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Digital trends affecting Procurement – AI and Spend Analysis (part 1)

by | January 14, 2019

We live in a time of innovation and fast emerging technologies. Our everyday lives are affected by these innovative technologies as they are also changing the way we live our lives. Amazon and similar platforms have changed the way we buy things, whilst Netflix and social networks have changed the way we spend our free time and interact with others.

In the past few years we’ve been bombarded with new apps, technologies and trends, making it hard to keep up with everything. However, experts say we’ve now entered a period of fewer groundbreaking changes but far greater transformation. It has been difficult for humanity to keep up with the pace of technology, what this means is that we now need to get accustomed to these innovations and learn how to make use of them.

In the B2C world things are moving the fastest whereas in the B2B world companies tend to be more cautious.

Let’s take AI for example. Artificial Intelligence has been around for years, but since it has been around we’ve mostly associated it with those futuristic videos we see shared on social media. However, recently things have started to change and innovations are being transferred into how businesses operate, from production and marketing to procurement and even finance.

What are the new digital trends?

We believe, in the next few years things are going to revolve around 3 major digital trends:­

  • Artificial Intelligence­
  • Machine Learning­
  • Robotic Process Automation

Thousands of articles, companies and even industries have been built off the back of these trends, yet there is still confusion and uncertainty over how they can support businesses, and for the purpose of this article, procurement.

Artificial Intelligence (AI)

We plan to focus on artificial intelligence (AI) first. Experts say that the next period will be most affected by AI, as it is the most likely to be easily accepted by organisations. So, we should expect the next period to be shaped by the adoption and advancements of artificial intelligence.

What is AI? AI provides a level of intelligence to technology – it is a set of rules that can be applied by a machine to simulate human intelligence.

More technology innovative companies have already made use of AI, and have incorporated it in their operating processes, trainings and the way they interact with third parties.

AI and spend analysis

Here we will focus on how AI can be applied to procurement, and we believe its impact has been most obvious when talking about spend analysis. Perhaps because spend analysis sits at the foundation of procurement’s performance, as it helps companies take a deeper dive into their spend data and gain better visibility over how their procurement function is performing. The outcome? Actionable insights that can help identify opportunities for faster processes, more consolidated spend, reduced costs and increased efficiency.

Companies should always be looking for innovative tools and processes to improve their spend analysis, which will in turn help them gain insights to help them shape an even more effective strategy.

So, can AI help with all this? When it comes to spend analysis, there are multiple ways in which AI can be of help. First of all, it can help detect and correct inaccurate or incomplete spend data and format errors. It then automatically categorises into a single, unified structure which leads to exceptionally accurate spend categorisation.

AI has changed the way companies run sourcing events. AI can expand the role of spend analysis into strategic sourcing, giving organisations the possibility to run spend analysis reports, before, during and after the sourcing event. This is all based on better data acquisitions, cleansing and classification based on machine learning methods and it allows you to compare data across companies in your sector. These methodologies also help you identify spend patterns within your business and match them with demand profiles to provide better information for sourcing strategies and supplier rationalisation.

Supply management is more than just selecting the right supplier, and with the help of new AI technology spend analysis can give a deeper insight into organisations’ supply chain. A supplier’s performance needs to be constantly monitored and it is the spend analysis programs that ensure the suppliers offer the best combination of cost, shipment and payment method, delivery period, purchase volume etc. With the help of AI companies can make better assessments of these elements as not all data points are expressed in absolute terms.

Spend analysis paired with AI and machine learning methodologies can make up for a great risk management tool as it can help provide better insights into past performance and better predict future outcomes.

What makes AI a game changer when it comes to risk management is the fact that it enriches internal company data with external data, from market prices, commodity data, financial stability etc.

The outcomes of this AI enhanced spend analysis process is that companies can not only analyse how they spend their money but also predict whether their spend is in danger because of a supplier that’s heading towards bankruptcy, a supplier that’s about to increase its prices or one that’s based in a politically unstable environment.

When it comes to procurement there’s more to AI than spend analysis, as there are more digital trends that are affecting the way we do business in general and procurement in particular. It’s a great time to be alive and witness the fast pace at which all these new digital technologies change the way we do business. Stay tuned for part 2 of this blog series, as we explore how machine learning is affecting source to contract.