The Future of procurement: machine learning in tail spend management
Welcome – to the future
There is a lot of hype surrounding AI and Machine Learning in discussions on the future of procurement; some futuristic and fanciful but some becoming pragmatic and useable.
We certainly believe that machine Learning & AI will deliver powerful new tools for procurement professionals.
And it is in the area of procurement data science where the impact will be felt first.
Its in the tail
The first real, pragmatic and immediate use of machine learning in procurement is in the tail – the 20% of spend / 80% of suppliers that never gets addressed.
Sophisticated machine-learning based spend analytics now provides the data-based foundation for organisations to finally unlock the benefits hidden in the tail.
Even organisations with developed spend analytics often leave the tail as “uncategorised” – a huge bucket of transactions, with suppliers that never get managed and who buyers don’t even know what they do.
Some of it is true one-off, but most can be, and should be, addressed.
Knowing what you spend and with whom is fundamental for procurement
Machine learning algorithms don’t stop categorising and our ProIntell spend tool accurately categorises all spend.
Algorithms just don’t get tired!
It starts with accurate categorisation.
ProIntell spend algorithms combine existing categorisations, combinations of fuzzy matching and automated database and web-scrape technologies to accurately categorise every supplier and every transaction.
The second step is learning from an organisation’s preferred suppliers to work through a sub-category by sub-category approach for where spend should be going.
This allows unmanaged spend to be directed to an organisation’s preferred suppliers according to the category strategy. This results in:
- savings (in our experience 10%-15%)
- improved leverage with key suppliers - the power of growth
- a reduction in the number of suppliers that require administration
- improved service to end-users negating the need for them to attempt to source their requirements.
Of course, this isn’t a panacea, it is just a tool.
It takes professional procurement resources to suitably leverage the information; source the spend, improve terms and manage stakeholders. Like many machine learning driven benefits, the effectiveness is driven by the synergy of artificial and human intelligence - it is the combination of procurement data science and expert procurement resources that makes the impact.
In summary, machine learning can now provide the breadth and depth of analysis and deliver the actionable insight in order to address the tail where, up to now, potential has always remained on procurement’s ‘to do’ list.
Points to consider
- Spend analysis is the foundation of procurement excellence
- Previously untapped benefits in terms of savings, efficiencies and end-user experience are now achievable from the long tail – the 80% of suppliers/20% of spend that never gets addressed
- Machine learning enables Tail Spend Management
- Machine learning and AI is not a panacea but it can deliver deep analysis and immediately actionable insight for expert procurement teams to action
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