Cognitive Sourcing - the Next Level

Editor’s Note: Jim Baehr is partner with Sourcing Strategies Group LLC

The News

On an uncharacteristically warm day in late October LevaData convened its 2019 Cognitive Sourcing Summit (CSS) at the Silicon Valley Capital Club in downtown San Jose. The goal of the Summit - to share key learnings with front-line practitioners and thought leaders regarding the impact and influence of cognitive sourcing technologies on Procurement's digital transformation. This was LevaData's third summit furthering the message that Cognitive Sourcing (CS) is and will continue to play a critical role in shaping the digital future for Procurement.

To the credit of LevaData the program was balanced. It addressed both “the good and the not so good” state of the digital transformation of Supply Management. It started with a broad overview the digital landscape from Ray Wang – Principal Analyst and Founder, Constellation Research, Inc. and ended with a properly acerbic declaration by Dr. Elouise Epstein of AT Kearney that “traditional procurement technology is wholly inadequate to support the digital revolution”. Richard Barnett of LevaData also unveiled the results of its 2019 Cognitive Sourcing Study noting - “digital transformation is underway … but organizational readiness is declining.”

The Current State

Presently, there are two basic approaches to automating procurement - through Enterprise Resource Planning (ERP) systems or cloud-based applications that optimize the procurement process. ERPs require customization to satisfy the needs of specific business processes; or, the business process must be re-engineered to align with the ERP. The related cost is expensive and delivers mediocre results and as Dr. Epstein stated, “in Digital Procurement mediocrity is no longer acceptable”. Cloud-based applications attend to the back-office functions. They are essential to address operational workload and spend management with the intent of freeing time to focus on more strategic responsibilities.

Many Procurement professionals tend to use the terms procurement and sourcing interchangeably. There are many descriptions for these different, but linked actions. Procurement is about acquiring goods or services through special means or effort. Sourcing is about proactively searching for goods or services leading to the crafting of buying strategies intended to meet business requirements over a period of time. When searching for information on the current state of Digital Procurement we see the terms Cognitive Procurement and Cognitive Sourcing are likewise used interchangeably. Cognitive implies a self-learning process applying artificial intelligence, natural language processing and machine learning.

Attend a procurement focused gathering and begin a discussion of Cognitive Sourcing and it's probable you'll experience the following - the participants won't be aware of Cognitive Sourcing or they'll equate Cognitive Procurement with Cognitive Sourcing. And, while CS is in its introductory stages, it's unfortunate that more Procurement professionals aren't aware of this emerging tool because CS has the capability of delivering dramatic advances for both Strategic Sourcing (SS) and Category Management (CM).

Ask anyone engaged in the early days of SS and CM and they'll tell you that it was a significant challenge to track down the data required to make informed decisions on anything from true costs to projected risks. It was a difficult process that took hours … scouring industry journals, reviewing business registers, searching the then unwieldy internet … you get the picture. Regardless of the soundness of the research Sourcing Teams were still disadvantaged when negotiating with bidders. Even though information was power, the Sales team had the advantage.

Category Management likewise demands more information derived from more granular data to fully leverage the process. For the sourcing side of any Procurement organization to achieve its goals - assurance of supply, quality, service, improved cost and managed risk - it needs to deploy purpose-built technologies like Cognitive Sourcing.

In a September 2019 interview, Rajesh Kalidindi the Founder & CEO of LevaData pointed out that Cognitive Sourcing exists to do two things: scour the web for all publicly available data points that might be relevant to a supply chain manager's operation in terms of opportunities to gain advantage or risks to avoid. Cognitive Sourcing takes data “as it comes in and turns it into insight by ranking the information based on its impacts.” Procurement professionals aren't just asking for pricing. Having the most current and best available information empowers them when negotiating with vendors or managing supplier relationships.

The Next Level

In Procurement we must understand where we are, what we can do, where we want/need to go and how to get there when it comes to “digital transformation.”

The following are critical behaviors for advancing our digital identity:

Discover - if we’re not already familiar with all the different technologies out there, build our digital awareness
Adjust - lean into our discomfort by looking into technologies that can outperform what we have and what we've been doing
Deliver - we need to stop being consumers of technology and start being producers - Digital Procurement isn't a spectator sport

Contrary to popular belief, Strategic Sourcing isn't dead.

It's been in a lull waiting for technology to catch-up. Admittedly, at this stage Cognitive Sourcing isn't for everyone. It's primarily for use in discrete manufacturing and new product introduction (NPI).

But, as more companies implement AI-powered strategic sourcing technologies, it will be.

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