A New Era for Big Data in Procurement: The Convergence of The Internet of Things, Blockchain, and Artificial Intelligence
There is an important issue in the world of Procurement. While the future of the function is at stake, too many CPOs and Procurement organisations are looking at the future of Procurement solely through a technological prism and consider technology as the end (when it is the means to an end).
It is no surprise then that the questions that are at the top of their agenda are centered around what technology (RPA, blockchain, big data, AI,…) they should focus on and implement. It is as if this or that piece of technology would magically fix all of their problems.
Focusing on the what, and not on the why, is like putting the cart before the horse.
This is precisely what I see happening with some of the latest technologies like AI and blockchain. The thing is, they have considerable potential for Procurement and Supply Chain management (see here for what blockchain truly means for Procurement). However, the way Procurement approaches them is wrong and jeopardizes the chances for organisations to use them as a value/business enabler and not just as a mere tool.
It is time to go beyond the hype and buzzwords, to forget about the technological aspects (comprehensible only by experts as new technologies are more and more complicated in their inner workings) and get to the bigger picture to see them with business eyes (comprehensible by all).
When considering IoT, Blockchain, & AI, the bigger picture is about data, insights, & actionable intelligence: the core of business activities! Combining these technologies represent an opportunity to address the big data challenge: Value, Volume, Variety, Velocity, Veracity, and Variability.
Putting technology back where it belongs…
“When we talk with leaders about what they mean by digital, some view it as the upgraded term for what their IT function does. Others focus on digital marketing or sales. But very few have a broad, holistic view of what digital really means.” Why digital strategies fail, McKinsey
A technology-centric approach to envisioning the future of a Procurement organisation is wrong because:
- Technology certainly plays a central role in enabling organisations, however, it is a means to an end. So, to define where their team needs to be in the future, CPOs should instead look at what value proposal the business will expect in the future, then, translate it into the capabilities (talent, technology,…) that they have to build or develop.
- Looking at a piece of technology in isolation narrows down the vision and prevents people from seeing the bigger picture. They focus, first, on features and other technicalities vs. business enablement and outcomes.
The mistakes I just described are understandable. It is because the environment does not help provide CPOs and Procurement teams with the right perspective and distance, which are conditions to building a coherent story or digital journey:
- There is an ever-increasing pace of technological innovations making keeping up quite a challenge.
- They are constantly bombarded with marketing messages, articles, and other content filled with “buzzwords” and call to actions to use this or that piece of new emerging / life-changing technology.
- They have growing pressures from stakeholders and boards to “digitally transform” their operations (without anyone fully understanding what the digital transformation of Procurement means…).
It is even more challenging to do, when they have to deliver on a daily basis with a shrinking budget and staffing. It is comparable to trying to change the wheel of a car while driving…
It explains, in part, that the awareness of Procurement professionals regarding the potential and implications of IoT, blockchain, and AI is relatively low. As they often focus more on the what and not enough on the why, the perception they have of these technologies is biased or incomplete:
- AI = rise of super-intelligent robots that will take our jobs,
- Blockchain = bitcoins, things for hackers and illegal commerce,
- IoT = only applicable to digital products/ offerings.
However, there is a bigger story in the background. It revolves around data and business decisions. These three technologies fit perfectly together and, taken as a whole, represent a significant evolution in the capacity of organisations to become more efficient and effective.
A global approach to data, supported by technology
As illustrated by the quote above, the case for data in business is not a new one, nor one that needs to be much discussed. The purpose is, and always was, to collect sufficient data (and not too much, ‘infobesity’ and ‘analysis paralysis’ are well-known pitfalls in that area) to make the right choices, with the maximum number of possibilities, whilst acknowledging that decisions are a sort of bet on the future and its uncertainties.
Therefore, the trade-off between the effort to collect and analyze data to build insights and make informed decisions, and the risks incomplete data represents, is still a valid one. It is even more critical in a world that is more and more complex and characterized by VUCA (Volatility, Uncertainty, Complexity, and Ambiguity).
“To the extent that Procurement is a data-driven discipline, we are closely linked to the capabilities of our technology for visibility and insight. And while quality data is an essential foundation for all of Procurement’s efforts, the time required to make it actionable comes with a high opportunity cost. In many cases, we are slave to data cleansing and report creation. Our solutions, despite how they are characterized, often serve as no more than accessible, segmented data storage. Making sure that enabling technologies are doing as much heavy lifting and enrichment as possible frees up Procurement professionals to do the strategic work required to create value and competitive advantage for the organization and colleagues we support.” Procurement at a crossroads. Jon Hansen and Kelly Barner.
