LevaData, the company that delivers applied AI to transform strategic sourcing and procurement, today released the results of its 2018 Cognitive Sourcing Survey on data-driven procurement capabilities by medium to large manufacturing firms, including those in high tech, consumer goods, industrial equipment, automotive, and life sciences industries.
The survey addressed the concerns of senior executives who oversee over $420 billion in annual direct material spending. Almost all of the respondents, 87 percent, believe that a data-driven procurement process is vital to achieving long-term value, cost reductions, and efficiency gains. This year's survey showed that an increased number of manufacturing executives are making steady progress towards digital transformation — and the ones that aren't are falling further behind.
"People know that digital disruption in the supply chain is already underway. Given this, we were greatly surprised to learn how many procurement managers are still using outmoded management tools," explained Rajesh Kalidindi, founder and CEO of LevaData. "A world-class sourcing and procurement organization could examine at least 1.5 million data points affecting the supply chain, which is more data than any individual could possibly digest and respond to strategically. As more companies implement AI-powered strategic sourcing technologies, those that don't will find themselves at a crippling disadvantage."
A Significant — and Widening — Performance Gap
The LevaData survey documents key metrics of best-in-class versus average performers, according to supply chain executives. They include:
Strategic Control Across Supply Base: average organizations engage in competitive bids with just 40% of their suppliers at least once a year. Best in class organizations actively cover over 85% of their supply base at least once annually.
Cycle Time for Request for Quote (RFQ): 3-4 days versus 31 days.
Total cycle time for a best-in-class organization is 3-4 days: 2 days for preparation, 1 day for negotiation and 1 day to award the business.
Total cycle time for an average organization requires 31 days total to complete, with 14 days devoted to preparation, 7 devoted to negotiation and 10 days to award the business.
Sourcing Event Frequency: Ongoing, regular discussions on a quarterly or more frequent basis versus once-a-year events.
Best-in-class procurement managers engage with their suppliers on a constant basis (6 percent), with average performers still following discrete sourcing events with a subset of their suppliers on a quarterly basis (13 percent), annually (31 percent) or only reactively (51 percent) on an ad-hoc basis.
Best-in-class organizations engage in competitive bids with 80 percent of their suppliers annually, while "average" organizations engage with just 40 percent.
Management Tools for Strategic Sourcing: Best-in-class procurement organizations use integrated market intelligence systems that provide a consolidated view of the market versus siloed business intelligence tools or information from direct supplier relationships.
8 percent — up from 5 percent last year — of survey participants are using third-party, purpose-built technology solutions.
58 percent are now leveraging some form of AI-enabled risk detection, which represents a significant adoption of AI.
But 64 percent — down from 67 percent last year — are still using internal business intelligence solutions or Excel spreadsheets which primarily aggregate information from multiple internal, enterprise systems, with limited tracking of market intelligence.
Fewer than 10 percent of companies surveyed were using four or more sources of insight.
Cross-Functional Collaboration: Best in class procurement organizations engage in cross-functional collaborative decision making across supply chain, finance, engineering, and external manufacturing organizations.
62% of companies surveyed believe that it is important to have a New Product Introduction (NPI) system that tracks risks and opportunities during development and connects to sustaining cost systems and processes.
In reviewing these trends, Donald Farmer, a renowned data scientist and principal at Treehive Strategy, said his key takeaway was that "the real gap, and the real opportunity here, is to enroll more sources of insight from outside the organization, integrating them with historical data and internal insights, and then applying them to new and developing negotiation strategies. Organizations now have access to a much wider scope of information that is potentially relevant to sourcing decisions they make."
More Info: http://connect.levadata.com/2018-study