The Limitations Of Tech On Procurement’s Cost-Cutting Efforts

The procure-to-pay space is not immune to technological disruption, particularly as tools like blockchain, artificial intelligence and predictive analytics enable automated, efficient and smarter decision-making.

Procurement officials are eager to at least explore these tools, the latest research suggests. But the industry is also facing a predicament as it continues its journey through digital disruption: According to the latest analysis from AlixPartners, technology no longer guarantees easy cost reductions, and the procurement department is headed for “rough seas” – despite the benefits that technology brings.

An Appetite for Artificial Intelligence

According to a new survey, “Enabling Smart Procurement” conducted by Forrester Consulting for spend management firm Ivalua, most companies are gearing up to make a significant investment in artificial intelligence for their supply chain, procurement and finance management operations. An additional 25 percent of the executives surveyed in this industry said their firms will make smaller investments in the coming years in order to assess ROI.

Researchers found that procurement teams have a few key focuses in mind when it comes to AI disruption.

Professionals surveyed said they anticipate AI to have the greatest impact on supply chain management by alerting the enterprise to any disruptions. More than a third of survey respondents also pointed to identifying supply compliance issues and detecting fraud as other key benefits of AI in the procurement space.

Automation in voice processing and purchase approval were similarly popular focuses for executives considering how AI would impact their profession.

“Ultimately, if organizations can improve their data quality and address other challenges, they can tap into a wealth of AI benefits,” concluded Ivalua corporate CEO David Khuat-Duy in a statement announcing the research last week. “Whether it’s automating low-value tasks or providing right insights, AI can have a transformational impact on procurement and supply chain operations. For example, AI offers huge potential to enable smarter procurement, which can create efficiencies and enable better decision making, offering a real competitive advantage to those that adopt.”

The name of the game, of course, is cost savings and strengthened bottom lines. But separate analysis from AlixPartners warns that procurement’s appetite for technology could put a squeeze on the buy-side of the equation.

Increasing Cost Pressures

In its “Rough seas ahead for procurement” research report, AlixPartners acknowledged the disruptions – often beneficial – that technology has brought to the procurement space thus far. While tools like AI are bringing efficiency and intelligence to procure-to-pay processes, AlixPartners highlighted software platforms like Ariba and Coupa as boosting transparency in the market, enabling corporate buyers to have greater negotiation control with their vendors.

But according to AlixPartners, that same technology that promotes transparency down the supply chain is capping buyers’ ability to pass back any price increases to end buyers.

“Advances in technology have also increased productivity and lowered costs for businesses and consumers,” the report stated. “Robotics automation, artificial intelligence and other process enhancements have significantly reduced expenses across many industries, automating low-skilled tasks and allowing a fewer number of workers to focus on higher-valued activities.”

But the transparency associated with these technologies is “putting a cap on the ability to pass price increases on to consumers,” the report warned.

Despite thus challenge, chief procurement officers will face increasing pressure to reduce costs, particularly as the market signals a reversal of previous globalization, instead moving toward protectionism, trade disputes and a tightening labor market, all of which are forcing price increases onto cross-border supply chains.

AlixPartners noted that in the recent stretch of globalization, it was fairly straightforward for procurement teams to reduce expenditures by as much as 12 percent or more through the use of automated technologies. Today, however, these tools cannot guarantee the persistence of buy-side negotiating power or effective cost-cutting strategies.

“Given these trends,” the paper said, “now is the time to prepare for a more inflationary cost environment … With communication and a proactive and coordinated strategy, the CPO can prepare for the coming instability.”