April 24, 2019

Digital Readiness: The Importance of Being Prepared

The sourcing and procurement industry is facing a daunting challenge. According to our Cognitive Sourcing Survey 2018, a substantial majority (85%) of senior executives involved in direct material spend agree that companies must devise a data-driven, digitally-assisted procurement strategy to match the competition and compete in the industry. Currently, a majority of these executives feel that their teams are not ready for this digital transformation.

One of the leading factors separating industry leaders from average performers is digital readiness. Digital readiness describes how prepared an organization is for a widespread digital transformation. Many factors contribute to whether or not an organization is ready to adapt to a digital change. Organizational structure, corporate culture, available skills and talent, and the digital environment are some of the most important.

Based on our research, there are three primary reasons why organizations are unprepared for this change:

Skills And Talent

A primary concern held by many executives is whether existing teams have the right talents and skill sets to adapt to new technologies. More than half (54%) of the executives we surveyed are not confident their teams are ready for the coming change. Companies can overcome this challenge, but it requires investing more in the assessment, training, and preparation of their professionals.

Sources of Insight

In an industry where the primary focus of investment (approximately 80%) is still enterprise sources of insight, many organizations have difficulty getting and interpreting data about their external environment. Even in cases where they have the necessary insight, they find it challenging to take concrete action on it.

Ideally, a world-class sourcing and procurement organization monitors at least 1.5 million data points affecting the supply chain annually. However, it is not usually access to data that holds struggling organizations back. What they lack is a system to generate insights from the available information.

Supplier insights and market intelligence are readily available, but they are fragmented, incomplete, or out-of-date. Organizations need to have a system in place that can turn this data into information to provide them with a 360-degree perspective of their operating environment.

90% of organizations are leaving valuable sources underused. These sources include:

  • Market intelligence on sub-commodities from third-party research, analysts and published indices.
  • Benchmark pricing for standard parts from distributors or third parties.
  • Community insights from peer companies engaged with similar commodity groups or strategic suppliers.
  • Contextual insights into supplier financial health, raw material input costs, foreign exchange, and news sources.

Tapping these sources is a big step for organizations moving ahead in their digital transformation.

Toolsets

Another factor preventing digital readiness is the use of outdated procurement toolsets. Excel continues to be the go-to tool for 61% of the organizations. Not just that, organizations are still using Excel-based data warehouses to aggregate enterprise spend history. While Excel was a transformational tool back in the 1990s, it has limitations and can’t compare to purpose-made sourcing software.

The usage of Excel leads to the proliferation of “silos of data and analysis.” These silos are challenging to integrate, impede collaboration, and require time and effort to manage. What’s needed is a comprehensive platform, a dynamic environment where information is on-demand and models can be created to test strategies and assumptions.

Digital readiness is an essential consideration in an organization’s overall digital transformation strategy.  Achieving readiness requires investing in training, managing sources of insight, and integrating systems holistically. Only then will they would be able to match up with best-in-class organizations that have already pulled ahead in the race.

To read more about Cognitive Sourcing and how it can impact your organization, read LevaData’s 2018 Cognitive Sourcing Survey.

 

April 12, 2019

Early AI Adopters Are Pulling Ahead of the Competition in Sourcing and Procurement

The adoption of AI in the procurement industry has opened a gap between those who hopped on the trend early and those who stayed behind to watch and wait. Our Cognitive Sourcing Survey 2018 revealed that the shift towards data-driven, computer-assisted negotiation and decision making is well underway in the procurement industry. Increasingly, the only way ahead for companies to get ahead of their competitors and succeed is to undergo a digital transformation.

According to the survey, 85% of senior executives involved in direct material spend agree that a data-driven procurement strategy is crucial if companies wish to keep pace with the competition. There is a competitiveness gap developing between organizations taking action now and those being left behind

The Advent of a Widespread Digital Transformation

Technological advancement has transformed our experiences on both personal and professional fronts. Numerous businesses and industries have undergone extensive transformations owing to technological developments. But, the technological developments that have revolutionized fields like engineering, finance and marketing, have been slower to reach supply chain management and procurement. In the instance of direct material sourcing, these developments have been particularly delayed.

However, based on the indications from the study, technological advancement in the sourcing industry is imminent or underway for the more progressive, far-sighted organizations. According to 75% of the respondents, a supply chain transformation program is already underway in their organization. These supply chain transformation programs are likely to become formalized initiatives in their third or fourth year of maturity. Additionally, another 7% shared that they had a transformation plan in development. These formal programs contrast with our findings around procurement initiatives, most of which are in their infancy and are focused on automation over transformation.

