Today, Forrester published a report on how “Modern Smart Applications Are Transforming Supplier Value Management” (available to Forrester clients). It explains why AI was relatively slow to reach the procurement function and also what changed to belatedly power a wave of innovation. I cite several examples, both from large SVM software suite vendors and from smaller specialists.
One of my findings from my research is that the people who will benefit most from modern SVM software will be skilled sourcing and procurement professionals. One of the myths of AI is that it will eliminate humans’ jobs. Forrester has repeatedly found that, on the contrary, the best examples make those humans more effective, and hence more valuable. Here’s one example: “How AI And Automation Drive Better Customer Service Experiences.”
Chief procurement officers (CPOs) who are smart enough to invest in modern software will find that it frees their people to devote more time to important complex tasks that they cannot currently do well, due to a lack of time. I repeatedly hear from clients that they lack budget and people to do comprehensive risk management of all their suppliers, yet this is one of their most important tasks, particularly if you assess priorities from the firm’s customers’ perspective (which you should, of course).
I found that AI-powered SVM software delivers value to CPOs through three main vectors, as it:
- Automates tasks: Automation learns from and then mimics how skilled professionals perform high-volume, semiskilled, but relatively mundane tasks, such as redlining of suppliers’ standard contracts. This saves them time and also eliminates some of the least favorite parts of their job, so there’s an added employee satisfaction benefit. Smart software learns from expert humans, so you don’t have to spend time building comprehensive if-then-else scripts that a robot can follow. The disadvantage is that the software replicates the human’s prejudice, received wisdom, and flawed assumptions.
- Prioritizes actions: Prioritization flags issues or exceptions that warrant further investigation by a human. The procurement professional spends less time reviewing detailed reports, and the software reliably highlights potential problems that a human may have missed.
- Optimizes decisions: Optimization goes further, trying to help humans make better decisions by learning what works best, which may be different from what the human thinks works best. I found few good examples of this value vector and several obstacles for the SVM vendors to overcome. One problem is that CPOs have no way of knowing whether their teams’ sourcing decisions were good or bad. For instance, how do you know if you made an accurate risk assessment? If nothing bad happens, were you right to rate the supplier as low-risk, or did you just get lucky?
Bottom line: CPOs should implement modern SVM software that includes AI-powered use cases to free procurement professionals from mundane tasks and alert them to issues that merit their attention. If you’re selecting a provider, focus on their use of AI as a key differentiator, including what’s already in the product and what’s on their roadmap.