Procurement in the Digital Age

There has been a lot of discussion the past couple of years about digital transformation, which is impacting all aspects of supply chain management, including procurement. What’s new and different with procurement in this digital age? What impact is technology having? How can external partners help companies achieve excellence in procurement? 

Those are some of the key questions I discussed with Brian Reed, VP Global Supply Chain Optimization at GEODIS, during a recent episode of Talking Logistics.

Evolution in Procurement

As we enter the annual procurement bidding season, I asked Brian if the way companies approach procurement has changed over the years. Brian explains that the notion that there is only one annual procurement event has always been a false narrative. The truth is that business needs change throughout the year, which often requires separate mini-procurement events. He also notes that some shippers may hold procurement events at different times of the year to get carriers’ attention while others may have multi-year dedicated contracts with carriers. The evolution is that the industry is recognizing the need for more frequent and varying bid processes, embracing both strategic and tactical procurement.

Impact of the Digital Age

Brian believes that the digital age is somewhat of a buzzword in that procurement has been digital for many years. He says what has changed is the introduction of new technologies such as artificial intelligence (AI) into the process to help companies analyze their own data to create the bid and to better evaluate carrier responses.

Brian also points out that the emergence of marketplaces is bringing companies together who may not have otherwise known each other. This can help shippers and carriers expand their networks and find new partners. He notes that contract swaps and freight futures are also providing new avenues that can help in the procurement process.

“With AI, machine learning and natural language processing, we’re in a second wave of automation where more data is now available to everybody,” says Brian. “It’s now a network environment with the technology to utilize the data.”

Fully Automated Procurement?

With advances in AI and machine learning, I asked Brian if the procurement process will ever become fully automated. Brian suggests that, “While we will always be moving in that direction, especially on the shipper side, it is not likely to become fully automated. On the supply side, smaller carriers might not have the digital technology to fully automate their response. And there is the human factor. Many people enjoy negotiating and don’t want to give up control.”

Brian adds that at the extreme ends of the procurement spectrum — the spot market on the short end and straight-forward, ongoing long-term contracts, automation is more likely. But between those extremes, “it gets messy and complex, and with the human factor it’s unlikely to fully automate anytime soon.”

Companies are also starting to look at procurement across all modes and geographies, which requires thoughtful consideration of many variables and business objectives. “Technology is there to help companies understand and analyze the vast amounts of data available, not to make decisions for them,” says Brian.

A Move Toward Continuous Procurement?

I asked Brian if he sees companies moving away from long-term procurement in the future and taking a more real-time, continuous approach instead. Brian says this might be more feasible for smaller shippers who don’t have the clout to negotiate the best rates from carriers. He says smaller shippers might take advantage of the spot market to get lower rates, but this also comes with risk from a cost and capacity assurance perspective. Brian notes that doing this requires more effort and technology. Alternatively, companies might get better results by using brokers who understand their markets.

Investing in Procurement

I asked Brian what questions companies should ask themselves to improve their procurement processes. I encourage you to watch the full episode for his insights and advice on that question and more. Then keep the conversation going by posting a comment and sharing your perspective on this topic!