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May 31, 2017

The future of business spend management: how to stay ahead in a rapidly-changing market

Will procurement be replaced by machines in the next twenty years?

By James Nunns

The procurement function is under pressure to transform. Digitalisation, the rise of artificial intelligence (AI), and the changing workplace are all influencing the way we buy and pay for goods and services.

Donna Wilczek Vice President strategy and product marketing at Coupa

Once purely an ordering department, today procurement is a central point of contact for spending across the business. While procurement was traditionally tasked with buying goods and services at the cheapest price, the digital economy is creating  opportunities for supply management professionals to contribute to strategy, accelerate innovation, and reduce risk. In many industries, purchasing and global sourcing spend can account for more than 40 percent of overall costs. The incentive to reduce costs through modernisation therefore is high.

Investment in new technology is one strategy that promises to transform the procurement function. According to a recent Gartner report, the global procurement software market grew 10.8 percent in 2014 alone. And this rapid growth has led some to suggest that one possible future for procurement is its gradual replacement by algorithms. However this seems unduly premonitory because, as in other business areas, AI has the potential to augment, rather than replace, procurement.

One area where artificial intelligence offers a high return on investment is risk management. Most organisations today operate in a global environment. This gives natural and financial disasters, such as Hurricane Sandy and recessions, global consequences. The ability to anticipate commodity price volatility through rich item level data will give sourcing professionals the potential to make more informed decisions about complex sourcing. Imagine, for example, a decision dashboard, which could present seasonality trends combined with the probability of future disruptive events; calculate the overall effect on the supply chain; and show the buyer a range of preferable purchasing decisions.

The development of big data has the potential to transform predictive algorithms from useful add-ons to essential tools. With the combination of big data and advanced algorithms, the buyer could take on a more advanced role in risk management, using AI-powered data to carry out more intelligent supplier audits. Using AI would also allow for real-time monitoring of all suppliers and not simply monthly, quarterly, or annual reviews limited to top suppliers only as is often the case in global businesses.

One technology promising to revolutionise both the production and procurement process is 3D printing. In the future, anything a company can print by themselves on a 3D printer will no longer need to be externally procured. Analysts expect that the current global market for printers, materials and services of 5.2 billion USD in 2015 will grow to $20.2 billion by 2019. Buyers of the future will therefore not be responsible for procuring spare parts but also bulk materials for their 3D printing systems.

Procurement experts will need increasingly sharp analytical skills to pull useful insights from these big data sets. And it goes without saying that technological awareness will be vital. More than ever, the procurement function will be expected to evaluate the value of new and increasingly complex technologies. Moreover, procurement professionals will need to shift their organisations to value based evaluations rather than legacy feature based evaluations in order to optimise ever-shrinking budgets. It is this focus on value first that will be the hallmark of top procurement professionals.

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Procurement has a bright future. Rather than anticipating a hostile takeover from the machines, procurement professionals should invest time in familiarising themselves with the technologies of tomorrow. AI, big data and new forms of production will lead to a greater diversity of roles and responsibilities. Moreover, improved access to key supply chain intelligence will put procurement professionals in a better position to advise key operational functions.

Complexity and rapid change make choosing the right technology all the more important. Modern spend management platforms such as the Coupa Cloud Platform for Business Spend can help businesses realise incremental value over traditional procurement methods by bringing employees into the process, offering real-time visibility into spending habits and connecting sourcing to buying, e-invoicing, and travel and expense management for a unified approach to purchasing across the organisation.

In a future of faster product cycles, global competition and increased risk of supply chain disruption, procurement leaders need to not only continuously learn new skills but also invest in the right spend management technology to turn market insights into a competitive advantage. But future-proof procurement is about more than technology. More than ever, it means starting with a business value assessment, analysing the data and implementing technology that will be adopted by the global workforce and supply base to ensure contract compliance, decrease supply chain costs, and reduce risk.

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