In part 1 of our “Digital Trends and how they are affecting Procurement” blog series we tried to paint a picture of where technology is today and the way in which procurement is making use of this new technology; and we started off the conversation with Artificial Intelligence.
When talking about artificial intelligence you can’t help but bring into the conversation machine learning as well. There are many opinions on the relationship between these 2 digital trends. Some may say they are the same thing, while others will say they are 2 different things. We see machine learning as a branch of AI, that needs to be treated separately. Machine Learning has different applications in different fields and industries and we feel that when it comes to procurement these technologies are at different stages of development and can be used in very different ways.
The difference between Machine Learning and Artificial Intelligence
If you are planning to incorporate one of these technologies into your business it’s important to know their meaning and the differences between them. Although they are similar, most times they are not suited for the same tasks. Making proper use of both technologies effectively can really take your business to the next level.
Before we dive into how procurement can benefit from Machine Learning, let’s try to define it.
What is machine learning?
“Machine Learning uses neural networks to analyse the characteristics of a situation and based on what it ‘sees’ makes a probability-based decision or action. But it needs to be taught, usually by processing volumes of data in combination with human intervention when it is unsure of a correct answer.”
One of the differences between Machine Learning and AI for procurement is that Machine Learning can learn and scale quicker than rules-based AI. Knowing the differences between these 2 technologies and being aware of their applications is key in deciding if suitable and understanding which one best fits your business needs.
Machine Learning and Source to Contract
Source to contract is one of the key components of every procurement organisation. It is a complex function that can bring significant value to companies, from spend consolidation, identifying contract leakage and non-compliance, supplier rationalisation etc. So, how can machine learning improve this process?
When it comes to source to contract we need to have a look at:
- Strategic sourcing
- Contract management
So far, machine learning has had limited impact on strategic sourcing. However, there are some developments in the area. As a rule, Machine Learning handles activities that need complex rules and pattern recognition. By using a basic level of human judgement Machine Learning can assign transactions to formal spend categories and subcategories. This process can help uncover sourcing opportunities, converting the whole process from a time-consuming, manual task into a real time, automatic activity.
Contract management has the most to profit from Machine Learning (ML). Companies need to have visibility over the status of their purchasing contracts, supplier requirements, materials needed and consumption rates. These are all vital parts that ensure business continuity and improve supplier relationship.
ML can help speed up these processes based on the fact that these technologies can literally “learn” to do all the thinking and work for you. Let me break it down a little further for you.
When it comes to contract management ML can assist with:
- Intelligent searching – when searching for specific information among thousands of contracts, ML enabled software can gather information about the context of the search and the person who is searching and weigh this information in order to deliver the most likely search results. In addition, this can improve the user’s ability in dealing with contracts.
- Authoring of contracts – when it comes to authoring of contracts ML software has the ability to understand the type of goods or services that are being bought and intelligently recommend contractual clauses based on these products’ characteristics or based on historic data on dealing with certain suppliers.
- Contract compliance & renegotiations – ML is using specific algorithms that helps procurement specialists predict the full consumption of the contracts. This, in turn, helps buyers identify contracts that should be renegotiated and do so in due time and avoid poorly negotiated prices and conditions due to contract overconsumption.
There are still many procurement areas that machine learning will change in the future, both in terms of accuracy and efficiency but also speed. It’s fascinating to see, year by year, how many activities intelligent technology can change and ultimately improve. Stay tuned for the 3rd part of this blog series as we explore robotic process automation and how it’s changing the procure to pay area.