have to set the grounds to enhance the course of action to intelligent Procurement.
  •     Companies should set high objectives to maintain the equilibrium between their insights in the business and a bright outlook on how to reach it.
  •     Top purchasers should put particular importance to line up their sourcing efforts in detail with tactical business goals.
  •     Do not overlook the importance of talent, so hire purchasing managers with the right knowledge and better understanding of their customer’s demands.
  •     Support better Procurement management, grasping basics skills to get significant savings and extra benefits. It should be a priority.
  •     Procurement needs to benefit from cost-saving possibilities and higher profits in this globalised market.
  •     Extend the influence of Procurement within the organisation by strongly linking its activities to those of its internal customers, product developers, and other functional groups, to discover new ways of adding value.
  •     Extend your Procurement activities into not-noticed sections in the past or areas that have shown to be too complex to optimise.
  •     Contrast the company capabilities against those of outsiders to identify possible outsourcing partners and afterwards, managing the developing of such relationships.
  •     Consider a government agency where purchasers can help the Human Resources (HR) staff to standardise the agency-benefit plans against alternatives.
  •     Team with HR to develop and evaluate different possibilities side by side, and to test their interest to the staff previous to implementing any new strategy.
  •     Procurement execs bring to the project their analytical know-how, their skills in evaluating suppliers and reaching a deal with them, while HR legitimate the new design.
  •     Introduce systematic performance metrics, and designed an autonomous general-counsel agency operated by expert lawyers in purchasing fundamentals.
  •     Work closely with others inside their companies to experiment and improve the way they distribute products or services to market.
  •     Sharing a supplier improved the relationship between two business units.
  •     Support the goals of other well-designed groups. Some companies already use sourcing hubs in low-cost countries as the strategic site to produce extra sales in those markets.
  •     Procurement head should team up with the Sales unit to work out a way to handle the list of items consumers check to bring in incomes and diminish the risk of supply interferences linked by significant elements.

Strengthen the innovative Procurement

Purchasers operate as an essential connection between a company supply base and the rest of its content chain to make a significant improvement on its large-scale goal to source a high proportion of its merchandises from external businesses. For instance, Apple ties together its supply base to outsource much of the development of the hardware and software of its devices.

The approach to innovation of an enterprise it must echo its strategy, industry, and its competitive standpoint too, and in the long run, liberate the precious time of the operators who use such tools, and who could then stand up for a significant expansion of the factory.

Conclusions: Although several organisations are giving considerable strides to take Procurement to the next level, no one has reached its maximum capacity in all area; still, these purchasing standouts detaching themselves from the crowd, can offer insights into the skills and tactics of Procurement, necessary for getting wide-ranging achievement in purchasing. Take your Procurement to the next level!

Source: https://procurementandsupply.com/2019/08/why-procurement-is-not-advancing-to-the-next-level/

Managing In A World Of Ambiguity

We are living in a world where it is easier to identify something is happening than to explain why it is happening. Customer inclinations turn out to be more incomprehensible, changeable and ephemeral. All the more, so B2B buyers’ lifestyle is shifting. The customer’s expectancies concerning speed, the comfort of use, personalisation, service and technological complexity, are being redefined by platforms businesses use.

Ambiguity means a lack of clarity about how to understand something. A state of affairs is ambiguous, for instance, when info is unfinished, opposing or too incorrect to make clear decisions. Moreover, it indicates unclearness and uncertainty in concepts and vocabulary.

Ambiguity means that sometimes, you will make the wrong decision. However, being an efficient business person is about making more right decisions than you do wrong. Making errors means opportunities so that an open-minded working will bring better outcomes.

Technology can help enterprises deal with Ambiguity, crisis data and get granulated on a particular aspect. This data will not make sure that everyone depicts the same closing. Leaders should generate the conditions where info can be cross-examined from different view-points; but data will help clear up the concerns, bring about a factor of objectivity into a subjective discussion, and notify decision-making.

How do you manage and reduce Ambiguity in the workplace?

  •    Outline the framework.
  •     Recognise your staff.
  •     Provide transparently and to-the-point commands to your teams.
  •     Make conclusive decisions.
  •     Provide coaching on resilience and self-reliance.
  •     Generate a tolerance for Ambiguity to operate effectively in an uncertain environment.
  •     Check your labour force take their holidays and lunch breaks.
  •     Animate a complete awareness (Mindfulness in your enterprise.
  •     Clarify what you have to offer from the very beginning.
  •     Generate a significant and useful website.

Do your statements express clearly what the strategy is?