Considering that digital transformation is unavoidable (a belief held by 85% of the executives surveyed), those delaying action might be digging themselves a hole they won’t soon get out of. “Digital Darwinism is unkind to those who wait,” said R “Ray” Wang, Principal Analyst and Founder, Constellation Research Inc. and we couldn’t agree more.

The Perils of Being Left Behind

Even though executives accept that digital transformation is a trend that they must latch on to, defining and formalizing a transformation initiative at the executive level is not without its challenges. While they are trying to improve their smaller day-to-day processes, they aren’t undertaking the transformational change necessary to keep pace with their competitors, leaving them in a precarious position.

The most common sentiment shared by our respondents was that of urgency. Organizations that fail to leverage technology for sourcing processes in a timely manner are likely to be overtaken or out-competed by their peers who have adopted digital sourcing faster. There are a number of factors that will affect those organizations who are dragging their feet.

  • Process inefficiency and skill gaps
  • Reduced agility in responding to volatility
  • Exposure to relatively higher levels of risk
  • Higher cost structures
  • Discontinuity of supply

Organizations need to shed their reservations and move quickly towards transformative change. The best-in-class organizations which have taken this leap are already pulling ahead in the race.

To read more about Cognitive Sourcing and how it can impact your organization, read LevaData’s 2018 Cognitive Sourcing Survey.

March 5, 2019

The Cognitive Sourcing Survey 2018 Infographic

For LevaData’s Cognitive Sourcing Survey 2018, we reached out to Procurement Executives from over 100 organizations. Representing the automotive, consumer products, high tech, industrial equipment, and life sciences industries, together these executives manage approximately a trillion dollars in direct material spend annually.
You can see some of our results in the infographic below.

If that has whet your appetite, in the full survey, we use a newly developed Maturity Model to identify top performers, and we explain the four broad themes that separate leading organizations from those falling behind. We address the key questions:

• What are the current trends in digital procurement?
• What is driving the difference between best in class organizations and their competitors?
• How can a cognitive sourcing platform help companies gain a competitive edge?

Follow the link to read the whole study. The 2018 Cognitive Sourcing Survey.

February 19, 2019

Cognitive 101: The Value of Actionable Recommendations

The most common experience people have today with “artificial intelligence” is through spoken interactions with Apple’s Siri, Google’s Assistant, or Amazon’s Alexa. These are really “intelligent assistants” rather than true AI, but the way they make the interaction tangible is a good way for us to start this discussion about the technology that underlies LevaData’s full cognitive AI capabilities.

An underlying philosophy to LevaData’s approach to User Interface / User Experience is to minimize the cognitive load on users. This is particularly important in Sourcing and Procurement because professionals deal with complex decisions that are influenced by hundreds, if not thousands, of data points. If we can help make processing that complexity easier, then we’ve added real value to our customers. But, why is an Intelligent Assistant interface to our underlying AI important?

An Old Standby: Spreadsheets

Let’s start by understanding how most Sourcing teams interact with the complex data sets that they need to do their jobs. Our 2018 Cognitive Sourcing Survey (see the infographic summary here) revealed that 61% of teams still use spreadsheets to create reports to make decisions. Microsoft Excel is their primary “user interface.”

These spreadsheets often have years of history to them. Teams feel like they understand how to build the reports. They know where to look for data, and the similarity from year to year provides a feeling of continuity. Reports also give a sense of thoroughness to an analysis, with column after column, and row after row of information to scroll through.

Processing these reports generates a high cognitive load for users. It’s hard to see patterns at a glance when looking at information in this format. On top of that, reports are for the most part historical. The data is lagging information, often from the prior quarter or before. Up to the minute market data is hard, if not impossible to integrate. To use reports to project future changes, users must manually build projections with the limited and unwieldy statistical tools and formulas in excel.

In summary, reports are labor intensive, built on data that is often incomplete and out of date, and the outputs can be difficult to understand.

What You See is What You Get: Visualization

Visualizations are often the next level of user interface with sourcing data that teams employ to reduce the cognitive load in reviewing the reports. Charts and graphs can show trends over time. They can also be used to project the information forward, by showing a range of possible ways a graph line might continue.

However, while visualizations help you focus on important trends, they do so by simplifying complex data into a more limited representation. You may be able to compare a couple of factors against each other in one chart. Add more variables, for example, more sub-commodities that might affect your product’s cost, and you quickly run into hard to read graphs. Once again, the cognitive load on the user goes up.

