Artificial intelligence can play an important role in companies’ strategic sourcing initiatives, but there are some key challenges to be addressed, according to Richard Barnett, senior vice president of marketing and alliances with LevaData.
SCB: What’s your outlook on the future of artificial intelligence as it relates to strategic sourcing in the supply chain?
Barnett: There’s a lot of concern around automation and AI replacing human workers, particularly in supply chain and sourcing. People are being asked to do more with less. It’s about augmenting their intelligence. We see a really interesting opportunity for strategic-sourcing professionals who are managing billions of dollars in spend, to have AI as a source of insight into the risks and opportunities they need to act upon.
SCB: What’s the potential impact on jobs?
Barnett: It’s at the management and leadership level. Those who don’t adopt AI are at risk of losing their jobs, or not being able to progress forward. It’s not a zero-sum game. It’s about how AI can help sourcing professionals make better decisions, to negotiate and collaborate with their suppliers more intelligently. Everyone gets better outcomes more quickly. We’re pretty optimistic about this kind of adoption and the future of AI in this area.
SCB: What are the implications for risk management?
Barnett: Sometimes risks can be opportunities. How do you identify and respond to them faster than others in the market? It’s about moving to a model of shared intelligence between supplier and buyer, to have greater transparency around total shared risk.
Say you’re working with a supplier that builds batteries and capacitors. You want to have a balanced conversation about more than just taking out cost. You want to make the right decisions on volume commitments and timing. AI can help you to understand the scope of potential changes. Having a predictive model allows you to make better decisions when working with suppliers.
SCB: What are the key challenges that the companies you work are currently addressing?
Barnett: Even in a lot world-class companies that are early adopters of new technology, procurement teams have been left behind. The state of the art has been Excel spreadsheets and fragmented sources of market intelligence. Its takes months to prepare for a sourcing event, and even then they’re covering maybe less than 50 percent of their total active suppliers at least once a year. That’s a massive gap.
In a global organization, how do you transfer expertise that might be tribal knowledge, where the average experience in procurement is less than five years? How do you build and share talent to scale as you shift teams globally? Often these teams don’t have the time to get answers from other stakeholders in finance or engineering. They’re being asked to hit targets for cost savings that are unrealistic because the market has moved so fast. There needs to be a new way to help them scale, to become much more agile.
SCB: So the issue of AI comes into play?
Barnett: Right. That’s been the promise. A leading practice we’re seeing with some of our customers is what we call applied AI. It’s being used to model key decision factors — to define what the threshold conditions for emerging risks or opportunities are. You want to be able to recommend a set of negotiation levers, then see how they perform with suppliers over time.
SCB: What about the impact of external developments over which companies don’t necessarily have control, such as tariffs and trade agreements?
Barnett: There’s a lot of volatility and uncertainty. Our customers have built war room environments to simulate potential risk scenarios, and get ahead of what their response should be. We did a survey of automotive leaders about the USMCA [U.S.-Mexico-Canada Agreement] earlier this year. There was a consensus that there would a net cost impact that would be passed to consumers. We’re seeing the same thing happening in trade with China.
Companies need to figure out strategic moves for the long term, as well as short-term actions to alleviate and mitigate risk. We’re seeing strong pressure to build risk models and link them to operational execution, in order to make quicker moves with suppliers. Most of our customers are accelerating what might previously have been long-term plans for supplier diversification. They’re shortening that from five-year to two-year plans, and are pushing for visibility of costs in their inbound supply chains. That’s going to make a big difference over the next couple of years.