Sourcing and procurement are critical functions in business. They’ve always been one of the keys to success—simply put, without sourcing, there are no raw materials to make a product. Furthermore, procurement teams typically cost less than one percent of an organization’s total budget, and bring double the savings.
In large part, the effectiveness of the procurement team dictates a company’s ability to price its products competitively. Strategic sourcing is the evolutionary next step in procurement. It establishes long-term relationships between a company and its suppliers, recognizing that in the grand scheme of things, the lowest price isn’t always the best price.
Procurement is currently in the fourth generation of analysis solutions, in which strategic sourcing plays a massive role. As a whole, strategic sourcing platforms generally leverage the latest technologies to give their users a competitive advantage, largely driven by AI. Artificial Intelligence (AI) employs computer power on a massive scale to replicate many of the functions of human intelligence. It can analyze data, recognize patterns and trends, and make recommendations quickly, while working with incomprehensibly large data sets. Effective use of AI allows people to reclaim time spent on mundane tasks, and instead spend their time delivering strategic value to their organizations.
Companies that have adopted strategic sourcing have a significant competitive advantage over those that have not. It’s not just about driving down costs. It’s also about resilience, quality, being able to react to unanticipated events, and competing in a global market.
In a recent interview, Wharton University professor of operations, information, and decisions Morris Cohen summed up the importance of adopting strategic sourcing:
“There’s always been pressure or incentives for companies to maximize efficiency and reduce costs, finding the lowest-cost supplier and the most efficient producer or distributor in the world and to go after that. On the other hand, if you end up with a single source, you’re vulnerable to risk.”
Joanna Martinez, digital transformation thought leader, author of “A Guide to Positive Disruption,” and marquee speaker at Optimal 2021—the AI conference for procurement teams—discussed the future of procurement (including how AI is being used) on the World of Procurement podcast.
During her discussion, she stated, “Artificial Intelligence…has enabled all these point solutions to come in and all of these great entrepreneurs to be able to develop very targeted solutions.” In a follow-up conversation, Joanna elaborated, “Think of it. You don’t have to spend millions and invest years of effort to get a big box solution to work. Companies can invest their resources in applications that will fix specific problems in their process or provide AI-based enhancements that weren’t even thought of five years ago.”
Procurement is entering into a revolutionary new phase and one that promises to be the largest step forward yet. Technology and strategy are converging. The incredible power of AI is being deployed through strategic sourcing software.
The AI Revolution
When we talk about the revolutionary, transformative impact artificial intelligence will have, it’s useful to do a deeper dive. Why is AI suddenly in the spotlight?
Artificial intelligence is nothing new. Research and development in the field go back decades. Many people remember AI events like IBM’s Deep Blue supercomputer defeating chess grandmaster Garry Kasparov in 1997, or IBM’s Watson defeating game show Jeopardy’s two greatest champions in 2011.
Watson was a supercomputer the size of a room, with over 100 staff. It was an impressive display of AI, but not something that most businesses could afford to adopt.
However, two factors have combined to make AI feasible at a commercial level: parallel computing and the cloud.
Graphics processors (or GPUs) are parallel processors. Unlike the processors that power PCs, GPUs can simultaneously work on multiple tasks instead of one at a time.
Their initial application was in computer graphics, which is why leading GPU manufacturers like Nvidia and AMD focused on cards for gaming computers. It turns out that parallel processing is incredibly effective when applied to machine learning and artificial intelligence.
These GPU companies are now manufacturing systems aimed specifically at AI, and they are becoming exponentially more powerful. In 2020, Nvidia’s A100 server contained 54 billion transistors, outperformed its predecessor by a factor of 20, and delivered 5 Petaflops of computing power—all in a 50-pound unit that can be run in parallel with other servers to create a supercomputer.
What is a Petaflop? It’s one quadrillion floating-point operations per second. In 2008, when IBM’s Roadrunner supercomputer first hit the 1 Petaflop milestone, the computing power was described this way:
“If all six billion people on earth used hand calculators and performed calculations 24 hours a day and seven days a week, it would take them 46 years to do what the Roadrunner can in one day.”
That was a 1 Petaflop supercomputer. We’re now talking about a commercially-available single server with 5 Petaflops of processing power and the support for running multiple servers together to greatly expand that performance.
The second element that has made AI suddenly commercially viable is the cloud. Those massive AI-capable servers aren’t limited to running in isolation in a laboratory. They are now running in internet-connected data centers, and the immense computational power is now available over the cloud.
Why AI and Procurement Are the Perfect Fit
It doesn’t take a 5 Petaflop AI-capable server, Watson, Deep Blue, or Roadrunner to connect the dots between artificial intelligence and procurement.
Procurement requires juggling hundreds—if not thousands—of variables, often in real-time. Masses of historical data must be analyzed for predictive forecasting. Globalization increases complexity tremendously.
Not only do important factors like currency exchange rates, transportation costs, and potential for extreme events change by the minute, companies are competing for suppliers (even local suppliers) against companies across the world. Bids can be lost in an instant.
Spreadsheets, experience, and intuition won’t cut it any longer. These tools are outdated and frustrating, and unfortunately, intuition is not based on data or facts. Simply put, the C-Suite does not want to see their sourcing team making million-dollar decisions with a mischievous Sherlock Holmes glint in their eye, following a hunch. Those procurement teams that adopt strategic sourcing and embrace AI are going to win and have a significant advantage.
Arkestro: Strategic Sourcing Software Powered by AI
Arkestro is strategic sourcing software that was designed for procurement professionals by procurement professionals. At its core is powerful and transformative artificial intelligence designed to help procurement teams make more informed decisions, faster.
With Arkestro, sourcing is supplemented by deep, data-driven forecasting. Generating valuable sourcing reports and analytics on-demand, without the need to have data scientists on the team.
Effectively manage your supplier network. Leverage the system’s machine learning capability to automate repetitive tasks that are a drain on valuable resources. Dramatically reduce cycle times and costs, including the ultimate application of AI: Arkestro Intelligent First Offers that give you a huge advantage over the competition and drive significant savings. By simulating a competitive quote request, Arkestro enables intelligent offers for better quotes, faster.
Intelligent first offers:
· leverage insights by allowing real-time analysis of supplier competitive intent
· secure savings by influencing the best and final negotiation outcome
· and improve relationships through alignment on requirements, service levels, and price.
Take the Next Step
Your next step: contact the Arkestro team for a demo to learn first-hand how AI-powered strategic sourcing software will revolutionize your procurement team.
Is your team on a digital procurement journey or looking to leverage AI to improve operations and reduce overall costs? Join Arkestro at Optimal—a virtual one day conference on how AI is transforming the world of procurement. Save your seat and learn more here.