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Cognitive Procurement: The Final Frontier

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Table of Contents

1. Introducing Cognitive Procurement… .................................................................................. 3

1.1. Cognitive procurement is the future of procurement .......................................................... 3

1.2. There is more to cognitive procurement than just task automation ............................. 5

2. What will cognitive procurement let us do that was previously impossible? ................. 7

2.1. Enhancement for analysis and decisions .............................................................................. 7

2.2. Shaping and influencing the future ......................................................................................... 9

2.3. User experience as a conversation .......................................................................................10

3. Conclusion .............................................................................................................................. 13

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Not so long ago, the technology sphere was all about the victories of Google’s AlphaGo in the game

of Go (in 2016 and again in 2017), a game that is “vastly more complex than chess, and possesses

more possibilities than the total number of atoms in the visible universe.” This victory illustrates the

latest progress in terms of Artificial Intelligence (AI) and such advances are “no longer reserved for

spectacular demonstrations” as McKinsey notes in the introduction of their article “Four fundamen-

tals of workplace automation” in which they give more concrete examples of the impact of AI on our

everyday life.

These developments will also have an impact on Procurement. Our whitepaper will explore the

consequences and opportunities of technological advances that change the way humans and tech-

nology cooperate. We will also highlight how this can boost performance and unlock new capabili-

ties. In the world of Procurement, the application of these latest technologies has a name: Cognitive

Procurement.

But, what is Cognitive Procurement?

Cognition, as defined by the American Psychological Association, relates to the “pro-

cesses of knowing, including attending, remembering, and reasoning; also the cont-

ent of the processes, such as concepts and memories.” These processes use existing

knowledge and generate new knowledge.

Cognitive procurement is the future of procurement

In order to define the term, we can look at the following definition from Spendmatters, an authority

regarding Procurement technology:

• Using systems and approaches that are able to learn behavior through education

• Managing structured and unstructured data

• Supporting forms of expression that are more natural for human interaction

• Continuing to evolve as computers experience new information, new scenarios and new

responses

• Unlocking new insights and enabling optimized outcomes

Cognitive Procurement: The Final Frontier

Introducing Cognitive Procurement

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The definition above has tremendous implications for the Procurement world and, as Supply

Management puts it, “‘Cognitive procurement‘ will drive [the Procurement] profession forward” and

early adopters will certainly have a competitive advantage.

Cognitive technologies will enable organizations to deliver more value in a more efficient way. Not

only because it makes performing tasks easier, but first and foremost because it enables new ope-

rating models, new processes and new approaches. Consider the examples and terms used in “DHL

2016 Logistics Trend Radar”, an in-depth report on the impact of new technologies on supply-chains:

• “Batch size one”

• “Convenience logistics”

• “zero-length supply chain”

The hyper-personalization of products is made possible thanks to new technologies and this obvi-

ously impacts the whole supply-chain. Procurement needs to keep up and evolve. To paraphrase

the title of a Harvard Business Review article: “Don’t Automate, Obliterate.“ Although the article is

from 1990, it still raises valid points. Organizations can only get the most value from new technolo-

gies if they evaluate them with the following question in mind: “What will new technology let us do

that was previously impossible?”

“In the future, adopters of […] “cognitive procurement” will be the ones driving the profes-

sion forward. […] Essentially, what this amounts to is agility. Something Chris Sawchuk,

principal & global procurement advisory practice leader at The Hackett Group advoca-

tes if the sector is to flourish. According to Sawchuk, 74% of procurement professionals

say agility is important, yet only 36% say they know how to improve it. “Agility is there,

it’s just not systemic,” said Sawchuk.”

Supply Management, April 2016

What will new technology let us do that was previously impossible?

“Technology lets us rethink the very structure of how we do things. Consider, for ex-

ample, the way that Uber and Lyft have transformed urban transportation. There were

connected taxicabs long before Uber — but all they did was to recreate the old process.

