Procurement and supply chain teams are taking lessons from Wall Street on how to manage volatility and rapid change. Against the backdrop of a disrupted freight market with rates and capacity under historic pressure from a buyer's perspective, innovative procurement teams are increasingly looking to understand how humans and machines might best interact to achieve optimal business results.
Further exacerbating the challenge is an increasing flood of available data, so procurement is searching for methods to embrace the complex world we now operate in. Ardent Partner's latest Big Trends and Predictions report (2022) forecasts that more CPOs will become "data-driven" due to an increasing awareness that getting better data and “becoming more intelligent” leads to better decisions and results.
Sourcing software that can enable more efficient procurement has existed for decades, and it gets more refined each year. Take Keelvar’s Intelligent Sourcing Automation bots, for example, which can fully automate the tactical buying process and have been instrumental for many of our global customers in supporting thousands of air freight and ocean freight sourcing events during recent crises. Despite this, in far too many businesses sourcing and procurement still tend to be handled manually by people using email and spreadsheets.
Parallels With Wall Street
In some ways, the digital evolution of the supply chain and transportation sourcing is similar to how Wall Street trading went in the early 2000s. For many decades, trading in investment banks was dominated by a culture of aggression. But it was also adaptable and fast-paced, so when smarter ways of making more money became possible, the industry quickly evolved to more profitable, automated trading strategies.
That change was subtle at first, but there was a gradual realization that options pricing and estimating implied volatility in future prices of stocks and commodities gave traders a competitive edge, and motivated richer models for making smarter investment decisions.
Traders could reason about an array of implicitly available signals in the market but were ultimately reliant on colleagues with scientific skills to extract that value. We started seeing quantitative analysts, computer scientists, and mathematicians in London and New York sitting at desks beside traders.
The ball was still in the trader's court, but year on year, more trading activity tended towards ‘algorithmic trading’ as quantitative models could drive automated trading strategies with lower risk profiles and higher returns. In addition, high-frequency trading took hold where software agents decided which bonds or stocks to buy or sell -- all at speeds humans couldn’t possibly operate.
Procurement today is following a similar path. A world is emerging where algorithmic supply chain management is tending in the same direction as algorithmic trading on Wall Street. And just as was the case with Wall Street, procurement and sourcing are playing catch-up with academic breakthroughs that are more than ready to be embraced and utilized.
However, unlike Wall Street, procurement teams have not had the resources to hire Ph.D. graduates to implement internal models. Instead, the adoption of such levels of automated sophistication can be realized by partnering with sourcing tech vendors that are laser-focused on developing intelligent systems to learn from data sets.
At Keelvar, we have a team of AI experts building sourcing bots to realize powerful Sourcing Automation potential for customers at the leading edge of procurement. And we also aim to educate those who, for myriad reasons, still believe automation software just isn’t the right path for their function’s digital sourcing transformation journey.
Barriers To Bots
In our experience, the primary barrier to adoption is a lack of appreciation for the significance of modern AI-powered techniques for wrestling with larger data sets and making more nuanced and better decisions, coupled with concern that high levels of automation will put jobs at risk. But traders didn’t disappear from Wall Street. Instead, their workload evolved, and strategic decision-making is still human-centric to the trading process.
Similarly, with Sourcing Automation, human workers are integral to the process. People are the ones guiding software agents and understanding the supply chain risks and opportunities. But unlike before, they now also have the time to focus on innovation and fostering key relationships.
The bottom line here is that there’s a lot of work in tactical buying that is operational and highly repetitive. And, if your sourcing team is going out to the market running many tenders or spot bids, they are fully aware of what best practice looks like. So why not automate it, and free them up to focus on more strategic work?
If A Bot Can Do That - A Bot Should Do That
If, for example, you are running many tenders for air or ocean freight, chances are you follow a set strategic sourcing process: you design your bid event, invite suppliers, publish the event and then manage the back and forth between multiple rounds of bidding. You construct scenarios to assess speed versus cost versus newer priorities and business goals around CSR and sustainable sourcing. But if this very prescriptive process is going over email or through a sourcing system -- a bot can do that.
Keelvar’s sourcing software agents – sourcing bots explicitly designed to handle the complexities of Air and Ocean freight – can operate your e-sourcing tool as a proxy user. They can autopilot opening and closing rounds of bidding, message carriers, and can do all of the things that you would expect a human operator to do up to the point where a human is looped in for the final award decision. In most cases, carriers may not even know that most of the process is not human-operated.
Plenty of lip service has been paid to procurement’s digital transformation, yet technology adoption has been notoriously slow across the industry. But with black swan events ever more common in supply chains, shippers and intermediaries will be severely limited in how they can move the goods they produce or buy without the help of modern technology.
Drawing parallels between high-frequency trading on Wall Street and moving towards higher frequency trading in supply chain management unearths striking similarities about the potential trajectory of procurement’s technological evolution. And while it’s highly likely that some sectors of the procurement industry will have a greater appetite for automation than others, the trickle will likely become a flood as soon as it becomes more widely understood how much more effective and efficient the automated procurement approach is.
Talk to us today about our sourcing optimization and sourcing automation offerings, or request a custom demo here.