Procurement is about making deals. What does it mean to make deals in 2019?
For too long, savings has dominated the procurement agenda. A success of a procurement department is measured by how much value they derive for the organisation and yes, of course this comes down to savings on a contract. But this focus on savings raises the question – if it’s just about haggling, why not just “hagglebots”?
What are “hagglebots”?
Put simply, a hagglebot is a set of algorithms of artificial intelligence that learns the science of deal-making.
The thought is that automated negotiations can optimize deal making. Hagglebots will be able to negotiate and find the best deal through processing a huge number of contracts to find the best price. Most of this is very speculative.
The scholarly paper, “When Will Negotiation Agents Be Able to Represent Us? The Challenges and Opportunities for Autonomous Negotiators”, outlines the potential for negotiation agent programs that in principle will be able to find the best possible agreements. There is also a speed component as computers can negotiate faster.
However, AI cannot negotiate complex contracts yet. That said, some simple bots are already here. For example, eBay employs “sniping agents” that bid at the last possible second. Google also employs bots for ad placement across their many platforms. Finally, there are negotiation support systems that assist humans in their negotiation.
So we humans have a chance! We can be about more than value added negotiations.
Procurement beyond savings
The reason I am talking about hagglebots is not that of hagglebots itself. They are here, and they will get more sophisticated. They will have to because we are rapidly moving towards real-time systems in the cyber-physical world of industry 4.0. Even if we wanted to, we probably could not have a future free of hagglebots. So, the question is, how will human procurement professionals fit into a world where the bots find the savings?
The first paradigm shift that needs to occur is to understand that savings aren’t the be all and end all the procurement. Indeed, saving objectives can often get in the way of collaboration and lead to unnecessary problems. You can “kick-in the teeth” of vendors until they give you the “best possible price”. But if the price is too low, the vendor will suffer needlessly.
Suffering is not a feeling collaborators should have, and good procurement pros should avoid eliciting such a negative feeling. Especially since your vendor being unhappy is likely to be reflected with how they behave in your supply chain.
As cliché as it may sound, to thrive in the future filled with hagglebots, CPOs have to deliver value beyond savings. What is that value? It will take many forms. For some, the humans in the system will help contextualise data and negotiations, setting rules and parameters for contracts. For others, it’ll be able addresses complex, atypical contract negotiations that cannot be done quickly or by bots. But for many, new frontiers will open up as they are freed from the shackles of a savings-focused procurement.