Being successful in today’s supply chain requires work. It doesn’t just happen by mistake, especially in the fast-paced tech-driven business world of today.
Spencer Penn, Co-Founder and CEO at LightSource, knows this well and recognises the importance of full use of the digital tools at his disposal.
Indeed, his company is on a mission to ‘illuminate the global supply chain’ through building software that helps procurement professionals collaborate with their suppliers and create a win-win in the process. LightSource is an online platform for strategic sourcing designed for both buyers and suppliers and includes sides of the app with tools for everyone in the supply chain ecosystem.
The birth of LightSource
Penn’s journey to founding LightSource is certainly an interesting one. Penn spent a portion of his early career at Tesla under the leadership of Elon Musk where he helped push the company’s Model 3 programme which was Tesla’s first mass-market electric car. Upon starting with the carmaker, Tesla was making approximately 1,000 cars every week which Penn explains later scaled to 10 million vehicles throughout the lifetime of the Model 3 programme.
“One of the big challenges that we faced was that we were sourcing 30 billion of direct materials on Excel spreadsheets and emails,” he recalls. “So naturally I went out to the market to find a direct material sourcing solution because I assumed something like LightSource existed. I got demos from every vendor under the sun and I was shocked to discover that there were only really two options that I knew nobody would use. And so at a certain moment, years after leaving Tesla, I thought what would it look like if we went out on our own and built something that’s by procurement for procurement which is easy to use and fast to deploy. And here we are.”
But what sets LightSource apart is its ability to solve the direct materials use case. According to Penn, he believes his firm’s competitive advantage lies in being a source to contract that works for direct materials and large strategic indirect spend. “What we don’t focus on is the tail spend or on this requisition intake to procure process,” he explains. “We are focused on the source to contract which is everything from the bill of materials through the PLM, to sourcing and supplier relationship management which is all focused on direct.”
DPW Amsterdam
At DPW Amsterdam, this year’s theme was 10X which is the idea that organisations need to accelerate thinking that is 10 times their current capacities. As far as Penn and LightSource is concerned, he believes aiming for exponential advances holds the key to long-term success in 2025 and beyond.
“Incremental improvements don’t stick,” he reveals. “If you’re going to go to an organisation and say, ‘Hey, we’d like to improve your procurement process by 5%, 10%, 20%, it’s not that interesting.’ The inertia of what people know and are used to no matter how much they love or don’t love it, they’re not willing to change for a small incremental improvement. That’s what I see a lot of companies angling for is only a slight improvement. But when I think about the theme of 10X and the fact it is also very closely paired with generative AI, this will enable the next generation of software that’s not just an incremental improvement, but a complete revolution.
Transformative space
“I think in two years the way the software landscape’s going to look is totally different. If you present someone with a 10% improvement, there’s not really a lot of interest or adoption, but if you can actually think about what’s a paradigm shift, a 10X improvement, then the conversation switches from why should we use this to how can I make sure I’m not left behind by not adopting this? That’s the key.”
But in order for procurement to reach its digital potential, executive buy-in is required. According to Penn, it is both the biggest driver and obstacle in equal measure that stands in the way of progress. “If we encounter a Chief Procurement Officer and they’re very forward thinking and have a really clear and defined vision, those end up being really revolutionary deployments,” says Penn. “When there’s a leader that is very comfortable with what they already know, they’re living in their comfort zone and they don’t really want to reinvent the wheel or just think about what’s possible, then it’s always rolling a rock up a hill. I always get a little bit of PTSD when I think about really engaging them more directly.”
GenAI drive
But Penn is empathetic to ripping up the carpet and starting from scratch, particularly when strategies or processes have worked successfully in the past. However, if an organisation isn’t proactive in their approach to digitalisation and embracing 10X thinking, they risk being caught out by competitors. “There’s this great Bob Dylan that I love which is ‘If you’re not busy being born, you’re busy dying’. And I love it because being born is uncomfortable. It’s like being a beginner again, it’s new. And if you’re not busy being born, then you’re busy dying. And I think the same can be said for procurement leadership.”
GenAI is one of the hottest topics in procurement right now. Its potential is exciting and is discussed at length in meetings and conferences the world over. However, there are still risks attached such as data quality challenges like hallucinations along with security concerns.
“You have to think about where these models live and are stored,” explains Penn. “Are they using your data in training? How do you make sure you’re creating safeguards around IP leakage? I think that’s extremely important so we handle that in a very sophisticated way. The second thing is you have to think about access control for the models. One of the techniques that’s been popular over the last year is something called retrieval augmented generation. The model is not just creating a response from its own training set, but rather being instructed to query the company’s known data. If it can query the known data, whoever’s accessing that model, you need to make sure that they have permission to access things like payroll data or HR data if that’s the kind of question that’s going and seeking through databases.”
Managing the AI challenge
However, AI is not a silver bullet and should not be used for technology’s sake. Penn is well aware of the temptation of leveraging AI, and in particular GenAI, because it is shiny and new. But doing so could be a costly mistake.
“You should ask yourself ‘What are the problems that you face that are real pain points?’ And then work backwards and be flexible about the solution,” he explains. “You should then ask ‘Can AI actually solve it?’ There’s a very common product management question I like to ask customers during discovery interviews which is ‘If you had a magic wand, what problem would you solve?’
“That basically asks the participant to forget about the possible and just assume anything’s possible. This is simply to get to the heart of what are the biggest challenges that you would solve. That magic wand thinking is a good approach to scoping out the problem sets that you want to address with AI, especially as the space is moving so fast. My final recommendation is just to know it’s moving quickly. If you’re going to make a big investment in AI, assume that it is very possible that within six to 12 months there is a different company that obsoletes whatever you’re looking at today.”
Find out more about LightSource here.