What we got for our connectivity was a credit card reader in the back, and a small screen

showing us ads. What Garrett Camp and Travis Kalanick realized was that humans were

now augmented by location-aware smartphones, and so you could completely rethink

the way you summoned a car. It would be utter magic to someone from the past — that

you can click on your phone, and summon a car to whereever you are, and to know just

how long it will take for a car to pick you up.”

Tim O’Reilly, Don’t Replace People. Augment Them.

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The transformative impact of technology on Procurement operating models (people, process, and

technology) is brilliantly illustrated by this chart taken from Accenture’s report Procurement’s Next

Frontier: The Future Will Give Rise to an Organization of One:

There is more to cognitive procurement than just task automation

One aspect that is most often put forward in discussions on new technologies is their impact on task

automation. New technologies push the boundaries of what can be automated even further. Automati-

on no longer applies to only simple and repetitive tasks. It has expanded into more complex domains.

Automation still holds a great deal of untapped potential for Procurement. According to a study

quoted by Spendmatters in an article from July 2016, there are still many areas of Procurement pro-

cesses that are not yet automated:

“68% percent of survey respondents [reported] no automation in supply relationship.

Half or more of the procurement and finance professionals surveyed also reported no

automation in supplier information management, electronic supplier commerce and

strategic sourcing processes at their organization.”

Spendmatters, What Procurement Processes are Organizations Automating the Most?

Many organizations do not take full advantage of the potential and opportunities that the latest tech-

nological advances have to offer. The MIT Sloan Management Review (and many others, including

Tim O’Reilly, an author, publisher, investor and thinker on computer tech-nologies) writes in an article

from March 2016 that the purpose of cognitive technologies is actually “to augment rather than

replace the work of humans.”

Source: Future-of-procurement-Accenture-East-West

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In its article, the MIT highlights the various capabilities of cognitive technologies and what it means

for us, humans, in terms of impacts on the tasks we perform:

As listed in the table above, there are four task types that cognitive technologies transform:

• Analyzing numbers

• Analyzing words and images

• Performing digital tasks

• Performing physical tasks

We will cover some of them in more detail in this white paper by focusing on the question “What will

new technology let us do that was previously impossible?”:

• Analysis and decision-support covering the cycle from being “descriptive” to “prescriptive”

• User experience by moving to “conversational user interfaces”

“People will continue to have advantages over even the smartest machines. They are

better able to interpret unstructured data — for example, the meaning of a poem or

whether an image is of a good neighborhood or a bad one. They have the cognitive

breadth to simultaneously do a lot of different things well. The judgment and flexibility

that come with these basic advantages will continue to be the basis of any enterprise’s

ability to innovate, delight customers, and prevail in competitive markets — where, soon

enough, cognitive technologies will be ubiquitous.“

Just How Smart Are Smart Machines?, MIT Sloan Management Review, March 2016

Source: http://sloanreview.mit.edu/article/just-how-smart-are-smart-machines/

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What will cognitive procure-ment let us do that was previously impossible?

Enhanced analysis and decision-making

“One of the main reasons we cite digitization as a main force shaping the second

machine age is that digitization increases understanding. It does this by making huge

amounts of data readily accessible, and data are the lifeblood of science. By “science”

here, we mean the work of formulating theories and hypotheses, then evaluating them.

Or, less formally, guessing how something works, then checking to see if the guess is

right”

Erik Brynjolfsson and Andrew McAfee in The second machine age.

“Procurement executive’s ability to read trends accurately in a rapidly changing busi-

ness environment can make all the difference between surviving or going under.”

Gerard Chick and Robert Handfield in The Procurement value proposition

The quote above illustrates how technology enhances the decision-making process. The most ob-

vious way that technology impacts this process is that it enables us to collect more, better quality

data. The “Internet of Things”, or IoT, for example, tremendously increases the amount of data that

organizations can collect, track, and monitor thanks to the use of smart sensors. High quality and

useful data (i.e. accurate and complete) is, in the business world, a key prerequisite to any analysis

and to any decision.

