May 3, 2019 | Written by: Anders Quitzau
Categorized: AI | Cognitive | Watson
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What we mean by Cognitive Procurement
Procurement functions have evolved through many iterations. In the past, procurement operated as decentralized siloed groups working with “tribal knowledge” and ad hoc spend data focused on unit cost improvement. Recently, procurement has matured into technology-enabled global teams that drive strategic supplier relationships and focus on total cost of ownership. Now with exponential technologies and data proliferation, the next iteration is upon us: Cognitive Procurement.
This new environment transcends the mere automation of existing capabilities. Instead, Cognitive Procurement reinvents end-to-end workflows to fully realize the potential of humans and machines working together to complement each other.
In this scenario, procurement professionals have a leading role in building strategic relationships and innovating across the value chain. New platform capabilities and cognitive technologies provide real-time insights, competitor analysis, scenario planning and market information. The cognitive function will generate instant demand-sensing data and self-learning capability to drive continuous improvement. A high degree of segmentation will allow for automated tail spend operations managed by informed strategic category specialists.
IBM procurement have taken the ‘cognitive medicine’ – it works!
IBM’s procurement professionals identified a collection of seven cognitive capabilities that empower them to profile categories, develop sourcing strategies and attain absolute competitiveness when engaging and negotiating with the market.
Subsequently, these capabilities help to manage operations, compliance and supplier risk. The collection includes tools for:
- Spend intelligence and analytics
- Fraud and audit management
- Supplier intelligence and assessment
- Supply risks and alert monitoring
- Contract administration and compliance
- Unit price benchmarking and should-cost prediction
- Virtual buying assistant and help desk
These capabilities use AI to integrate historical information, market intelligence, market sentiment and demand with models that apply natural language processing and machine learning. Supply chain risk and ongoing competitiveness are proactively monitored, freeing procurement practitioners to focus on enhancing client and supplier relationships, improving speed to market, helping to create revenue opportunities and innovating on continuous improvement programs.
Cognitive data enrichment and a robust data strategy that cover the full life cycle of data – from data acquisition through the curation and consumption of data – provide a trusted source of internal and external data. Practitioners can make business decisions based on business insights delivered through our cognitive solutions with a high level of confidence.
These capabilities put a virtual subject-matter expert on practitioner desks, allowing the business to react and often anticipate. The result? Improved business agility.
As a result, IBM experienced year-over-year savings of USD 65 million in 2017 and projects similar savings for 2018. Furthermore, IBM’s procurement workforce can focus on higher value activities, better engaging with suppliers and servicing business needs in a more flexible, agile way.
How to get started
Ultimately, enterprises that re imagine “how” to achieve value-adding outcomes can have significant competitive advantage. For example:
- How to leverage the new platform economy, one that is disrupting traditional business models by putting the end user at the ecosystem center?
- How to create a network of suppliers and buyers that collaborate seamlessly on intelligent platforms? These platforms can create new levels of cross-organization visibility by combining source-to-settle systems and other enterprise applications with e-commerce marketplace
- How to make the most of data and analytics while allowing users to benefit from strategic insights? These real-time insights are harvested from exponential technologies such as blockchain, cloud and machine learning.
- How can an integrated platform significantly improve cycle time and throughput by removing intermediaries that don’t add direct value in the supply chain?
The CPO would ideally serve as this sponsor, bringing together leaders from lines of business, finance, IT and operations.
Leverage the “garage” concept: The “garage” concept supports business transformation from the “inside out,” with enterprises aligning to their organization’s strategic business imperatives. The approach brings together business, technology, design thinking and data scientists to drive an agile innovation incubator for creating automated and AI-enabled procurement capabilities.
Read more about the ‘garage approach’ here: “Opening the garage door: Innovate like a startup; scale like an enterprise” click here.
Download and read the full study from IBM Institute for Business.
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