In many ways, a company’s procurement operations represent one of its best opportunities to drive new innovation and business value. In fact, one report found that 65% of the total value of a company’s products and services comes directly from its suppliers, which for many companies represents millions or even billions of dollars. So, making even a minor improvement in the efficiency and/or effectiveness in this area can end up driving significant financial benefits for a company.
However, recognizing this opportunity and actually taking advantage of it are two different things entirely. Most companies have already picked off the low-hanging fruit: they’ve done everything they can to extract savings from their procurement operations using traditional methods and technologies. To get to the next level of value and start driving new sources of savings, they need to take a dramatic step forward. One way to take such a step is by leveraging a transformational technology like cognitive computing.
Cognitive technologies in procurement
Procurement is a domain that is ripe for cognitive disruption: it’s both data-heavy and transaction-heavy, and as I mentioned, it typically involves large financial potential. Cognitive computing empowers human procurement professionals to do more than they possibly could using traditional technologies alone. By helping procurement professionals find better information and insights faster, cognitive systems can enhance situational awareness, speed up the decision-making process, and ultimately drive superior procurement performance.
Although the entire source-to-pay cycle can benefit from cognitive enablers, I’d like to highlight two specific areas of this process in which we are currently using cognitive computing to drive significant value: sourcing and contracts.
Sourcing events can be transformed by applying cognitive capabilities to help with tasks such as:
- Defining the correct request for proposal type
- Identifying appropriate suppliers to participate based on commodity category, region, or industry
- Delivering intelligence on market signals and pricing pressures
In general, these capabilities help procurement professionals bypass the time-consuming research and manual data aggregation that are typically part of the sourcing process. Instead, cognitive systems give procurement professionals the insights they need to quickly make informed decisions about price points. This allows them to drive business value and cost savings by finding the right suppliers for a specific situation, identifying the optimal price points, and then moving to the contract negotiation stage quickly.
Cognitive computing can also help make the contract negotiation process smarter and more comprehensive. Procurement organizations can deploy cognitive-enabled applications that can automatically identify relevant terms and conditions matched to a legal library and taxonomy, identifying similar contract terms that have been used in the past. This contributes to a shorter contract negotiation cycle, which in turn represents an opportunity for cost savings and optimized resource utilization.
In addition, cognitive systems can create contracts that automatically target ideal price points, based on expected volume and contractual discounts. The end result is that procurement organizations can quickly and easily turn out comprehensive contracts for specific regions and commodities while feeling confident that those contracts include the most favorable terms and conditions possible for the business.
SAP Ariba and IBM are working together to help make the kind of intelligent procurement described in this post a reality for our customers. Our partnership brings together the best of cognitive procurement capabilities from IBM Watson, expertise from the IBM Procurement Services team, and an extensive portfolio of industry-leading procurement solutions from SAP Ariba.
Visit us at Ariba Live, March 5-7 in Las Vegas, to explore intelligent procurement based on IBM Watson, and see a live demonstration of some of our first use cases. You can also download our white paper “The Road to Intelligent Procurement” to learn more.