Both reports and visualizations suffer from the quality and age of the data in the spreadsheets. They also introduce risks related to cognitive biases. We’ll be doing a deep dive into what cognitive biases mean in other articles, but in summary, these biases occur in part because humans are pattern-seeking by nature. As a simple example, if we look at a graph of prices that seem to be going up consistently quarter-after-quarter, we naturally project the line upward expecting prices to increase in the same way. Experienced sourcing professionals may know that’s a fundamental mistake, so when presenting a visualization, we add verbal caveats to call this risk out or draw a worst-case line that doesn’t continue the trend. That again adds to the cognitive load on the viewer and introduces debate about what to believe.

Even if the above could be addressed through better visualization tools, the lagging information in both reports and visualizations means that you may walk into a negotiation with a playbook that is out of date. From our survey, 39% of leading organizations have migrated from simple reports to advanced analytics and purpose-built sourcing platforms. A key feature of these platforms is that they integrate more data sources from both within and outside of the organizations, often in close to real time. This allows for adding a key User Interface element: Alerts.

Information Just-in-Time: Alerts

Alerts warn you of changes as they happen or soon after. These notifications allow teams to react in a shorter time frame to changes in the market. If you know that the price of a raw material that a supplier uses has gone down, you may have more leverage in an upcoming negotiation. This up to date information can become a competitive advantage and streamline the negotiation process.

However, while alerts may tell you that something is happening, it’s still on the user to try to understand what that might mean and what the best action to take might be. This still requires a significant cognitive load and often further manual analysis and modeling. The user has to factor in the relationship these changes have to other variables, be it other suppliers, sub-commodities, or parts. So, while alerts may help you identify risks and opportunities, they don’t tell you what to do. Furthermore, alerts can become overwhelming. Think about the constant notifications you get on your smartphone as new emails, news alerts, tweets, messages, and updates arrive. It becomes distracting at best and draws your attention away from what is important at worst.

This is where Intelligent Assistants and AI Recommendations become a real advantage to the sourcing professional. By combining analysis informed by deep AI capabilities with an Intelligent Advisor User Experience on the front end, sourcing teams can not only be alerted to a new risk or opportunity but also be given guidance on what to do as they arise

For example, say that the price of an input to a supplier has dropped by 10%. This is data that comes from an external source outside your enterprise data. No matter; a sourcing AI has access to many data streams. The AI would use a number of methods, in this case maybe a Monte Carlo simulation to determine your likelihood of sayings on an RFQ for a variety of price points. The Intelligent Advisor might tell you as you are about to head to the meeting that you have an 80% chance of saving 7% but only a 5% chance of saving the full 10%. You’ll know how hard to push the negotiation without alienating your supplier; after all, good relationships are a key to long-term success. Because the advisor is always on, if another market change happens while you’re in the meeting, you’ll be advised what to do about it then and there. True AI recommendations reduce the cognitive load on the team to the point where they can focus on the highest value add actions; in this case, effectively negotiating with a supplier while maintaining the best possible relationship.

On the Road: An Illustrative Example

To summarize, it might be useful to think of the evolution of the User Interface from reports, to visualizations, to alerts, and finally to AI recommendations using the history of navigation technology in your car.

In the pre-internet days, directions for a road trip came in verbal or written form. This might be along the lines of: drive 120 miles on I-35, then take the exit for Round Rock. Keep on the right for about twenty miles; if you want a bite to eat, there’s a great diner with a red sign about 5 miles from the exit. When you come to a fork in the road, head towards the three large towers. If you look to the left, you’ll have a great view of the river. Turn left on Main street, then find parking around the fountain, it’s the cheapest. This is similar to a report, with a lot of detail describing places to stop and landmarks that are easy to see.

Of course, most of us would take these written directions and find the road on a paper map, a basic visualization. We might highlight the route with a marker and maybe circle roughly where that diner might be. Perhaps we’d lose the landmark information and the note to look for the beautiful river, but that might not be useful information anyway. However, a map is hard to use while driving and may require you to pull over, so hopefully you have a navigator next to you to help.

Early GPS devices took the visualizations to the next level and added alerts. They’d notify you when you need to make the turns, so you don’t miss one. And if you did it would reroute you, saving you from fumbling with the map to find your way back. You could even add the diner as a stop so the system could alert you just before you pass it. If you updated your device maps recently, you could find more efficient routes and perhaps be alerted to planned road closures.

