Procurement in the Age of Automation

Anyone working in B2B sales benefits from having an in-depth understanding of procurement. Procurement like all professions is experiencing a paradigm shift with the opportunities AI delivers. This is new technology and things change all the time. I have found an article of note in the MIT Slone Management Review (issue 65) which helps to explain one of the recent applications of AI in the role of procurement. The article is called Procurement in the Age of Automation and I have summarised it here in this blog post.    

It provides an in-depth look at how companies can successfully implement automated negotiations and procurement tools to drive cost savings and efficiencies. Drawing on extensive examples from large corporations like Maersk, Walmart, and Google as well as smaller companies to demonstrate the tangible benefits across diverse industries. 

How companies source and negotiate with suppliers can have an enormous impact on the bottom line. With procurement related costs making up 50-90% for many companies, ensuring these processes are optimized is important and often an easy win..

Leveraging automation and AI for procurement are highly valuable given the transformative potential of these technologies. As AI capabilities continue to rapidly advance, all aspects of business from negotiations to customer interactions have the potential to be fundamentally changed. Companies that fail to adapt through thoughtfully implementing automation and AI put themselves at an enormous competitive disadvantage.

The key benefits of automated negotiations where highlighted as;

• Double digit cost savings – The article provides numerous examples of companies achieving significant cost reductions through automation, with savings ranging from 5-8% on average compared to traditional negotiations. Some companies realised over $7 billion in savings by automating procurement processes. The competitive bidding and increased supplier participation enabled by automation consistently drives down costs.
• Faster cycle times – Automated systems can evaluate orders of magnitude more suppliers and conduct far more negotiation rounds in a dramatically reduced timeframe compared to manual negotiations. Walmart provided a prime example, negotiating with 150 suppliers in just 2 hours instead of the months it would have taken manually. Automation greatly accelerates sourcing cycles.
• Increased productivity – By taking over repetitive, low-value tasks from buyers, automation enables them to focus time on more impactful strategic initiatives. This includes responsibilities like identifying the optimal negotiation mechanisms, supplier selection and relationship management. Automation reduces busywork for buyers.
• Expanded supplier base – The transparency and consistent evaluation criteria in automated systems allow buyers to consider a wider range of suppliers, including more small and non-incumbent options. Pre-qualification functionality also helps objectively assess supplier capabilities. This expands buyer access to new supply sources.
• Improved supplier relationships – Real-time feedback and visibility into their status provided by automated negotiations improves the experience for suppliers. The perceived fairness and ease of automated systems also encourages ongoing supplier participation. Automation can strengthen buyer-supplier relationships.

These benefits clearly demonstrate the significant ROI attainable from automated negotiations across metrics ranging from costs to cycle times to productivity.

Overcoming Resistance

Navigating the complexities of transitioning to automated procurement, it’s essential to employ a multi-faceted change management strategy to alleviate stakeholder resistance. Any advice for a company adopting AI in procurement would be:

Mandate Consideration, Not Adoption: Rather than enforcing a blanket adoption of automated tools, advocate for a more nuanced approach. By mandating only the consideration of these tools, allows buyers the latitude to apply their expertise in identifying where automation can genuinely add value.

Celebrate Early Wins: As with any change management process the power of positive reinforcement cannot be overstated. By making initial successes highly visible across the organisation, you will validate the efficacy of the new tools and create a culture of belief in the automation process.

Invest in Supplier Training: The transition to automated systems is not just an internal change; it extends to suppliers as well. Comprehensive training in the new systems is crucial. This not only demystifies the rules but also provides real-time feedback, reducing administrative burdens and fostering a more transparent relationship.

Prequalify Suppliers: Quality should never be compromised. To maintain high standards during automated negotiations a rigorous prequalification process for suppliers is required. 

Expertise and Training: While this technology is too new to explicitly establish “centres of excellence,” the need for specialised training and system expertise is evident. Such centres could serve as hubs for disseminating best practices across the organisation and specialised knowledge in automated procurement systems which could extend as far as your industry.

Leverage AI for Inclusion: The principles of automation extend beyond just large suppliers. By leveraging AI, you can democratise the procurement process, giving smaller, long-tail suppliers a seat at the table and levelling the playing field.

These strategies provide a robust framework for successfully implementing automation in procurement processes, addressing and overcoming various forms of stakeholder resistance.

Formats and Implementation

Within the article it looks into the nuanced world of auction formats, highlighting the use of English, Dutch, and Japanese styles to suit different procurement scenarios. This is a crucial point, as the choice of auction format can significantly impact the negotiation dynamics and outcomes. The article underscores that the selected format should not be an isolated decision but should align seamlessly with the broader procurement strategy. This ensures that the automated negotiation process is not just a technological add-on but an integral part of the company’s overall approach to procurement.

Companies are shown to develop comprehensive scorecards that outline specific requirements, ensuring that suppliers are not only aware but fully understand the intricacies of the process and technology involved. The case of Walmart stands out, where ongoing training facilitates large-scale adoption of automated procurement. This focus on planning and training underscores the importance of preparation and education in the successful implementation of automation in procurement processes.

Critique from a Strategic Sales and Key Account Management Perspective

The article provides valuable insights into the automation of procurement processes, but from a sales and particularly a Key Account Management (KAM) perspective, there are some areas that warrant further discussion or critique.

Relationship Building: One of the cornerstones of KAM is relationship building, which often involves nuanced negotiations and personalised interactions. If a heavy focus is placed on automation and cost savings but doesn’t delve into how these automated systems impact long-term relationships with key accounts then it might not be a sustainable strategy. I agree that automation can streamline processes, but the lack of human interaction could potentially harm relationships with key suppliers or clients.

Customization and Flexibility: Key accounts often require customised solutions and flexible terms, which may not be easily accommodated in a rigid, automated auction format. The article could have explored how automation tools can be adapted or customised to meet the unique needs of key accounts.

Strategic Alignment: With strategic customers the focus is not just on transactions but on aligning with the client’s strategic goals. Auction formats align with procurement strategies but don’t extend beyond this to how sales and account management strategies should also be in sync with these automated processes.

Communication: Effective communication is crucial in managing key accounts. Automated systems can sometimes create a communication gap, as they may not be designed to handle the complex, multi-layered communication often required in KAM. Consideration needs to be applied to how to integrate effective communication strategies within automated procurement systems.

Value Beyond Price: Value propositions extend beyond just cost. It’s about the entire package—service, quality, price, reliability, etc. A focus on just cost savings will probably work in the short term but any automated systems need to evaluate suppliers based on a broader set of criteria.

The advance of AI in the business landscape is inexorable, and its impact on procurement processes is increasingly evident.

As sales professionals, particularly those involved in Key Account Management, it’s imperative that we not only adapt but also find ways to influence this evolving landscape. Understanding the technologies at play and the pressures facing procurement departments equips us with the insights needed to navigate these changes effectively. By staying ahead of the curve, we can better align our sales strategies with the emerging trends in automated procurement, thereby enhancing our ability to manage key accounts and ultimately becoming more effective sales professionals.