The direct answer to Ambiguity is clarity. It means trying to get an as clear as possible picture of the world around you, thou it is often hard to get. Make sure your strategy is clear. However, what you can do is making sure that your plan is evident.

Many strategic plans statements are designed to be open to several analyses. More often, that no, strategies are even kept ambiguous on purpose. What you achieve by doing so, is you could allow others to contribute their considerations on it. Another use is that keeping your strategy ambiguous makes it harder to held responsible for whether or not the approach was accomplished.

So, we need a Strategy making it a qualitative, descriptive activity in which a strategy is captured in words, figures and pictures, necessary for gaining clarity.

Words help express tone and make clear one’s views, while numbers help express exactitude and accuracy. By quantifying things such as for comparison, rating, and ranking, we must be clear and specific about what we are attempting to say. It supports us to express, for example, how much better/worse is one opportunity compared to another, or how important/unimportant a particular resource is for the business.

Final comments: lack of clarity is of a tremendous negative consequence towards effective strategy creation and performance. To efficiently tackle Ambiguity, the ability to merge qualitative nuance with quantitative accuracy is a decisive necessity for strategy. The main benefit is the level of clarity.

Source: https://procurementandsupply.com/2019/08/managing-in-a-world-of-ambiguity/

The 3D dynamic procurement strategy model

I recently came across the “bi-modal capability” concept by Gartner that assumes the co-existence of two approaches to creating and delivering business change.

Mode one being the traditional factory-like (waterfall) approach to regular tasks based on accuracy, reliability, and stability; and mode two being agility and speed-based approach to innovation tasks.

In the IT industry, such concepts differentiate fairly standard backend systems (infrastructure, legacy services, etc) from configurable and highly dynamic frontend ones (apps, UX, data and content).

Furthermore, to support the bimodal IT organisation, Gartner suggested the adaptive sourcing model, in which IT services are layered into three environments: innovate (fast/agile concept testing), differentiate (business process optimisation and transformation), and run (production). Each environment involves different stakeholders, sourcing options, and suppliers.

I assume this model works perfectly for indirect procurement. We are running diverse categories, some of which are standard and routine ones and measured by materials availability and cost reduction. Others relate to highly demanding customer-facing clients (eg, marketing), where you need to constantly differentiate and fast-track to respond to market trends. Finally, in the constantly increasing race for innovation, our companies engage in ideation campaigns, challenges, incubators, where legacy sourcing practices don’t work. Generally speaking, many of us already work in the de-facto “adaptive sourcing” environment.

To work on this a bit further, I propose the following 3D dynamic strategy model.

I assumed that three axes “Innovate”, “Differentiate”, and “Run” form three planes, where we can place three critical procurement deliverables – Value, Relationships, and Processes/Systems.

Usually, the value is achieved through improvement of existing practices (Run) and development of unconventional ones (Innovate.) Processes and systems require differentiation (eg, for different user groups) and innovation for the further development. Relationships need to be maintained (Run) and could be differentiated (eg supplier segmentation).

So, we formed this simple model and can use it to visualise our strategy. Let’s assume that triangle has a constant area, so you cannot simply enlarge it, and each upward move of any of its points results in different moves of other points (including downward ones).

It is suggested to fix at least one point of the triangle, as having all three moving points would increase the dynamism to an uncontrolled state, where each move creates sudden changes across the model.

Currently, it is hard to imagine innovation freezing, and the constant search for new efficiencies and values makes it hard to stop the operational improvement (Run.) Therefore, most likely you would stabilise the state of differentiation. Otherwise, further relationship improvement would occur at the cost of customisation of processes and systems.

So, we can fix the point on the Innovate axis and view the changes on two other axes. For example, if we’re to increase the innovation, then the triangle starts moving downwards on the Run axis and the value element related to operations (Run) could deteriorate, while the innovation value increases. Relationships with critical suppliers could also suffer, as you’d start putting more efforts into developing their startup rivals. Conversely, too much emphasis on improving existing operations would result in upward motion on the Run axis and a degradation in innovation.

Alternatively, you could fix another point of the triangle and see how the other two are moving along with your strategic theme (eg, stabilised operations and increasing differentiation to please your customer-facing stakeholders).

I would propose this model as the possible visualisation of your procurement strategy.

