January 1st is right around the corner. Does your finance or procurement team have a plan to drive a highly visible, strategic initiative in 2019 that results in a consistent “seat at the table?” Don’t worry if you don’t. Having spoken to many procurement leaders at mid-market and large companies around the world, driving truly strategic initiatives and earning that seat at the table is a constant challenge.
Data is changing how procurement and finance teams think about their ability to truly drive strategic initiatives for their companies. Data, analytics and artificial intelligence (AI) should play a central role in how enterprises manage budgets, establish goals, and roll out corresponding action plans for 2019. As you determine your procurement or finance team’s goals and execution plans, think about it in terms of a New Year’s Resolution. How you are going to uplevel your function and your team and how are you going to become a strategic partner across the business?
Procurecon West, Scottsdale, AZ September 2018
In late September, I spoke at the Procurecon West conference in Scottsdale, AZ on a panel about AI in Procurement called “Think Big with Bots: Learning to Love Cognitive Procurement and AI.” The panelists were Babu Kuttala who is Group Vice President of Advance Analytics Solution Delivery of ABB, Edmund Zagorin, CEO of Bid Ops Inc., John Quinn from hidden layers, LLC, and myself. We were charged with making sense of AI for the audience, who were procurement professionals ranging from the Chief Procurement Officers, CFO’s, Category Managers, and Procurement Specialists. There is a lot of discussion about the impact of AI on Procurement, so the key questions revolved around how can AI be applied to Procurement in the future and then what should procurement and finance teams be doing today to prepare for the AI-enabled future.
Where is procurement going and why AI?
Procurement can play a central and strategic role in driving profit, reducing risk, partnering with suppliers and ensuring compliance with both government regulations or internal compliance. BidOps’ Edmund Zagorin leveraged the analogy of Waymo or Uber’s self-driving cars to paint a vision for self-driving procurement. In other words, procurement systems can understand the needs and priorities of an organization to nearly automate the procurement function at a company. I am not sure if I believe that computers and AI will fully automate the end-to-end procurement function. I do believe that procurement and finance processes will be automated and people will be used primarily for exception handling, (versus today where AI is used for exception identification and people are used for process.) As process becomes more and more automated, the value of procurement and finance will become more strategic and creative. How can procurement think creatively to achieve a business’ strategic goals? That is the evolution of procurement.
So, leveraging AI in the future is great, but how will data and AI help procurement and finance in 2019? Most procurement and finance teams do not have the ability to leverage their data beyond basic financial reporting.
Your 2019 New Year’s Resolution: Rapidly Aggregate, Analyze, and Democratize Your Data
If you do one thing in 2019 to radically change the strategic position or perception of your team, it all should boil down to data. Focus on automating the aggregation, normalization and analysis of all your supplier data across multiple systems of record.
Step 1 – Aggregate: This means connecting the dots across ALL data sets associated with suppliers: contracts, accounts payable, travel & expense, p-card/corporate card, purchase orders, invoices, performance/QBR data, and usage data. The challenge is that much of this data resides in multiple systems of record like the contract lifecycle management system, the ERP, the procure-to-pay system, or various SaaS tools in the organization
Step 2 – Normalize: Normalization is the process of connecting data from multiple systems of record and then consolidating the data to one consistent view at the supplier level. This can be done by hand or using a machine learning or rules based software system.
Step 3 – Analyze: Most companies do ad-hoc supplier reporting and with very limited visibility into supplier spend. If companies do an analysis, they generally will focus on the top 10-20 suppliers representing 40% of spend. The remaining 60% of tail spend can represent 10,000+ suppliers. Anomalies and fraud will generally live in the tail. So will a lot of low hanging cost saving fruit. Excel and Tableau are a good starting point for analysis, but at companies with significant spend, there are millions of transactions requiring significant data prep. An automated spend analytics system is a critical tool to execute a detailed category or supplier analysis since most ERP’s do not support this level of reporting.
Step 4 – Democratize: The Chairman and Founder of Zillow Rich Barton likes to build businesses that use data to shine the light and bring power to the people. Similarly you can help your business partners transform their initiatives by delivering power through data. This can take the form of providing access to data in an Excel spreadsheet or a database.
The more value you can deliver to your business partners, the more trust you will develop. Your team will be pulled into more strategic conversations and will be relied on for driving those strategic initiatives across your company.
Of course, solutions like Suplari can automate Steps 1-4 for a reasonably low cost compared to the manual challenges related to data aggregation, cleansing, normalization and reporting. We would love to help!