Change is all around us. Failure to adapt to the latest trends and leverage the latest technologies could leave you…

Change is all around us.

Failure to adapt to the latest trends and leverage the latest technologies could leave you lagging behind the crowd. Equally, jumping too soon with a scattergun approach without real purpose or direction could be a costly mistake too. In truth, Chief Procurement Officers have never had quite so much on their plates. This is where an effective change management strategy can pay dividends.

Observing this all too well is Erin McFarlane, Vice President of Operations at Fairmarkit. A procurement software and systems leader, specialising in digital supply chain transformations using machine learning and AI, McFarlane has a passion for sourcing, contract negotiation and spend analytics and an infectious enthusiasm for her work. She helps procurement departments to embrace digital transformation and automation.

According to McFarlane, companies that leave risk behind and adopt generative AI solutions now have the opportunity to operate with radically improved insight and efficiency. In today’s fiercely competitive and ever-changing world, can procurement functions afford to be left behind? 

“I think if your organisation has already been on a modernisation journey, it’s possible for you to say you can hold back on GenAI,” explains McFarlane. “You might say the risk is too high and you’ve got your processes in line and you’re not suffering. But for the organisations that have not invested in procurement technology in the last decade in a significant way, I don’t think they can afford to go without because they are probably already suffering from a lack of agility.

“The only way that they’re going to be able to continue to control their operational expenses is to innovate and do that leapfrog. I think it depends on where you are. The people who have spent the last 10 years modernising are the ones who are even more excited and ready to adopt further. But I think anyone that is really far behind needs to take this opportunity to do that leapfrogging or it’s just going to get worse.”

Erin McFarlane, Vice President of Operations at Fairmarkit

In order to achieve a successful transformation journey, McFarlane stresses there are some steps Chief Procurement Officers need to implement first in order to help them down the right path of solving inefficiencies within their procurement functions.

“My first guidance to CPOs is firstly make sure that there is a lot of alignment with the CEO and CFO office to really understand the strategic objectives happening at the company and how procurement can either support or defeat those objectives by getting in the way or by being an enabling factor,” explains McFarlane. “Sometimes we get down into the nitty gritty details while forgetting the big picture “why”. That big picture why is what enables the process change. The technology in itself is amazing, but if you are automating a broken process, all you’re doing is making that process break faster. That doesn’t help anybody. Where modernisation has to come in is that you have to recognise that the existing way that you buy is fundamentally antiquated.”

However, despite the significant potential GenAI has, the line is not linear. With any new innovation or implementation, there will be teething problems. One of the biggest concerns is data security and how secure the information you input into chatbots really is.

“If you are careful, you can correctly contract and engage with one in a way that protects your data,” says McFarlane. “Where there’s a zero retention policy is where your data is not used to teach the model where your data is protected. But if you just go for the free and easy stuff by nature, everything you put into it teaches it, which means that everything you input has now become part of that public domain. And that’s really dangerous from a copyright perspective, from an IP perspective and from a data loss perspective. For the companies that I work with that has to be the number one concern because data privacy is so important.”

McFarlane emphasises that one of the biggest problems is hallucinations. AI hallucination is a phenomenon whereby a large language model (LLM) perceives patterns that are non-existent to humans by creating outputs that don’t make sense or aren’t accurate.

“It’s not just wrong, it’s very confidently wrong. It’s using such an enormous data lake that GenAI has the potential to say things that are wildly inaccurate,” she explains. “It can automate mistakes so they happen even faster. I think it’s important to consider the risk with any AI project and to start in a place with relatively low risk and automate the boring stuff first to make sure that you have monitors and guardrails to catch them.

“Don’t just set it, forget it and walk away because the potential does exist for some really unusual outcomes to happen, even some that aren’t necessarily wrong, but since we’re using existing data biases in the data it can perpetuate an algorithmic scale. If there is bias in the underlying data that you didn’t even realise was there, it can get even more thrown out of proportion. I believe it’s really important to understand where you use automation versus where you use what we call decision support. Automation is when the computer goes off and does its own thing. Whereas decision support is where you take all the information from GenAI, but the humans actually still make the final call and have a certain amount of oversight.”

With an eye on the future, McFarlane is full of optimism about the next few years in procurement. She explains that she is looking forward to the potential of more responsible sourcing as a result of an increased adoption of GenAI. “In procurement, we’ve always focused on risk aversion and cost savings,” she explains. “But I think there’s an opportunity for procurement and supply chain to lead, rather than just being the people who operate toward operational efficiency and avoiding risk, we can create competitive advantages for an organisation. Pharmaceutical companies during Covid were able to use an incredibly agile supply chain to deliver a vaccine in record time by changing the way in which they function. If they had been unable to pivot their supply chain into a completely different arm of manufacturing, they wouldn’t be where they are. 

“I think that stories like that are where innovation can come from. It is visionary procurement and supply chain leadership that can enable an organisation to make changes to produce products and services that are needed just in time. Whereas companies that are still operating the old way simply can’t change that fast. They can’t pivot their entire manufacturing operations from one product to a different product in six weeks. It’s just not something that you can do unless procurement is willing and able to make that kind of a pivot.”

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