Source: https://www.cips.org/en/supply-management/opinion/2019/july/the-3d-dynamic-procurement-strategy-model/

How the digital revolution is changing logistics

The world is changing before our eyes. Wherever we look, technology is transforming how we live, do business and interact – and logistics is no exception. From connected warehouses to autonomous last-mile delivery services, digitalization is transforming our industry and making it more efficient and customer-centric than ever before. But what does that really mean for the near future? And, with so many options, how do we plan and prepare?

This is where our Logistics Trend Radar comes in. Based on input from over 10,000 logistics professionals and technology experts, this industry-acclaimed tool helps guide strategy and innovation by taking an in-depth look at 28 key trends that are gaining momentum – and set to impact the logistics industry in the years to come.

The evolution of logistics: an industry in transformation

In doing our research, we spoke to a lot of people and reviewed a lot of material. We looked at global megatrends such as digitalization, urbanization, aging populations, and sustainability – trends that will impact the entire industry. We also spoke with start-ups and industry partners about new business models and digital solutions, and with our customers about their future needs and expectations.

The consensus? Digitalization will continue to drive transformation across the industry. And, set against this background, four key elements – customer-centricity, sustainability, technology and people – will define the future of logistics.

Customer-centricity: getting closer to the customer through new business models and solutions

Let’s take a look at the first element, customer-centricity. For providers, this will be key to meeting customer demands for a faster and more convenient logistics experience. As customer expectations increase with the growth of e-commerce, solutions that offer speed, transparency, affordability and convenience – as well as frictionless returns – will become the norm. To stay competitive, logistics providers will have to come up with new business models and customer-centric offerings.

As part of this, omni-channel logistics will continue to be a major trend in retail and beyond. With the B2B online retail market expected to grow to twice the size of the B2C online market by 2021, businesses will also need to intensify their efforts to tap into new online channels. In logistics, key areas of innovation will include the development of flexible fulfilment networks such as FLEXE, inventory visibility solutions, proximity-based cost models for shipping such as Jet.com and new last-mile delivery solutions.

Thanks to customer demand, we’re also going to see growth in direct-to-consumer shipments of time- and temperature-sensitive goods. This ‘Fresh Chain’ as the report calls it, will require new innovations in the packaging, storage and the delivery of goods such as groceries and pharmaceuticals. And, when it comes to consumers’ every day lives, the ‘Connected Life’ trend identified in the report points to the future integration of last-mile logistics services into smart home environments.

Sustainability: becoming a zero-emissions industry

In the past two years the logistics industry has made bold moves to reduce its carbon footprint. Governments, industries and companies all around the world are committing to reducing levels of CO2 emissions and waste. In waste management, policies aimed at ridding the world of plastic packaging will bring about a transition to eco-friendly packaging solutions. In some countries, sustainability efforts will even involve phasing out petrol and diesel-powered vehicles over the next 10 to 20 years.

Having made a major commitment to becoming more sustainable, DHL aims to become a zero-emissions logistics company by the year 2050 and has made significant progress in the ‘Green Energy Logistics’ trend through the production and distribution of our own fleet of StreetScooter electric delivery vehicles.

With global trade on the rise, ‘Smart Containerization’ will also prove to be an important trend. This will see the standard container evolve into a variety of intelligent, modularized formats that allow for more efficient load utilization. At DHL, we are already testing a new format for urban logistics known as the DHL Cubicycle.

Technology: catalyzing innovation with a cost-performance tipping point

New technologies are coming – and faster than ever. Thanks to cheaper sensors, seamless connectivity, predictive capabilities and more processing power, new innovations will enter the logistics industry at an accelerating speed, making supply chains smarter, faster, more agile, and predictive. Key to this is the Internet of Things (IoT). Thanks to falling deployment costs, IoT will increasingly drive technologies such as smart warehousing, real-time transport visibility and predictive delivery to name just a few.

Yet another key technology trend will be ‘Next Generation Wireless’ solutions. Going beyond 5G, WiFi and Bluetooth 5.0, these tech enablers will add scope and significantly increase internet and data connectivity. In technologically mature markets, these solutions will translate to richer content consumption, decreased latency, better real-time processing through edge computing and management of applications in the cloud. Elsewhere, mobile-first internet will provide the solution of choice.

Now an indispensable part of our everyday lives, ‘Artificial Intelligence’ (AI) also has a huge role to play in logistics. Key application areas include back-office automation, predictive supply chains and a new, AI-powered customer experience.

Best known from cryptocurrencies, distributed ledger technologies such as blockchain will remove significant layers of complexity when applied to global supply chains. Although it is still early days, blockchain could potentially add value by facilitating greater trust and transparency between supply chain stakeholders, and by supporting the automation of administrative and commercial processes in logistics.