Connected GPS apps on your phone, such as Waze, have taken things to the next level, bringing real AI recommendations to your drive. Not only do they provide the turn-by-turn alerts of basic GPS devices, but live data, including the real time speed and position of other drivers, information on obstructions, and traffic. Waze doesn’t just tell you that traffic is building up or a road ahead is flooded. It automatically suggests alternative routes to save you time, giving you a range of options from which to make a choice. You’re still in the driver’s seat, but you don’t need to pull over and decide how to route around obstacles. You can stick to the route you’re on if you still want to stop at the diner or take the app’s advice and adjust to the shortest course to the destination.

Just like Waze, AI Recommendations provide a User Experience that minimizes the cognitive load on the user. In the case of a driver, this can be a safety improvement, reducing the distractions of navigation, or uncertainty about the correct right exit to take. In the case of Sourcing professionals, it can mean better negotiation outcomes, faster identification of new opportunities, and the ability to focus on strategic tasks, as the system handles tactical decisions.

Coming Up

As mentioned, while AI Recommendations are the most visible part of a Cognitive Sourcing platform, to be effective they require a full suite of underlying predictive analysis and deep AI components. The following articles in this series will discuss the various approaches LevaData employs to make Leva, our Intelligent Advisor, that much more intelligent and useful to you and your procurement team.

February 1, 2019

Despite Expectations of Higher Production Costs, Automotive Execs are Bullish on USMCA

LevaData recently conducted a survey among executives at auto manufacturers and suppliers on the US-Mexico-Canada Agreement (USMCA) and its expected impact. An acknowledgement that production costs will increase was expected, but we were surprised by the projected size of the increase and the fact that the industry still broadly supports the agreement.

In addition to the recap below, here are some resources you might find helpful:

The Industry Prefers a Completed USMCA to a Possible Trade War

Auto manufacturers and suppliers aren’t excited about cost increases, but prefer it to the threat of a trade war. In the months leading up to the deal, the industry was very concerned about the potential for the Trump administration to impose tariffs on Mexico and Canada. USMCA takes the the threat of a North American tariff fight off the table, giving the market a dose of certainty.

While no one favors uncertainty, it should be noted that many respondents don’t think the President is wrong to pursue a new international trade order. Most think the long-term effects of USMCA will be positive, and half think that tariffs on Chinese goods would eventually help resolve unfair trade practices.

Downside: Higher Production Costs

55% of respondents expect cost increases between 10-20% over the next three years.

  • No significant change: 16%
  • 5% increase or less: 17%
  • 10% increase: 41%
  • 20% increase: 14%
  • 50% increase: 20%
  • Over 50% increase: 2%

In terms of managing these increases, respondents plan to explore changes to their supply chain and supplier base to mitigate these costs.

  • 36% plan to renegotiate part supply deals
  • 35% will look for for cost savings in the production process
  • 33% expect to raise prices for consumers

The majority of respondents acknowledge that higher costs will have a significant impact on their workforce however:

  • Payroll cost will increase: 41%
  • Workforce will be reduced: 33%
  • No substantive impact on labor: 26%
  • As electronic components make up a growing percent of an automobile’s cost (currently averaging at 35%), the survey took a closer look at USMCA’s potential impact on this segment. 39% of the respondents expect a slight or significant increase, compared to only 3% predicting a slight or significant decrease. If tariffs on Chinese goods are enacted, costs for these components will definitely increase.

Upside: Increased Production in North America is Expected

Calmer markets may be a benefit, but the deal’s fundamental goal is to increase vehicle manufacturing in North America. An overwhelming 89% of these execs agree production in North America will increase, although 23% acknowledge these gains will be offset by higher costs.

  • 53% think USMCA will increase production in North America, providing a net improvement for consumers and workers
  • 23%  think USMCA will increase production in North America, which will be offset by higher costs for consumers
  • 13% think USMCA will increase production in North America, with the US losing some production to Mexico

Improving the Outcome of USMCA for Automakers and Suppliers

The first step for automakers will be to determine which local suppliers can provide components that were previously purchased overseas, and more broadly, how to aggressively develop a supplier ecosystem in North America. In some cases, manufacturers will have to explore moving assembly plants to meet USMCA’s high rules of origin (requiring that almost 75% of components are manufactured in North America).