Collecting data is one thing, but the real-time aspect is even more important, as illustrated by the

quote below:

“Real-time” is intrinsic to the IoT movement as it connects more and more “things” together; Gartner

forecasted that 6.4 billion connected things would be in use worldwide in 2016, and this number

is expected to grow. Machine-to-machine communication that is centered around data is all about

“real-time” and opens new horizons in terms of spend analysis. Spend data can be analyzed in re-

al-time and enriched with other data sources to provide more context that may reveal unsuspected

trends or correlations. This provides the best in-sights into spending, which, among other things, in-

creases agility and speeds up the decision making process. A further application for new technology

is detecting potential fraud. Credit card companies have been using algorithms to detect potential

fraud for a long time by tracking various parameters (amount spent, location, etc.) to identify transac-

tions that are out of the ordinary. This approach is now being applied to Procurement. For example,

the Singapore government uses AI to detect and prevent Procurement fraud.

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As highlighted in the definition at the very beginning of this whitepaper, cognition enables the crea-

tion of new knowledge. Here too, technology is able to help and even surpass humans:

See the video: Jeremy Howard: The wonderful and terrifying implications of computers that can learn

Although impressive and with life-changing implications, the example above may not immediately

seem relevant to Procurement because it is related to cancer treatment. However, the same con-

cepts and capabilities can be applied in other areas which are more obvious use for Procurement

professionals. For example, consider this quote from an article about how credit card companies use

the latest technological tools to understand spending habits of their customers:

“It allows them to notice patterns that were previously invisible or extremely difficult to

notice. For instance, MasterCard‘s big data analysis has shown that different cities have

different spending patterns. They have also identified different online personas that can

help them increase the number of “positive” outcomes, such as spending or activation.”

It is easy to transpose what MasterCard has been doing to the Procurement world: better insights on

spend with suppliers and better understanding of internal customer needs (and with understanding

comes influencing!). What is important to remember is that technology now makes it easier for orga-

nizations to move further along the analytics pathway, as described by Gartner:

Source: Gartner (September 2013)

For a long time, Procurement organizations have used “business intelligence” systems that were

only focused on descriptive applications. The rest was left to human data analysts.

Now, as illustrated above, technology is addressing:

• the predictive part: what will happen

• the prescriptive part: what steps to take in order to influence what will happen

Although enticing at first, collecting more and more data can create its own challenges and issues.

A big data initiative can easily turn into “fat data” leading to infobesity and analysis paralysis! One

should always remember that data alone brings no value. It is what you make of the data that has

value!

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Shaping and influencing the future

Obviously, to achieve both predictive and prescriptive capabilities, some effort has to be put into

the technology by the developers and by the “operators,” but the work and time involved is actually

much less than most people think. There are several ways to unlock the benefits linked to “predic-

ting and influencing” the future:

• program the technology by coding rules (e.g. “if this then that”)

• let the machine learn to develop autonomy and proactivity

To illustrate how the “if this then that” logic could be used, here are a few scenarios that could be

defined in a flexible Procurement platform that would enable it to be pro-active based on rules and

thresholds defined by the Procurement organization:

• If spend of supplier under XXX, then block supplier

• If quality of supplier (ppm or on-time delivery perf.) is under XXX, then launch audit / corrective

action plan / increase share of business allocated to other sources, etc.

• If deadline or expiration date of RFQ / contract then trigger specific events (reminders, exten-

sions, etc.)

• If some part of the spend has been left untouched for too long (e.g. no RFQ or negotiation in

the last XXX years) then create an alert

• Alerts and recommendation for actions linked to raw material price trends

These are just a few examples, but there are many more!

All the above involves some coding, programming, and configuring by humans. The current state of

machine learning allows machines to learn by themselves. You do not need to program algorithms

related to the task(s) the machine will perform, but rather program it to learn what to do in different

situations. Most of the time, this happens through showing and teaching. The machine will learn and

continuously improve until, in some cases, it exceeds even our capabilities.