People: creating the collaborative human-machine workforce of the future

Despite technological advances, people will continue to play a crucial role in logistics. In fact, as the frontiers of human-machine interaction and collaboration are pushed back, new opportunities will arise for human beings. By making it possible to automate a whole range of repetitive, physically strenuous and labor-intensive tasks, the new technologies will allow humans to concentrate on more rewarding work such as programming and management.

With labor shortages, aging populations and heightened demand for rapid fulfilment posing a challenge for logistics providers in many mature markets, these solutions will also help the industry meet growing customer expectations. Further advances in technology and affordability will enable the eventual automation of key logistics tasks and create new roles for humans. But this will also require logistics providers to come up with digital work concepts capable of attracting and retaining millennial talent, as well as supporting the existing, aging logistics workforce.

Source: https://delivering-tomorrow.com/how-the-digital-revolution-is-changing-logistics-insights-from-our-2018-19-logistics-trend-radar/

The Role of Procurement as a Strategic Advisory

The Procurement Function is positioned in a unique place in modern supply chain dynamics. The reality is that if this critical department does not function effectively, today’s businesses will cease to meet customer requirements in a timely and cost-effective manner. Sadly, too many procurement departments are used solely for the tactical aspects of procurement. It is rare to witness procurement leaders sitting at the table where strategic decisions are made.

Imagine what will happen if procurement departments fail to consistently secure the critical raw material inputs, at the right price, on time, and in the right quantities. In many cases, the response to such shortfalls is reactive and primarily tactical, with short term thinking. The ability to put out short term fires in the process of acquiring raw materials and other inputs is seen as the major value of procurement, outside of saving money. This attitude contributes to the procurement function being viewed as second class or “necessary”

Highly trained Procurement Professionals can make a vital difference in the trending attitude towards their profession. The following are ways that procurement professionals can take a strategic advisory role:

1.) Expert understanding of Customer Requirements and Specifications: Organizations exist to create value for customers and stakeholders. Value is relative to the degree of conformance to customer requirements and specifications. The better procurement professionals are at understanding customer requirements, the better they can perform in an advisory capacity to all stakeholders.

2.) Expert understanding of Value and the dynamics of value creation processes:

Value has three components:

  1. There is a conversion or transformation of materials from one stage to the next
  2. All associated activities are done right the first time
  3. Customers are willing to pay for the output or resulting products and services.

Mastery of customer requirements and value as they relate to the procurement function equips procurement professionals with the proper acumen to act in an advisory capacity.

3.) Strategic Alignment: The ability to align the procurement function to the strategic objectives of our organizations is key in procurement acting in an advisory capacity to organizational stakeholders. It is essential that procurement professionals understand the political, socio-demographic, economic, technological, competitive, and industry trends that impact their organizations. This understanding enables procurement professionals to contribute and act in an advisory capacity.

4.) Commodity Advisory Team leverage: Forming commodity teams is the next step after points 1 to 3. Procurement professional should invite their suppliers, external customers, manufacturing, packaging, logistics, finance, and other key stakeholders to join commodity their teams. The objective is to align their procurement functions with all other functions by serving the interests of their associates and advising on how best these interests would be met. The alignment of customer requirements and key stakeholder interests is key. Matters of the quality, price, availability of procured materials are the focal points of these commodity teams.

 

Source: https://www.nextlevelpurchasing.com/news/purchasing-articles/procurement-strategic-advisory

Key factors to consider when evaluating a Procurement Solution

Technology is often seen as the ultimate solution for organizational issues. This is farthest from the truth. The fact is that organizations are systems, made up of technology, people, processes, inputs, outputs, metrics, machines, and environments. The interaction of all these variables must be understood in a greater context relative to the core purpose organizations exists. To create value for their customers and key stakeholders.

The essence of evaluating procurement technology is understanding the intersection and interaction of Business and Technical Requirements. This activity is the domain of skillful Business Analysts. The fact is that very few people of technical backgrounds understand business and procurement requirements and very few people of business and procurement backgrounds have a deep understanding of technical requirements of procurement solutions. A skillful business analyst is responsible for building essential synergies, translation, and understanding of business, procurement and technical requirements.

The following are key factors to consider when evaluating Procurement Solution:

1.) Enabling Customer Specifications and Requirements: Effective business analysis must be conducted to ensure that procurement technologies enable all processes and systems assets to realize a total adherence to customer requirements. Careful solicitation of the nature of these requirements must be made, and solutions must be evaluated on the degree to which they can enable the procurement function to realize customer specifications and requirements.

