Predictive Procurement Orchestration (PPO) is the future of procurement. Why do we say that?
The goals of procurement in an organization used to be relatively simple. Ensure your company has a steady supply of what it needs to produce its end product on time and at the lowest possible price.
With the advent of globalization, things got more challenging. Companies had customers across the world but also had to compete for suppliers with organizations in other countries. Strategic sourcing was in the spotlight. Things continued to evolve.
In the aftermath of the COVID-19 pandemic, it’s clear that a new approach to procurement is the key to success and the future of the industry. That is Predictive Procurement Orchestration (PPO).
Ongoing Supply Chain Challenges
In a March 2022 article in The Harvard Business Review titled “Are the Risks of Global Supply Chains Starting to Outweigh the Rewards?” Harvard Business School professor Willy C. Shih tackles the wide range of supply chain challenges that procurement professionals suddenly have to account for. He writes:
“The conflict in Ukraine is only the latest jolt to global supply chains. Disruptions caused by the Covid-19 pandemic, climate-related events, and geopolitical tensions were already undermining their rationale. As companies rethink sourcing, they will have to consider new factors concerning geography and geopolitics, logistics, decarbonization and sustainability, and suppliers’ health.”
This unprecedented series of shocks to the global supply chain has exposed the weaknesses in traditional procurement approaches. It’s no longer about what components cost and which suppliers are the cheapest. As Dr. Shih explains:
“As managers navigate this dynamic, they need to think beyond product costs and supplier choices.”
The question is, how do CPOs, CFOs, and procurement teams navigate this new terrain? The knee-jerk reaction might be to move to a new procurement app. However, that is proving to be the wrong approach. But forcing the procurement team to adopt all-new software simply adds chaos to the mix. It still leaves individuals making the decisions without adequate data and still manually doing a lot of the work. Instead, organizations need to be thinking about PPO or predictive procurement orchestration.
There’s a better option. Here are three reasons why PPO is the future of procurement.
1. Predictive Procurement Orchestration (PPO) Minimizes Disruption
One of the most disruptive exercises a company can undergo is to shift employees from one software application to another. Onboarding takes time, including training and deployment. Some employees are inevitably resistant to the change. There is a strong possibility that the new software won’t do everything the old system did, requiring workarounds. In a complex functional group like procurement, there are often multiple systems in use simultaneously. This increases the risk that new software will fall short.
The idea of PPO is that it is a platform that runs in the background. Procurement team members and people from other business teams continue to use the applications they are familiar with. The Predictive Procurement Orchestration platform integrates with these other systems, making full use of the data they capture. Since PPO is an embedded platform, the adoption rate is extremely high.
2. PPO Takes Advantage of Data that Procurement Already Has
Predictive Procurement Orchestration isn’t about installing a new app or software. It’s not a user-driven process. Instead, orchestration uses the data already captured by the various apps, systems, and platforms in use by the different teams involved in the procurement process. PPO addresses data where it lives and it is results-driven.
This combination means organizations that adopt PPO enjoy the many benefits of predictive procurement without having to ditch the solutions they’ve adopted over the years. They also don’t have to go through expensive and lengthy onboarding processes. They can keep doing what they’ve been doing, with the advantage of PPO running in the background steering procurement toward desired business outcomes.
3. Predictive Procurement Orchestration Makes Optimal Decisions
User-driven software relies on the decisions and actions of individual users to meet goals. That leaves a wide door open for results to go sideways. And all it takes is one procurement team member to pick the wrong supplier based on faulty assumptions or something as small as a typo.
According to Patrick Reyman, Research Director, Procurement and Enterprise Applications at IDC, in Top 10 Issues for Procurement Application Buyers:
Artificial intelligence (AI) and its subset, machine learning (ML), are trending buzzwords in the application space, but what do they mean? More specifically, what is the compelling use case for a buyer? The drive for AI and ML comes from the need for applications that can drive automated intelligent and augmented processes that bring greater insights of information so better decisions can be made. This need is driven in part by staffing challenges and supply chain bottlenecks. Applications that can automate even the most common of tasks and “learn” over time to optimize performance and throughput are game changers that can provide added utility to buyers.
Leveraging AI, predictive machine learning, game theory, and behavioral science, PPO uses all of the data that’s been captured by the various apps and systems it’s plugged into to make optimal decisions. It’s up to the organization to set goals and objectives, but from there PPO works automatically. It uses all the data available—including past transactions, historical data, and metadata—to predict outcomes based on advanced simulations while providing real-time visibility.
PPO is results-driven. The issue of human behavior interfering in a decision because of a sense of personal urgency or instincts is eliminated. Rather than relying on preference, PPO makes the optimal decisions based on business goals and data. This makes it more strategic.
With the disruption we’ve been seeing in the global supply chain, staying one step ahead is critical. It’s the difference between organizations being high-performers or losing market share to peers. That’s why PPO is the future of procurement.
Predictive Procurement Orchestration is the Future
You might be wondering, how does it work?
Our AI runs transaction simulations in real-time, based on the data collected by an organization’s procurement systems and software. It’s not just AI making choices based on what it “thinks” is best. Arkestro’s AI accounts for business objectives, preferences, and historical transaction data. It gets smarter with time, increasing your win rate.
Based on the desired outcome—the business goals set by the procurement team—Arkestro is able to deliver optimal transaction versions. The procurement team can then act on those transactions, which are sent to team members through a choice of methods, including email and other channels. For repeated processes, Arkestro can even be used to automate transactions.
To see first-hand why Arkestro is the leader in PPO and the future of procurement, book a demo today.
IDC, Top 10 Issues for Procurement Application Buyers, Doc # US48623621, January 2022