Before AI Disruption, Procurement Leaders Say It’s Back To Basics

For a few years now, the procurement department has earned rising attention for its potential to become a strategic component of the enterprise — not simply one that spends company money. There is no single path to building up that strategic role, however.

Procurement professionals have approached this task in many ways, often turning to multiple tactics at once to elevate their roles. In a recent survey of these professionals, source-to-pay software provider Zycus found two paths in particular that the industry is eyeing: supplier-relationship management and technology adoption.

Zycus just released its “Pulse of Procurement 2018” report — a majority of the 400 procurement professionals surveyed agreed that their top priority is the migration of procurement from a tactical to a strategic aspect of their firms. Cost savings remain a top focus for these professionals, but Zycus’ report found that forecasted savings remain hovering at about 9 or 10 percent, a figure that Zycus Vice President of Corporate Development Richard Waugh said has remained fairly consistent in the five years the survey has been conducted.

It’s time, then, for procurement professionals to try a new tactic.

“Procurement has to continue to deliver those historical savings, but also find new opportunities for value,” Waugh recently told PYMNTS in an interview.

Increasingly, the buyer-supplier relationship is being looked at as a way to make advancements in that initiative. Zycus’ research found that a lack of visibility into supplier performance is survey respondents’ number-two pain point, while achieving better synergies with suppliers was chosen by 15 percent of executives as their top priority. This is good news for suppliers, which, Waugh explained, enjoy a bit of leverage with their corporate customers in times of economic growth, thanks to inflationary price pressures.

“In good economic times, suppliers will have more opportunity to work with different customers,” Waugh said. “From the procurement of [a] supplier management standpoint, it becomes a focus of how to become the customer of choice.”

According to Waugh, this means understanding vendors’ cash flow management needs and adjusting payment terms to ensure suppliers are able to keep operating. Increasingly, though, corporate buyers are “getting more savvy” about how they approach the buyer-supplier relationship, he said, segmenting vendors to prioritize early-payment discount agreements with strategic vendors. Technology, Waugh noted, is playing an increasingly important role in shifting the procurement department into that strategic role.

“There are more strategic suppliers, including a number of smaller firms, that are coming to market with new technology,” he said. “Those with a more evolved view say, ‘Our future competitiveness is tied to making sure these vendors can grow. We have a role in making sure they can manage their working capital,’ and that means paying them on time.”

However, as procurement officials look out to their supply chains to save money, they’re also looking inward to move the needle in becoming a strategic part of their companies. And just as technology is becoming a key component of the buyer-supplier relationships, Waugh noted that procurement executives signal rising interest in emerging technologies, including blockchain, robotics process automation, machine learning and artificial intelligence.

Zycus’ report found significant interest among the professionals in these tools and how they expect the technologies to affect their jobs. Waugh said he predicts machine learning and AI will have the most profound impact, but he emphasized that, while interest in cutting-edge tools like AI is on the rise, procurement professionals aren’t getting ahead of themselves.

“I think there is a healthy recognition in the market that says, in order to prepare for the next wave of technological innovation, we first have to get our house in order,” he said.

Machine learning technologies, for example, will only function if they are fed data. A procurement team that runs on paper isn’t going to benefit from a robot in the workplace.

“We first need to make the shift from tactical to strategic,” added Waugh. “Only then can you take full advantage of those technologies. I think it’s a healthy, realistic, pragmatic view — procurement professionals know this is in the future, and they have great potential to dramatically alter the way the function is performed. But first, we have to make sure we’ve mastered the fundamentals of taking our core processes and digitizing them.”

For the procurement team, the ability to become strategic must involve a bit of multitasking: looking outward at supplier relationships and looking inward at digitization and technology adoption. After all, Waugh said, the fact is that saving money on supplier contracts may have reached its limit.

“More mature procurement organizations get to the point eventually of diminishing returns, as it relates to cost savings from suppliers,” he said. “There is a recognition that, in order to continue to deliver value, we have to find innovation — for instance, from our supply base — that goes beyond just driving cost savings. You can’t save yourself to zero.”