2.) Enabling the core Strategic purpose of the Procurement Function: All procurement solutions must be evaluated on the degree in which they support the following aspects of the procurement mandate.

  1. Manage Send
  2. Support Operations
  3. Protect their organizations from Risks.

3.) Simplicity, Easy of Use, and Robustness: Business Analysts must assure that all procurement solutions are evaluated for ease of use and effectiveness. This can be realized by requirements solicitation using user cases.

4.) Resistance to Change: The resistance to change must be understood while evaluating a procurement solution. The fact resistance to change is natural and effective strategies must be deployed to get buy-in for new procurement solutions. Change Management Strategies are critical when evaluating procurement solution.

5.) ROI: All procurement solutions must be analyzed for Return on Investment via a complete Cost-Benefit Analysis. ROI must be realized in a short payback period to be worthwhile. It is important to select only essential features or those that enable the procurement function to realize its mandate. This way excess dollars are not spent on unnecessary features.

Source: https://www.nextlevelpurchasing.com/news/purchasing-articles/evaluating-procurement-solution

Eliminating the pain out of Contract Management

The effective management of contract management is a major responsibility of the Procurement Function. Procurement Professionals are expected to protect their organizations from risks related to spend management and the support of operations. The identification of Critical Points of Failure (CPFs), mitigation strategies, and tactics deployed to protect our supply chains from the negative impacts of risks is a must.

Contract Management is a powerful mechanism to realize the required risk management competencies to keep modern supply chains intact. We will be remiss if we do not examine the reason why supply chains exist. Supply chains are the mechanism by which organizations realize their purpose, mission, vision, and reason for existence. Supply chains have supplier selection processes, procurement activities, manufacturing/conversion processes, inventory management and logistics functions. All of which pose significant risks for the modern business.

The following are ways to reduce pain points from Contract Management:

1.) Understanding stakeholder needs and requirements with a purpose: This is the most important factor in removing pain points in the deployment of effective contract management tactics. The key is to identify and prioritizes the requirements of all key stakeholders especially customers or end users. This enables procurement professionals to laser focus and aligns the capabilities of their suppliers in meeting these requirements. All contractual agreements must be underpinned by these requirements as critical targeted criteria. A clear purpose around stakeholder requirements must drive all contract management processes.

2.) Selection of suppliers with Expert Process Capability: This is critical after understanding stakeholder needs and requirements the selection of suppliers with a high degree of process capability and performance is key. High process capability reduces the risk of defective inputs, late deliveries and supply disruptions. This in turn, increases the probability of success in contract management initiatives. Leveraging superior supplier and customer contract management capabilities can be of great benefit in reducing contact management pain points.

3.) Contract Management Skills: The acquisition of contract management skills is essential in eliminating pain points and reducing supply chain risks. Procurement leaders must assure that their staffs can design, implement and manage all contracts under their influence. This is a core element in reducing supply risks, stress points, and reducing the high cost of legal issues.

4.) Technology: Once stakeholder requirements are understood, capable suppliers selected to deliver critical inputs, procurement staffs are equipped with the necessary skills, effective technology must be put in place. These technologies should be robust, easy to use, support stakeholder requirements, and enhances collaboration across value chains.

5.) Accountability: Once the above mechanisms are in place, all supply chain stakeholders must be held accountable. Part of this accountability involves managing supplier performance and the performance of procurement staff. This will require effective contract management metrics and scorecard mechanisms being in place. Non-conformance to contractual criteria must be measured in terms of severity of impact, the degree of occurrence and ability to detect non-conformance and effective remedies deployed to mitigate risks.

Source: https://www.nextlevelpurchasing.com/news/purchasing-articles/eliminating-pain-contract-management

Procurement and Cyber Security

What Procurement Professional Need to Know in 2019

Cyber Security is an at front and center of the modern supply chain thought processes. Procurement Professionals are required to ensure that their organizations are protected from risks that impact their ability to manage to spend and support operations. The management of spend, support of operations, and shielding organizations from risks is the mission of procurement departments, the reason for their existence.

The Procurement Function is responsible for ensuring a consistent supply of raw material inputs to be utilized by their own conversion or manufacturing processes to produced useful outputs, products, and services that customers are willing to pay for. Cyber Threats can be present in all these activities and can come from all stakeholder groups. Therefore, Cyber Threats can come from internal and external (suppliers, partners, customers) sources.

