CAPS Procurement Analytics Study Highlighted in Inside Supply Management

This month’s Inside Supply Management published by the Institute for Supply Management features an article announcing the launch of a study being undertaken by the Center for Advanced Purchasing on the evolution of procurement analytics.  I am leading the study along with Tom Choi and two of our students, Jaikishen Venkitaraman and Shweta Murthy, working at the SCRC.

The study seeks to address the following questions regarding the rapidly changing and often “hyped” world of analytics and how it relates to the procurement function:

1. What types of problems and questions faced by procurement executives can benefit most through the application of analytical solutions (e.g. innovation, strategic cost management, risk mitigation, etc.)
2. What forms of cognitive solutions are emerging to drive real-time decision-making and predictive sourcing capabilities? (Examples include mapping product and service genomes, “block chains”, embedded procurement solutions, elimination of purchase orders, buyer assistance, and other solutions).
3. What sources of data must be developed and adopted to support these analytical solutions? (Supplier analytics, technology trends, risk metrics, social media, open source data, etc)
4. How can cognitive solutions enhance the end-user experience and improve service levels?  Examples include visibility, capabilities, knowledge management, cost reduction, contract compliance, risk, and flexibility in the face of uncertainty?
5. What changes in the procurement process will be required to enable integration of analytical solutions? (Re-engineering procure to pay systems, working with “dark data”, that represents 80% of the unstructured data in the ecosystem, etc.)

There are an incredible number of procurement platforms. At last count – we found 160 different analytical platforms targeting procurement. That number has probably doubled. In particular, cognitive tools are emerging as new ways of tapping into specific questions that may exist that are driven by the business.  Most of the current tools focus on spend analytics – but relatively fewer are focused on contracts, risk, and supplier life cycle management.  Cognitive tools are still largely on the horizon.

The goal of cognitive tools is to automate the processes of searching for prospective suppliers through online catalogs, evaluating suppliers with respect to multiple attributes, screening qualified suppliers and completing the purchase order, preventing specification ambiguity.  This relies on an agent-based purchasing system to act as a substitute for the role of the human decision-maker. These agent-based systems can support purchasing managers in a series of strategic and tactical purchasing decisions, as opposed to traditional OR techniques such as the analytic hierarchy process and multiple attribute theory can handle only a single optimization problem of purchasing decisions (e.g., supplier selection for a specific award).

However, to be able to use cognitive analytics, requires the ability to “ask the right question”. This is where the bridge between the stakeholder and the analytics provider must be made by procurement.

The best way to address this is to pilot analytics one step at a time. This is not something you can jump into overnight, buy the software, and start using it! The journey needs to progress in stages, and these are accompanied by organizational learning. Organizations must think about their capacity to absorb the new analytical approaches – and this means education, experimentation, training, and pilot projects.