Reconfiguring their supply chain to source more parts in North America is only part of the issue however. Broadening their supply base across multiple sources and locations will reduce exposure to Chinese tariffs and provide the agility needed to react quickly to other demand-shaping situations. Automakers’ ability to move supply from one location to another to offset a variety of risk factors is going to be key. Restructuring a supply chain or building an ecosystem of suppliers doesn’t happen quickly, but it’ll be important for automakers to start making those investments now to shield themselves from cost increases sparked by USMCA, as well as any number of geopolitical issues that’ll impact volatility moving forward.

January 25, 2019

2019 Predictions for Sourcing & Procurement: Technology, Risk & People

We’ve broken our predictions for the year into three categories: technology, volatility and people. Read on for a few things to expect in 2019, and what they’ll mean for sourcing and procurement.


TECHNOLOGY ADOPTION

1. New Technologies Expand the Realm of the Possible

Digital transformation is a hot topic among supply chain leaders, practitioners and, consultants. While each business has to decide individually what their path to transformation will be, there is a broad consensus that data-driven decision making and the automation of rote tasks are the first steps.

Beyond that, companies are beginning to recognize the potential that new technologies, including AI and machine learning, have to fundamentally change how the business of procurement is conducted, resulting in substantial productivity increases, efficiencies, and cost savings.

Technology is continually evolving, but the existing possibilities are already impressive. A Cognitive Sourcing platform can provide an organization with access to a vast range of data sources and generate actionable information on demand. This easy access, always on source of information allows for radical changes in how procurement operates. Decision-making processes that used to take weeks or months can be compressed to days. Professionals who are freed from number crunching can engage more frequently and strategically with suppliers, meaning more spend under management. Access to a consistent data source allows procurement to provide answers to other functions quickly, and with confidence, paving the way for increased collaboration. Platforms like this also allow for modeling a range of scenarios and potential outcomes.

These expanded capabilities will prove immediately useful to supply chain and procurement professionals, as 2019 looks to be a challenging year...

2. Adoption of AI Technologies Will Grow as Organizations Experiment with Pilot Programs

We’ve seen a clear trend towards digital transformation, with our own research showing that 75% of organizations are engaged in a digital transformation initiative. Unlike large ERP implementations of the past, many AI technologies can be used in a pilot or trial program against a limited data set, giving companies a better sense of the benefit to a wider adoption. We expect this trend to continue as the challenging global environment and the fear of falling behind competitors drives organizations towards new ways to assess risk, model scenarios, and manage the ever-growing tide of data.

3. Predictive Technologies are Next

The automation of manual processes the first step in a lot of transformation initiatives. While a business that is genuinely AI-run remains on the horizon, many organizations are going to take the next logical step and begin exploring predictive technologies. Applying and testing predictive models in specific areas of spend is a reasonable first step in moving towards a full AI approach to business.


RISK & VOLATILITY

1. Increased Volatility is On the Way

The past two years have seen increased volatility worldwide, and that trend will likely continue. Managing the risks from unpredictable world events like natural disasters have always been a part of supply chain and procurement, but professionals will increasingly need to consider geopolitical risk as a factor to be accounted for

The US, in the past a stabilizing influence on the market, has become increasingly unpredictable. Ongoing trade tensions with China has led to the possibility of significant tariffs that would require immediate attention from supply planners. In combination with security issues and some uncertainty surrounding the approval and adoption of The United States Mexico Canada Agreement (USMCA), there is plenty of volatility to manage.

2. Companies Will Explore Shifting their Supply Chains Away from China

In addition to the concerns described above, rising wages in China also make the country less attractive to manufacturers. Many organizations will begin to do research into the costs and benefits of shifting their supply chain into other regions, for example, Vietnam and Mexico. Planners will find a range of factors to weigh. New locations might be attractive from a cost and security perspective, but there may be a trade-off with quality and part availability.

3. The Cost of Tech Components Will Go Up

Over the past decade, reducing costs for components has been driven by overall falling prices in tech. This is going to change as tech components are increasingly used in the manufacture of “non-tech” products like cars, thermostats and any number of consumer goods. The increased demand will raise prices, requiring procurement to develop creative approaches to find savings, or simply limit cost increases.


ORGANIZATIONS & PEOPLE

1. Increased Emphasis on Digital Fluency

While category experts will remain critical to procurement teams, hiring managers will increasingly look for digital savvy candidates across the board. Some will rely on training and technology to boost their category knowledge, but the entire team will need to be comfortable with new technologies.

2. Increased Collaboration with NPI

As organizations adopt Cognitive Sourcing technologies, the transparency and benefits they provide will begin to spread across the organization. New Product Introduction (NPI) teams will be early adopters, using the platform to help select parts, optimize costs, and model how various factors might impact gross margin over a product’s lifecycle. This collaboration will only increase as the increased productivity made possible by technology begins to shrink development time.

