Some of the world’s biggest procurement organizations are serious about resilience, supplier diversity and AI. While these terms can be seen as supply chain buzzwords, companies are aggressively accumulating data to establish benchmarks for moving these initiatives forward and establishing their ROI.
Minus such data, proving the benefits of diversity, resilience and digitalization is largely anecdotal. AI is seen as one way of accumulating and analyzing such data but raises challenges of its own.
Achieving these goals is complicated, confusing and expensive, according to procurement professionals at MarcusEvans’ 2024 CPO Summit. Most companies are looking for tools that can better execute data collection, management and analysis. Regardless of where one resides in the supply chain, data is the baseline for negotiating everything from departmental funding to long-term supplier contracts.
Source: Chandrika Karavadra, “The Revolution Will Not be Limited to AI,” May 2024
Resilience
Supply chain resilience may supplant price as a top concern for buyers, according to procurement experts. In the past five years, the Covid-19 pandemic and an unprecedented shortage of semiconductors paralyzed businesses in the manufacturing and services markets. Manufacturing was unable to secure supplies during this period, and services companies faced network, IT and a number of related challenges.
For manufacturers, resilience means, in part, moving away from sole-sourcing; initiating supply chain mapping (both geographically and for all tiers of suppliers); rethinking inventory; auditing supply partners and categorizing them based on risk metrics. Companies have shown they are willing to pay more for goods if they receive them on schedule.
Covid exposed any vulnerabilities that existed in a supply chain, including partners that couldn’t meet their obligations. Most companies prefer to work with suppliers to improve their deliverables rather than dropping them. At the same time, businesses are adding suppliers to minimize the risk of relying on one partner for critical components or services.
That strategy is commonly known as “supplier diversity.” For many organizations, though, diversity is viewed through the DEI lens and is a business imperative.
Diversity
JP Morgan CEO Jamie Diamon is famous for committing to workforce diversity and Breanna Chan, vice president for global supplier diversity for the finance giant, pointed to research on diversity among employees and in management.
- In 2015, McKinsey found that companies with a high level of ethnic and racial diversity in management were 35 percent more likely to have financial returns above their industry mean.
- Credit Suisse found organizations with at least one female board member yielded higher return on equity and higher net income growth than those that did not have any women on the board.
- The Harvard Business Review identified a more nuanced benefit: nonhomogenous teams are simply smarter.
Diversity can also be accomplished within supply chains. Chan noted that businesses can seek certification as woman-, veteran- or minority-owned enterprises. Companies looking for diversity partners can use gov.CERT to find qualified candidates.
AI
Procurement professionals view artificial intelligence (AI) as a potentially valuable, but complicated, tool. AI is already widely used in contract management to search for and/or update obligations, terms, pricing agreements and the like. However, data protection is a significant concern for many businesses, and there are aspects to AI itself that procurement professionals need to understand. It’s likely that companies will be required to disclose their use of AI to their business partners because of its data-collection capabilities, according to Joseph Martinez, former CPO for BNY Mellon.
False information has also been created by generative AI (GenAI) and such information needs to be flagged and eliminated.
Gartner predicts that by 2027, 50 percent of organizations will support supplier contract negotiations through the use of AI-enabled contract risk analysis and editing tools. Sourcing and contract life cycle management is expected to be the area where GenAI can be most impactful on business over the next 12 months.
Attendees at the CPO conference held the same view. But before adding an AI tool, experts recommend a review of, or amendments to, corporate business processes. Departments that can benefit from the use of AI — such as finance, purchasing and legal — often remain siloed, attendees said, and advised that cross-functional teams prepare for the application of artificial intelligence.
Finally, after tackling supply chain disasters for the past five years, procurement departments are lobbying for funding to upgrade their networks, find or develop procurement platforms, hire skilled workers and return to “business as usual.” Corporate priorities have shifted, CPOs noted, and the economy has softened since the chaos of Covid-19. To secure funding, they said, a business case built on data is essential.
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