DPW speaks with Bob Murphy at IBM
We spoke with Bob Murphy, CPO at IBM, about the future of procurement, what technologies will have the greatest impact on procurement’s digital transformation and how IBM is preparing for the future.
What are the keys to success for the procurement function of the future?
The fundamentals will not change: greater value through innovation linked to corporate objectives, sustainable competitive advantage, brand protection, environmental management and risk mitigation.
What will change is how we achieve those things. In the future, procurement will use data in new ways, while becoming more agile and automating and re-engineering workflows. Let’s consider each.
Data. Real-time data and analytics are critical to decision-making. But first, we have to gain access to that data, and that isn’t always easy — especially “hidden” data such as paper contracts or data not included in a common standardized platform. Once we do that, we can get the data to flow seamlessly across lines of business and their supporting systems. We can apply analytics and draw out insights to make more thoughtful decisions and react faster to capture new opportunities and optimize costs, working capital and outcomes. And, we can be more agile and responsive to what our businesses, customers, and even strategic assets need.
Agile. Corporate procurement functions will need to adopt agile principles, and in many cases, reorganize teams to be both effective and efficient. But more importantly, we need to be agile across organizational boundaries so that CPOs work more closely with supply chain leaders, plant managers, product design, marketing, and other stakeholders.
Workflows. Another key to success is automation of the workflows that require human intervention to free up Procurement staff for more strategic work. As automation covers more aspects of the procurement function, we can up-skill practitioners to be advisors or consultants to the business and to the market. This will bring relationships back to the forefront for a practitioner, where today they might not have the bandwidth. For example, with automated sourcing, the AI systems could run everything from analysis, to proposal, RFP and award (either with or without human oversight). Negotiations for price could be handled between automated systems without the need for human intervention, or with minimal oversight, especially when only negotiating price.
Platforms. Procurement should also engage in platforms that optimize these technologies for innovation, collaboration, risk and buying. For example, in the future we may see platforms for a marketplace buying experience – an online community to connect buyers, sellers and content – that also provide analytics, insights, controls and blockchain security.
The future is cognitive, so one of the most important keys to success will be to continually invest in and improve those AI-enhanced technologies and platforms that can be applied to Procurement.
What are your current activities in procurement and how do they relate to digitization?
We have already reorganized our teams to take advantage of agile principles and reorganized our teams to be more efficient, empowered, self-directed and client-focused, and to go from being commodities-focused to be Client multi category-focused in squads. And, we have gained access to that previously hidden data that I mentioned. So, we are now able to extract vast amounts of data, combine it with external market intelligence and analyze it to gain insights.
For example, we are using artificial intelligence to solve business problems and automate processes. We are seeing first-hand how AI allows us to get the best from machines and humans working together. It enhances, scales and accelerates human expertise. In fact, my Procurement team, staffed by humans and co-bots (collaborative bots), is very well positioned to innovate with AI throughout source to pay.
We are using Watson Contract Adviser/Watson Compare & Comply to provide us with instant contract analysis, comparing supplier agreements to model agreements or to other supplier agreements in order to maximize terms and conditions. It scans documents, even unstructured data. And, in a matter of minutes, it identifies clause similarities and deviations, identifying potential risks and uncovering opportunities for negotiation. With this tool our procurement professionals can analyze contracts in less than a third of the time it used to take.
We also started using Trust Your Supplier (TYS) Blockchain. TYS is a trusted, decentralized network for managing digital identity. It uses Watson to ensure that the supplier’s identity on the Blockchain is maintained to be current, real-time, and uses Watson to track and maintain changes to supplier identity information.
Another AI tool we developed, called “Pricing IQ” evaluates internal pricing data and trends, market intelligence and market sentiment. Pricing IQ gives us insights into optimal pricing that we use real-time in supplier negotiations. It provides price comparisons, discount predictions, alternative product recommendations and “what if” scenario analysis. As a result, we’re spending about 80% less time analyzing price rates. And we’re driving 10-15% incremental savings year to year.
Which technologies will have the greatest impact on procurement’s digital transformation?
This is a very exciting time to be a CPO. The future of procurement is AI-augmented intelligence — humans plus technology — freeing up professionals for more strategic, value-add work and relationship management.
AI is already making a huge impact on Procurement’s digital transformation for those who are technologically mature enough to take advantage of it. For example, you can apply AI to:
- Access and enrich spend data
- Gain insights, such as predicting pricing and avoiding risk
- Improve the experience for suppliers and requesters
- Become more efficient.
In the future, we expect AI to enable further transformation as Procurement becomes a set of physical command centers to oversee procurement operations powered by cognitive applications like hybrid cloud and of course e-procurement applications like SAP Ariba. These command centers will track real time flow of spend, information and commodities providing forecasts as well as carrying out operational processes.
Blockchain will also have a transformative effect. We are already seeing its impact on the supply chain, such as with food safety and providing security in the finance industry. I expect to see additional blockchain use cases that address the underlying challenges in collaborating across a distributed and fragmented procurement and supply chain ecosystem. Blockchain will enable visibility, digitization, shared process and disintermediation, as well as eliminate inefficiencies created by lack of trust and transparency.