What are at risks at hand? Everything, corporate secrets, mission-critical recipes, formulas, process data breaches, metrics, sensitive customer information breaches, financial data breaches, lawsuits, brand damage, loss of goodwill, crippling supply chain disruption, and so on.

Procurement Professionals must acquire the skills to collaborate with their IT Departments to do the following:

  1. Identify Points of Cyber Attack in supply chain processes which are the most impactful. The key is to understand the severity of threats, the total number of current intrusions, and the ability of current defense mechanism to detect and neutralize cyber threats
  2. Leverage Computer Hardening processes which create buffer zones around IT systems to shield them from cyber-attacks. A major component of this is to ensure that all activities that do not create value for a business should be curtailed to reduce the probability of cyber-attack
  3. Audit supplier cyber security capability to determine the degree of risks they pose to the buying organizations. Audits include supplier selection processes and ongoing performance monitoring processes
  4. Deploy a Cyber Threat Response Plan which provides protocol on what constitutes a cyber-attack occurs, who is responses, when, where, and how to respond.
  5. Hold procurement staff accountable for cybersecurity processes in their sphere. This is best done when integrated into the performance criteria of the procurement staff. The idea is to create a Pocket of Cyber Security Excellence within the Procurement Organization.

The Better Business Bureau recommends that managers tell their employees the following:

  • Not to open e-mail from unknown sources
  • What to do when they receive suspicious e-mail (when in doubt, delete!)
  • To disconnect from the Internet when not online
  • To consider the risks of file-sharing
  • How to perform data back-up procedures
  • Actions to take if their computers become infected.

 

Source: https://www.nextlevelpurchasing.com/news/purchasing-articles/cyber-security

Artificial Intelligence (AI) – Expand value on Procurement & Supply Chain

Intelligent Procurement: How can AI expand Value

There is a great number of reports, articles, and studies done on Intelligent Procurement. This is indeed a rapidly evolving science. For context, it is prudent to define the Concept of Value, Value Chains, and Value Streams.

Value has 3 components:

  1. At set of activities are engaged in transforming inputs and raw materials from on stage to the next
  2. All activities are done right the first time
  3. Customers are willing to pay for the resulting outputs (good and services)

Value Streams are Supply Chain and are:

  1. Systems that source inputs that interact with data points, machines, processes, metrics, conversion mechanisms, logistics functions, and people to develop and deliver useful products and services to customers
  2. A mixture of value-creating activities, non-value creating but essential activities, and wasteful activities. A Typical value Stream consists of 10% Value Creating, 30% non-value creating but essential activities, and 60% wasteful activities. All three activities can be mapped and quantified for time and dollar impact.

The degree of automation in supply chains vary from company to company depending on size, complexity, complexity, and industry. We will examine how Artificial Intelligence can expand value in Business Supply Chain Operation:

  1. AI Models for Supplier Selection. AI and Machine Learning can leverage sophisticated data models to determine the probability of a supplier meeting the business requirements of the buying organization. These advanced, prescriptive, predictive, and autonomous AI Models can virtually eliminate the probability of selecting the wrong suppliers to deliver mission-critical inputs.
  2. AI for ensuring efficient support of Mission-critical Operations. The Procurement function is responsible for ensuring that all mission-critical inputs are procured at the right price point, delivered on time, with the agreed upon AQL (Acceptable Quality Limit). AI can help create a high degree of visibility with the required analytics and decision execution prowess to guarantee that these inputs are consistently delivered in the required parameters.
  3. AI for ensuring robust Benchmarking. AI can be leveraged to pull data and behavioral models from best in class procurement departments and compared to the capabilities of the buying organization. Helpful gap analysis can be performed with a tip on how to improve processes to close performance gaps.
  4. AI for Leveraging Big Data Sets to realize robust Procurement Function Strategy AI systems are becoming better able to interpret business landscape factors such as socio-demographic, political, economic, technological, competitive, ecological trends. These assessments can be formulated into Strategic Response Models (SRMs) that underpin corporate strategic plans with solutions to link supply chain and procurement function to these corporate strategies.AI Models can be pivotal in executing much of the mundane procurement tasks and free time for procurement to focus on more strategic tasks.
  5. AI for ensuring Non-Value Add Waste Reduction. AI systems being leveraged in a manner to error-proof process, reduce duplicate efforts, and eliminate unnecessary transportation, inventory, motion, waiting, and defects in supply chain activities. These systems are improving in the ability to determine optimal patterns for supply chain optimization.

 

Source: https://www.nextlevelpurchasing.com/news/purchasing-articles/artificial-intelligence