3. Procurement Will Play a More Visible & Strategic Role

As Procurement begins to adapt to their new capabilities by becoming more transparent, proactive strategically, and incorporating a wider variety of skill sets, the function will start to take on an elevated profile.

July 13, 2018

Fitbit & Gartner Insights Part 3: The Journey Continues

By Richard Barnett

This is Part 3 of a talk with Geraint John, Research Vice President at Gartner, and Kevin Purser, Head of Global Supply Chain, Sourcing, and Procurement at Fitbit, on the topic of digital procurement and how Fitbit implemented LevaData's digital procurement platform. The discussion takes place at Gartner's Supply Chain Executive Conference 2018 in Phoenix. You can find Part 1 here. You can find Part 2 here.

When Fitbit introduced Leva in 2015, they hit the ground running and began to see immediate results. As time went on and the platform became embedded in the organization, they were able to leverage the transparency and information it provides to diversify the talent on their procurement team and allow other functions, such as finance, more direct input into the procurement process.

But what was the procurement of specific outcomes?

In 2016, Fitbit released several new products and added a new manufacturing partner, a move that again increased the complexity of their supply chain. Still, they were able to move forward as a procurement team. Kevin explains,

“In addition for supplier engagement, we did increase beyond the one to three sourcing events. We actually got to a quarterly cost process, and we were addressing far in excess of 50%, more in excess of 70% of the total spend supply base. We’re pretty happy with the progress up to date, up to then.”

Going into 2017, the company underwent a restructuring. At the same time, they introduced new products, including the Ionic, their first smartwatch. As you can imagine, the technology involved in a product of that sophistication changed the number, the types and the level of integration they had with their suppliers dramatically. Throughout this process, Leva was able to help Fitbit increase their engagement with suppliers and internal stakeholders making sourcing an ongoing process that draws input and intelligence from throughout the organization. Kevin feels that this has positioned him to compete against organizations with 20 or 30 times his available resources.

“[By] empowering my team with the LevaData platform and digital sourcing and digital procurement. We've really been able to compete and win in many cases. I think the real key part here is results and gaining negotiation outcomes. Using all of the insights, using all of the data sources as it is put together, ran through the analytics, and being able to gain some predictive insights as well and using those in your whole negotiation process.”

Halfway through 2018, Fitbit took stock of where they’d come since 2015. They’ve been able to reduce their analysis time by 75%. They identified and capitalized on more than $30 million in opportunities and realized 2% to 3% incremental cost savings with 90% of their strategic spend under control. Supplier engagement is continuous, and procurement can draw on insights throughout the organization, allowing them to be proactive and strategic, creating value.

So, has Fitbit achieved their end goal? Kevin doesn’t see it that way. He references the Maturity Model.

“As you look at moving on to kind of a level five. This is the fantasy of the future. In a couple years, level five will be level three and there'll be something else that'll be level four and level six.”

The goal, he says, is to keep moving forward. If you haven’t taken your first step, the time to take it is now.

Learn more about how Fitbit achieved sustainable cost management with LevaData in our case study.

June 21, 2018

Lessons Learned: Transitioning to an AI Enabled Procurement Process

Recently, Supply Chain Insights hosted a panel of procurement experts for a discussion around transitioning to an AI-enabled procurement process. Lora Cecere (Supply Chain Insights – Founder), Jasmine Castro (Global Sourcing – Polycom), Carol Deninger (Supply Chain Solutions – Bose), and Richard Barnett (Customer Success – LevaData) covered a lot of interesting ground. Some of the topics under discussion were the future of procurement, the impetus for industry change, their transition to LevaData’s cognitive computing platform, where they are in the transition process, some of the benefits they’ve realized, and the challenges encountered along the way. You’ll find some of what was discussed and a link to the full conversation below.

The Big Picture

The host, Lora, frames the discussion,

“You know cognitive computing is very interesting to a lot of people, so what we're going to do today is, we're going to set the stage of, “What is artificial intelligence?” “What is cognitive?” “What is the digital supply chain?”

“The mistake I see many companies making is looking at digitization versus digital transformation. I define the digital transformation as stepping back and thinking about how do we transform […]  think differently and drive different outcomes? […] I want you to step back and I want you to think about what they could be.”

Which is to say, cognitive computing and digital procurement aren’t just means to cost savings or risk reduction, but represent something formative that will have a lasting impact on how procurement as a function evolves over the next 5 to 10 years.