One of the best examples of this approach is related to autonomous vehicles, which is a

competitive field because the market is huge and rather new. Without going into detail,

there are two different approaches to developing the intelligence that will drive your

car for you. One involves programming everything. The other focuses on teaching

the car what to do. For example, this is what George Hotz did to develop his auto-

nomous car in his garage. He drove the car for hours with the purpose of having

the car record (observe) his drives and learn from them.

The same idea is applicable to Procurement. A machine could learn users’ ha-

bits and preferences with the aim of guiding them better (demand manage-

ment) and serving them better (preparing reports in advance, for example). It

could also learn category-specific characteristics and develop best practices,

or learn at the company level (culture, business practices, etc.). Here are several

examples of what a learning machine could do in a Procurement context:

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• Predict next purchases (at company or individual level) and initiate Purchase Requisitions (ba-

sed on history and patterns)

• Forecast demand and trigger actions (alert, RFQ, etc.)

• Identify materials requiring a new source based on incumbent supplier’s status / evolution, and

based on material characteristics (volume, technology, etc.)

User experience as a conversation

Another area where new technologies, and specifically AI, can have a tremendous impact is in

improving the user experience, and the experience of using Procurement, not just Procurement

technology. Procurement is the link between the outside and the inside. It connects suppliers with

internal stakeholders. On each side, there are people that Procurement needs to serve and manage.

A way to reinvent the Procurement user experience would be to transform the “visible part of the

iceberg,” i.e.

• the technology used to work with Procurement (users = suppliers and internal stakeholders),

• the technology used by Procurement to operate (users = Procurement staff),

into something more like a Procurement assistant.

This concept relies on interactions based on conversations (natural language) instead of the traditio-

nal interaction format of clicking on icons and buttons in a software. The conversation could happen:

• in the Procurement software itself (in a chat window, for example)

• outside of the Procurement application, in a chat client (which would work using standard pro-

tocols like Jabber or XMPP to be truly interoperable and not limited to one specific chat client).

The interaction would be with a machine, a.k.a. a chat bot. This bot would be intelligent enough to

understand what is being said or written and to answer with meaningful insights and information

(think about Apple’s Siri, Microsoft’s Cortana, Facebook’s M, etc.).

This application of AI is already well under way in the B2C area. Gartner predicts that more than 25%

of households in developed countries will use virtual assistants by 2019. No wonder then, that most

AI start-ups are concentrating their efforts on developing virtual agents or assistants:

Source: TechEmergence 2016

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What happens in B2C and what happens to applications that we use in our personal life always ends

up impacting business applications.

If you consider the chart below, it is clear that AI applications that enable such assistants are a priority:

• Voice recognition & response: this is the interaction part of the assistant, how it interacts with

users

• Machine-learning: this is about making assistants aware of who they are talking to by learning

from each conversation

One of the most interesting use cases of the Procurement Assistant is for guided buying. Someone

who needs to buy something (indirect or direct) will interact with Procurement via a chat. The chat,

at least at the beginning, is conducted by a bot who tries to understand what the person wants.

Then, based on the Procurement strategy (preferred suppliers, preferred items, contracts in pla-

ce, history of purchases, etc.), the assistant will propose solutions. If,

for whatever reason, the machine reaches its limits (no solution,

not understanding the conversation), there would be a smooth

and almost transparent hand-over to a Procurement officer. The

conversation could even involve suppliers to check availability,

discuss conditions, etc.

Every conversation would be an occasion to:

• learn about the person’s preferences (preferences that will

speed up next conversations)

• enforce guidelines and procedures (fraud and risk prevention)

• secure authorization for further conversations (“is it ok to

remind you when …”)

“Most of the enterprise software used today by giant corporations is bloated and mi-

saligned with the expectations of people who use them daily. On one hand, consumer

software is becoming increasingly intuitive, simple and convenient. On the other hand,

enterprise software is increasingly associated with bloated software, slow development

cycles, customer lock-ins, and vendor dependency.”

