How do you leverage digital tools and AI to optimize procurement processes?

Don't build siloed Procurement KPI's, develop a scorecard including qualitative and quantitative metrics and goals including: - the linkage to business objectives and realisation of the key benefits - the strategic agenda to progress Procurement - the productivity & efficiency of the supply base and internal operations - the Customer satisfaction levels and of your key stakeholders - the people development and sustainability goals in mind

Procurement Key Performance Indicators (KPIs) are measurable metrics used to evaluate the effectiveness and efficiency of procurement processes and activities. These KPIs provide valuable insights into various aspects of procurement performance, such as cost savings, supplier performance, contract compliance, and process efficiency.

The original KPIs for companies was founded in the 1990s to create a balanced scorecard monitoring a company's success across multiple dimensions. In my experience, KPIs have to be adjusted and evolve. Using the KPIs from the 1990's to evalute a company's success in 2023, no longer provides the right kind of data needed to make better-informed decisions. We can no longer copy & paste KPIs and expect to have the same kinds of results as when they were first used in the 1990s. Our job as procurement and supply chain professionals is using a fresh set of eyes. To ask ourselves what is important to the organization today, and how we can measure that.

Incorporating digital tools and AI in procurement enhances efficiency by automating routine tasks, enabling data-driven decision-making, and streamlining supply chain operations. Leveraging these technologies optimizes processes, improves forecasting accuracy, and empowers proactive risk management within procurement strategies.

KPIs need to be established with opportunities for improvement, otherwise they're useless. Procurement should work with their suppliers to improve: - Actual vs. Expected Delivery dates. This information should be readily available through their reporting, which will ultimately help with A/P on cashflow predictability - Predicted vs. Actual costs. With a lot of supply chain issues the prices of goods and services are often changing between order date and delivery. How close are we coming to keeping that in line. Many systems don't have the ability to view pricing changes from order to delivery. Find a system that does. - Aggregate supplier performance. Combine the two above and keep only the most accurate suppliers in your system

Procurement KPIs play a crucial role in assessing the performance and impact of procurement activities on organizational goals and objectives. By tracking and monitoring KPIs, procurement teams can identify areas for improvement, measure progress towards strategic targets, and make data-driven decisions to optimize processes, reduce costs, mitigate risks, and enhance supplier relationships.

Procurement transformation is all about impacting the procure-to-pay process. Any procurement KPI should also mutually impact - A/P - Supplier relations, and - IT Bringing these 4 departments together will have a better chances of success and ensure one improvement raises the company up overall

LeewayHertz discusses the use of AI in transforming procurement from a process-oriented function to a strategic, value-adding operation. AI in procurement assists in spend analytics, contract management, and automation of manual tasks, thereby enhancing decision-making, identifying new opportunities, and streamlining business operations

Align with Strategic Objectives: Select KPIs that align with the organization's strategic goals and priorities. Focus on metrics that directly contribute to key objectives, such as cost reduction, risk management, supplier collaboration, and innovation. Be Specific and Measurable: Ensure that KPIs are specific, measurable, achievable, relevant, and time-bound (SMART). Define clear targets and benchmarks for each KPI to facilitate performance evaluation and goal tracking. Consider Stakeholder Perspectives: Take into account the perspectives and requirements of various stakeholders, including senior management, finance, operations, and suppliers, when choosing KPIs. Solicit input from key stakeholders to ensure alignment and buy-in.

Procurement KPIs should not be specific for procurement but should be joined KPI with the demand owner in the business. Procurement works to realize a business goal and too often we see cost reductions being realized by service deterioration. Set business KPI on the supply chain and ask procurement to help.

Any KPI needs to be easily visible from a single dashboard and be able to be impacted month-over-month, and even better week-over-week. Choose a KPI that will allow you to see a visual when you open your ERP system (or look at coordinating with software that does this for you). If it's not a ready to use dashboard, it won't get impacted and it will take too long to see an improvement.

Plain and simple, automation and optimization requires a deep understanding of your business rules at an operational level. If you are able to define and document your purchasing channels and usages rules explicitly, then you'll be able to optimize where rules don't give the desired results and automate with digital and AI tools where the processes and rules are fine-tuned. If you try to automate before doing this, all you will have is automated chaos.

AI is fantastic to reduce a lot of the non-value added activities. You can create forms and templates, help with price analyses etc. It frees procurement teams up to focus on the relationship building, and more strategic type initiatives.

Digital tools and AI offer powerful capabilities to enhance procurement processes, drive efficiency, and deliver strategic value. By leveraging these technologies, organizations can streamline sourcing, improve supplier management, automate routine tasks, and make data-driven decisions. Examples of digital tools and AI for procurement include advanced analytics platforms, supplier relationship management (SRM) systems, sourcing optimization software, contract management solutions, and intelligent procurement assistants.

Leverage the capabilities of process intelligence tools to scan through current way of working and map out the end-to-end procurement process as it happens in the organisation. Use the AI-driven capabilities of the tools to identify bottlenecks in your source to pay process and provide insights from the data for automation and smarter decision making.

Automate the PO>invoice process. If the goods are delivered as they were ordered, without any changes, there should be no need for any touch points. Move these purchases immediately to A/P the moment they are recognized as received. We also look at eliminating outdated communication tools. Eliminate all emails from the process. If a supplier has to send an email to communicate (onboarding, making change requests, submitting invoices), it's a broken process. Create a pure online supplier collaboration tool. Even one email is too many!

Examples of digital tools and AI for procurement include SAP Ariba, Coupa, Oracle Procurement Cloud, IBM Watson Supply Chain, Ivalua, and GEP SMART. These platforms offer a range of features and functionalities designed to optimize procurement processes, drive strategic sourcing, and enhance supplier collaboration through advanced analytics, automation, and AI-driven insights.

Choose the system that works directly with your primary ERP. With Cybersecurity becoming more of addressable issue for companies, finding a system that is built into your primary ERP locks out hackers from connecting through APIs or integrations. If you're using SAP, I LOVE ConvergentIS's Rapid Vendor Portal. It installs directly into SAP and is built with the long-tail small and mid-sized suppliers in mind. Make it easy. Make it mobile.

Choose tools which fit with your procurement agenda and support the elevation of maturity within the company step by step. Build a digital foundation by enabling a full procurement user journey for your users including all transactional procurement activities from Requisitioning to Payment integrating with your ERP. Develop core Procurement muscle with Spend Management, Contracts to Sourcing and Supplier Management to activate benefits realisation and tracking. Layer additional AI features into the mix once the foundation is solid, integrated and yielding good data quality.

Despite the potential benefits of digital tools and AI in procurement, it's crucial to consider their limitations and drawbacks. High implementation and maintenance costs, loss of human judgment, and ethical and privacy concerns are among the challenges associated with these technologies. Although they can automate tasks and provide data insights, they cannot replace human decision-making entirely. Therefore, it's essential to balance the advantages and disadvantages of digital tools and AI and recognize the value of human expertise in effective procurement.