Practical Concerns Driving the Change

The conversation quickly moved on to practical concerns. Jasmine explains what pushed her organization to consider a cognitive computing solution. She explained that, while her company continued to grow, her team had been shrinking. Even under these pressures,

“What it came down to is, how can we continue to do better? Not just to maintain what we had been doing, but how can we have further reach into some of the commodities that even when we had a full, larger team we never really had the time to go after.”

Carol faced different challenges. Her organization had changed manufacturing strategies and sold off two large manufacturing facilities to a supply chain partner. 80% of their manufacturing was now being done by external partners.

“That really brought a challenge for us because we suddenly lost visibility to all of our spend. The tier two spend disappeared.”

Both Jasmine and Carol’s organization adopted LevaData, to manage their challenges.

Change is Coming

Richard closed by outlining LevaData’s vision for what’s coming in the near future for cognitive computing.

“We're at an early stage of adoption, but what we're seeing from our perspective is that this is happening, will happen very quickly. There's going to be a significant, true competitive advantage for early adopters in this area to really scale and adopt these capabilities because the underlying innovation has just not really kept up.

Hopefully this has piqued your interest. Get the full conversation here.

June 15, 2018

Fitbit and Gartner Insights Part 2 – Every Journey Begins the First Step

By Richard Barnett

This is Part 2 of a talk with Geraint John, Research Vice President at Gartner, and Kevin Purser, Head of Global Supply Chain, Sourcing, and Procurement at Fitbit, on the topic of digital procurement and how Fitbit implemented LevaData's digital procurement platform. The discussion takes place at Gartner's Supply Chain Executive Conference 2018 in Phoenix. You can find Part 1 here.

Introducing Fitbit

Kevin provided a brief introduction to Fitbit, a health and fitness company that helps people use data to empower and inspire people to live healthier lives. They manufacture products that gather the data that people across all age groups need to make the decisions necessary to leading better lives.

Fitbit's supply chain is not unusual, according to Kevin. It's a multi-source strategy with 5 manufacturing partners and 200+ suppliers. They've got over 200+ SKUs, a number that's increasing as the company grows. They currently sell in 65 countries and they take an omnichannel approach to sales, dealing with corporate wellness at the enterprise level, with health care and insurance providers in the health and wellness space, and through eCommerce and over 55,000 retail stores. Like a lot of organizations, they face the challenge of managing costs and maintaining continuity of supply in a volatile commodity market.

Getting a Handle

Kevin arrived at Fitbit in the beginning of 2015, while the company was experiencing tremendous growth. There was an IPO on the horizon and the company was adding new, increasingly sophisticated products quickly. There was a tremendous amount of churn in the supply chain.

When Kevin joined Fitbit he took the time to asses where the company stood:

"I placed us in level two back in 2015, kind of the 2015 to 2016. We were focused on cost, and as I say, continuity of supply. We had some sources of insight, but it was really just supplier data, it was limited market data, and it was really our own enterprise data. The tools were the normal tools that most people have at their disposal, including the most powerful one in the world, Excel. Then our supplier engagement. We were doing one to three sourcing events and we were addressing, I think, greater than 60% of the spend in those events."

 

He began to chart a course forward. Kevin wanted to be able to maintain his current multi-source supply strategy while responding to the pressures imposed by a competitive market place. He needed leverage that would enable him to generate savings with scarce resources.

Kevin had worked with LevaData in his previous organization and recognized the value of bringing in and analyzing a wider range of data quickly. Data, not only from current sources, but also data from the community, peer performance, trends, and a wider range of market intelligence.

"The whole intent here is for us to make better decisions faster, and we do that with information, not data. We're actually taking the data, turning it into information so our money managers and our sourcing professionals can actually take action, while also considering what our commodity strategies are, what are our trade-off analysis… multisource as I talked about that earlier. It’s a big strategy for us to make sure we ensure continuity of supply. Then delivering things such as digital playbooks, which really definitely help in your negotiating process and negotiating leverage as well."

Another reason that Kevin chose LevaData was that he knew from experience that the platform would begin showing results quickly.

"I had an engagement with LevaData at a previous company, understood the speed to action that is available with LevaData. We were able to get up and running fast. We could manage our cost process initially and expanding that on to sourcing and a very rigorous RFQ process. It's really become a big, big infrastructure for us and how we move forward with digital sourcing."

