In its first phase, procurement technology digitized the business process, but it didn’t radically change it. Instead of email and spreadsheets, there were systems, many of them integrated as Enterprise Resource Planning tools. These systems did nothing to transform the way organizations purchase goods and services, even as they made execution more efficient. For some parts, they replaced functions that human employees conducted with machine-to-machine automation. Tactical procurement systems enabled employees to spend under their local authorities, subject to rules-based compliance workflows. Purchase orders, payments, and compliance all take place with minimized human intervention. Strategic sourcing went from sending large physical documents to transmission of digital documents, all of which could be retained somewhere. But these were nothing more than binary versions of the cavernous warehouse at the end of the movie “Indiana Jones.” The intelligence in this so-called dark data was useless in that nobody put it to work.
In strategic sourcing, the kind of procurement that is large enough to merit issuing a Request for Proposals (“RFP”), we need to perform several tasks:
- Understand the problem we’re trying to solve
- Decide that we need to purchase a good or a service because we lack the internal resources to fix it
- Put together a document that describes our problem
- Include questions meant to elicit a better understanding of products in the marketplace
- Solicit responses from as many relevant suppliers as possible
- Review the submitted proposals and choose the best vendor with whom to negotiate a contract
What does an ideal outcome look like?
When we get everything right, the buyer has found the best product in the market for the problem that they face and has been able to negotiate a fair and reasonable price for it. The supplier has a new client who needs what they sell and with whom they can build a long-term relationship of mutual advantage.
Success means value-for-money for the buyer and long-term, economic compensation for the supplier. We might call the supplier’s benefit “value-for-relationship.”
The RFP is a reverse auction. Instead of having a single seller auctioning something off to a crowd of potential buyers who bid the price up in competition, we have a single buyer offering his commercial relationship to a group of willing vendors who bid the price down and who add features, in each case until there is a last person left willing to engage.
The irony of most procurement technology is that it fails to solve the problems organizations confront when it comes to purchasing goods and services.
What are these unaddressed issues?
- Poor internal stakeholder coordination: strategic purchases involve multiple business functions; it is increasingly challenging to get the buyer’s decision-making committee to agree
- Insufficient competition: an auction is as good as the number of engaged parties; three-bids-and-a-buy isn’t enough to obtain value-for-money and value-for-relationship
- Excessively lengthy cycles: the sooner we solve the problem, the better; time is money and procurement takes far too long
- Lack of value-chain visibility: buyers don’t have real insight into the value chain of suppliers, complicating risk management and the promotion of diversity
- Lack of engagement: procurement is a firmwide, strategic business function, yet in many organizations it is a siloed, bureaucratic exercise focused on compliance; this leads to disengaged stakeholders and sub-par outcomes
- Excessive bureaucracy: digitizing procurement was important, but it created its own set of problems because it’s easy to digitize bureaucracy and it’s difficult to improve processes; digitization enabled form-filling and the appearance of compliance, so we got more of it
The next wave of procurement technology is going to solve these problems.
It may or may not involve AI; it will include new digital tools, some of which may incorporate artificial intelligence.
What would these new features look like?
- Communications within a dedicated container around an accessible data repository: everyone involved in a procurement project will have a single dedicated place to communicate around all the data they need to execute the project, structured for easy, rapid access
- Scoring tools: a framework within which everyone in the internal stakeholder committee can evaluate supplier proposals quantitatively and qualitatively, with the answers rolled up into a weighted average score producing an initial cardinal ranking of vendor submissions
- Simplified supplier user experiences: easier onboarding, easier proposal composition, and direct, clarifying communication encourage supplier engagement
- Easy access: the ability to expose subcontractors on a project to the ultimate sponsor, including information about provenance and risk
- GenAI tools: tools leveraging data to generate first drafts of statements of work, supplier proposals, and initial scoring
- Transparent audit trails: these obviate the need for bureaucracy intended to ensure fairness by providing procedural visibility
When executed properly, these new features on top of a basic digital architecture can speed up cycles, generate greater competition, improve risk management, promote diversity, and, most importantly, raise procurement enterprise-wide to its true level of strategic relevance.
This is what we’ve built at EdgeworthBox. It is a contained, dedicated space for executing procurement that is accessible for stakeholders across the enterprise, either as a standalone solution or as a wrapper to the underlying, installed procurement technology. We have scoring tools, messaging, audit trails, and a simplified user experience. We’re working on Gen AI tools that leverage our existing repositories of public and private procurement data to generate first draft statements of work, first drafts of supplier proposals, and initial evaluations.
Please reach out to us if you’d like to learn more.