Chatbot Magazine, “Chatbots will make a splash in the enterprise first”

Source: https://www.raconteur.net//wp-content/uploads/2016/08/most-used-AI-enterprise-solutions.jpg

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Another use case is for operational support in the daily activities of the Procurement team and of

suppliers. For example, when searching for information on a supplier, on a Purchase Order, etc.,

the query would be constructed in natural language (either written or spoken) instead of going to a

search engine interface. This kind of support can also be extended to the supplier side. This could

cover areas related to using the Procurement technology itself. It is also possible to extend the con-

cept to provide richer support in the case of business-related questions. For example, some com-

panies are already successfully using such capabilities “to help provide prompt and more efficient

ways of answering invoicing queries from […] suppliers.” As the Procurement Assistant is connected

to the rest of the information system, it can easily query databases to retrieve the information and

answer requests.

This could be extended even further. The Procurement assistant could be proactive and initiate con-

versations with the relevant people. Some use cases are obvious and involve reminders. Contract

expiration, RFQ deadlines, etc. are all events that you do not want to miss. The Procurement as-

sistant would detect these events and initiate a conversation with the user. In addition to serving as

a reminder, the bot would ask what the person wants to do and then perform the action. This would

also work for more advanced use cases; not just those related to a time deadline. On top of that, as

mentioned earlier, the machine could learn from each interaction and enrich its proactive engine to

propose recommendations.

This new type of conversation-based user experience comes with its own risks and challenges and

relying on conversations only has advantages if done in a clever way. This is because for many tasks

and operations, it is easier to click on a user-interface element (button, icon) than to type or say a

full sentence. Therefore, the interactions between users and the Procurement assistant need to

have the right mix of click-based interactions and conversation-based interactions. This can easily

be addressed by, for example, adding clickable elements within the conversation. Many chatbots

already do this:

On the user side, the conversation is rather short. The questions are precise and targeted. At some

point in the conversation, a clickable button is used. This corresponds to a very probable use case

and it avoids having users type a long sentence, which would be less efficient and would also increa-

se the risk that the bot would not understand it.

Source: Messenger Bot Kayak

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ConclusionNew technologies have a transformative impact on our world that goes far beyond Procurement.

Whatever we may think of them, these technologies are here to stay. Therefore, at least for the Pro-

curement domain, not using them would be a mistake. Each Procurement organization must assess

its current capabilities and determine if new technologies would improve them and if they would

deliver even more value to the rest of the company. As Chris Sawchuk from the Hackett Group calls

it, an “honest inventory of procurement’s identity and culture” is the place to start.

When considering how to use these technologies to the greatest benefit, it is important to keep

in mind that real success and the most beneficial advantages are achieved when technology and

people cooperate!

See the video: TED - Shyam Sankar: The rise of human-computer cooperation

This human-computer collaboration serves the purpose of liberating Procurement professionals

from strenuous, boring, administrative and low-value tasks. By automating or taking care of such

tasks, machines will enable Procurement resources to truly be knowledge workers and not admi-

nistrative clerks. This is also good at the company level because they will focus on what they are

being paid for: adding value. This is also good for the new generation of Procurement practitioners

because it will boost their interest, job satisfaction, and motivation.

“If we can get the task allocation right, the humans of the future won’t be fighting with

robots to shovel dirt, find landmines or drive mining equipment. Rather, humans will be

caring for people and having interesting conversations about how to make the world a

better place. They should be doing whatever they love and spending time with whome-

ver they love — which will hopefully not be a robot.”

Techcrunch, The assimilation of robots into the workforce as peers, not replacements,

July 2016

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Phone: +43-1-80 490 80

Editor: Bertrand Maltaverne

Senior Content Manager

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