Kevin also described how transformation to a digital procurement process would begin to improve other elements. He described how, often people get stuck, concerned that the quality of the data they're bring in would result in garbage in, garbage out. He explained how that's not the case. As Leva began to import Fitbit's data, they were able to spot problem areas and the data quality began to improve.

"You just need to get started and that's what we did. You can imagine. I showed you where we were in 2015. You can only imagine what our data looked like. This actually facilitated us, cleansing the data and organizing the data as we went along so that it was actually useful and not just trying to clean the data normally or just as you normally would, but actually for a purpose."

The shift allowed Fitbit to evolve its procurement capacity in other ways too. Kevin describes how the platform allowed for a retooling of the talent across his procurement teams. The shift from data collection and analysis to decision making means that more time is spent understanding and learning about a supply chain as part of a system, rather than having to understand the technical details of how to clean, gather and manage data in Excel.

"It gave me an opportunity to [...] bring on talent not only from the subject matter expertise area, but people with an engineering background, kind of a younger generation, more interested, more driven towards the technology as it comes. When we talk about the digital sourcing professional, this is really about augmenting our human intelligence. It's about making better decisions and making those decisions faster."

The transparency and access to procurement Leva afforded other functions in the organization generated returns.

"We have finance operating on the platform. They actually help manage the whole process and very intimately involved in new product introductions, driving value creation in the product lifecycle by ensuring that we're delivering products at the right gross margin at launch. That takes place 12 to 18 months before. So, we're using the platform, we're using the capabilities to be able to help manage that process as well and having it show up at product launch going forward."

We'll finish up in Part 3, where Kevin talks about what Fitbit has accomplished so far, his vision for the future, and what digital procurement can mean for you.

Learn more about how Fitbit achieved sustainable cost management with LevaData in our case study.

June 7, 2018

Fitbit & Gartner Insights Part 1: Bringing a Knife to a Gunfight

By Richard Barnett

Innovation and disruption are hot topics in general and in the procurement field in particular. Part of what's driving this is the sense that, for years, procurement has been lagging behind other functions when it comes to adopting new technologies that would allow it to become a more agile, strategic and proactive piece in an organization. This is no longer the case.

The same innovations that power the technologies that most of us take for granted in our everyday lives, that have been "disrupting" industries and workplaces for years, are becoming available to procurement professionals and their teams.

This past month in Phoenix, I was lucky enough to attend one of my favorite events of the year, Gartner's Supply Chain Executive Conference. While I was there, I sat in on Geraint John, Research Vice President at Gartner, and Kevin Purser, Head of Global Supply Chain, Sourcing, and Procurement, at Fitbit's presentation on the topic of digital procurement and how Fitbit implemented digital procurement to get ahead of the game.

Here's what they discussed.

Geraint started off with a bang. Literally. Reminding the crowd of the famous marketplace scene in Raiders of the Lost Ark, where Indy faces off against a swordsman. Dr. Jones watches as his opponent swings the sword around in an amazing display of skill. Then Indy, in one smooth move, pulls out his pistol and shoots the swordsman.

Geraint suggested that in a lot of cases procurement professionals are in the position of bringing a knife to a gunfight.

"At least part of what we're going to talk about - and I think what we need to face as a sourcing procurement community - is how do we even things up a little bit? How do we make sure that we're in the best possible position to use data and intelligence, including while we're sitting around the table with some of our suppliers?"

The answer is digital procurement.

Digital Procurement. What exactly does that mean? Geraint went on to outline three broad areas:

1. Friendly sourcing tools. More than just improvements in functionality, this means providing professionals with more intuitive software applications that can be used in different environments and places. Tools that not only save people time, but also help them to become better professionals as they move along their career paths. Supporting them and allowing them to monitor themselves and adjust accordingly.

2. Big data analytics. Traditionally this means managing internal data, but the more advanced platforms can now manage reams of external data from an ever-growing list of sources, as well. The processing power and networks available today mean that, taken together, this data can generate insights that no human can replicate.

3. AI-powered automation. These are the fast-developing capabilities of the future. For example, machine learning that can process the terms and conditions across thousands of contracts and then from that generate usable information presented in a coherent form. Down the road this might include the ability to automate decisions based on market criteria.

Geraint finished by saying, "I think personally the opportunities for us as sourcing and procurement professionals are extremely exciting. There's a lot of work to be done, but there's a lot of opportunity and potential here."

I'll leave you there and follow up with Part 2 of this series where Kevin and Geraint will explain what this exciting opportunity can mean for procurement professionals.

Learn more about how Fitbit achieved sustainable cost management with LevaData in our case study.

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