At the same time that the need for more, and better data is becoming more important than ever. Technological capabilities have also evolved to enable organisations to manage the trade-off mentioned better.
“The emergence of intelligent data is reversing procurement’s reliance on looking backward at money spent or supplier past performance. The increased use of ‘big data’, the cloud and analytics enables procurement to work with information, data and models that predict — providing knowledge at your fingertips!” The Procurement Value Proposition, Gerard Chick, Robert Handfield
Some of the latest technologies represent critical components to building better insights and actionable intelligence:
- IoT = Provides the ability to collect more information (Volume) and in a real-time manner (Velocity & Variability). It is especially true when monitoring physical supply chains (e.g. sensors and geolocation for containers) and evolutions in demands (e.g. sensors in machines for predictive maintenance). It is the foundation for getting data and keeping the Big Data engine running and improving (e.g. Machine Learning).
- Big Data = Presents the capability to consolidate, aggregate, slice… more data coming from multiple sources (Variety), both internal (e.g. ERPs, or any other information systems) and external (e.g. IoT sensors, 3rd party data providers…).
- Blockchain = Can increase trust (Veracity) in the data collected and stored which is one critical factor in trusting the insights and decisions derived from that data. It also creates a “data backbone” that can be utilised to create interoperability (internally and externally) opening the door to further automation and “interconnections” between physical and financial supply chains.
- AI = Exhibits tremendous computational capacity to analyze massive sets of data to build new knowledge (Value) and continuously learn and improve from new data.
Seen as a whole, and not as standalone pieces of software, the technologies I mentioned can represent a new way to run processes and operations:
“Today, your data resides in a cloud. Tomorrow, it’s also your business logic and orchestration activities. There will be no need for expensive SAP, Oracle or Salesforce licenses and subscriptions. This is a powerful concept. Just as Google Docs has made collaborative word processing seamless across the globe, so will blockchain technologies do to entire business processes and workflows.”2018. The Year for Data Driven Blockchains, Bruce Pon
Also, from an architecture point of view, blockchain fits perfectly with the nature and requirements of the other technologies:
“As Internet of Things applications are by definition distributed it’s only normal that the distributed ledger technology, which blockchain is, will play a role in how devices will communicate directly between each other (keeping a ledger and thus trail of not just devices but also how they interact and, potentially, in which state they are and how they are ‘handled’ in the case of tagged goods).” Blockchain and the Internet of Things: the IoT blockchain opportunity and challenge, i-SCOOP
They even complement each other:
“Blockchain and AI are the two extreme sides of the technology spectrum: one fostering centralized intelligence on close data platforms, the other promoting decentralized applications in an open-data environment. However, if we find an intelligent way to make them working together, the total positive externalities could be amplified in a blink.” The convergence of AI and Blockchain: what’s the deal?, Francesco Corea
“In a survey of more than 100 senior executives, LevaData found that although nearly all of them agree that data-driven procurement is critical to value creation, cost reduction and efficiency, only half think that their own procurement teams are ready to make use of predictive tools.The majority (69%) also stated that they believe that the use of artificial intelligence for risk management and negotiations will be key for staying competitive.” Preparedness for Data-Driven Procurement Lags Among Manufacturers, New Study Finds, Spend Matters
To conclude, it is true that technologies like IoT, Big Data, Blockchain, and Artificial Intelligence represent a considerable opportunity for Procurement. Especially for data-related applications. They are the key to better insights and better decisions as they address the “6 Vs” challenge.
However, before deep diving into what new technologies can do for them and which one to use, organisations need to start the process from a value and outcome perspective. What is the value that the rest of the company and customers expect? What actions would deliver these value components? What information and data drive decisions? Etc…
It is a process that starts from the end (the “why” or meaning) and drill downs to the “how” and then the “what”:
Outcomes (value to business) ➜ Actions ➜ Decisions ➜ Insights ➜ Inputs, factors, and parameters
Only then, can the design of the relevant “system” (people, process, and technology) start and take into account new possibilities of cooperation between humans and machines and the strong need for robust data management processes and governance.
It’s mainly still about the right data, knowledge and insights at the right time for the right purpose and right actions for the right people and outcomes, The underestimated impact of the convergence of AI, IoT and big data , i-SCOOP
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