AI will be Procurement’s Downfall … And There May Be No One to Save It If That Happens

A post this summer by David Elkington on LinkedIn on the impacts of AI on an Ivy League class is truly terrifying. It’s not just overworked and lazy adults turning their lives over to hallucinatory chat, j’ai pétés and clods, but our next generation as well.

In his post, David Elkington summarized how Brown University professor Roberto Serrano has proved it. When, after 20 years of teaching a course, he offered his first take-home midterm, enrollment tripled and the average shot up almost 40% to 96 (A++). He then had his Teaching Assistants run the exam through ChatGPT, from various accounts, and they were able to reproduce the majority of proofs that dozens of students submitted.

So then the professor announced he would be returning to tradition, with an in-person final. Twenty percent of enrolled students dropped, and ten percent didn’t show up. The final average was 48.6, an F and a drop by half.

The majority of students had obviously not only outsourced their studying, but their thinking as well. After all, the course was “Welfare Ecomomics”. Formally defined as using microeconomic techniques to evaluate societal well-being and guide public policy, and relying on methods like Pareto efficiency to help analyze trade-offs, neither the math nor the analysis is particularly hard compared to other areas of economics, undergraduate mathematics, or even philosophy. The trick is a bit of study and a lot of logical, deep thought to think through and work out the consequences and likely reactions to a decision. Especially when there aren’t always absolutes like there are in physics and chemistry. When the answer is human intelligence, AI fails.

And that failure will carry forward into the real world.

Everyone forgets that computers were designed to compute — and do so at a speed and certainty that we cannot do as humans. That’s what they’re good at. We’ve spent over a trillion hours as a species researching computing science, writing, and re-writing code and not only improving the capability of computers but pushing the limits of what computation can do.

The first few decades were spent perfecting the hardware, the error correcting code, the operating systems, the core compilers, and testing methodology so that the chances of a well defined program on a stable operating system on well made hardware making a calculation error is now one in one quadrillion operations. Then decades were spent taking advantage of the fact that computers can repeat the same operation that many times flawlessly where as we, as humans, struggle to do the same calculation ten (10) times in a row without error. And we created not only business software to make our business operations more efficient, but communications software to make our personal lives more connected and easier, and education software to help us get smarter.

But then someone decided that if we created a big enough next-generation neural net and fed it enough data it would magically become intelligent, unleashed it on the world, and when it, for the first time since the concept of AI was conceived almost seven decades ago, natural language was produced that was indistinguishable from an average person (whose IQ was already deteorioating thanks to Twitter), someone else, of very limited intelligence, thought it was intelligent. Then the hype-mongers decided to proclaim this story as gospel, and convince the masses it was the word. And those who believe it will lead us to our collective downfall.

Only Human Intelligence (HI) will allow Procurement to deal with the constant turmoil of today’s world and adapt to the changing reality. Without it, they will not be able to secure supply at a cost the organization can afford, which is not only the core function of Procurement, but fundamentally the core function of a business. (If an organization cannot secure supply better than an individual, there is no reason for the business to exist.)

AI will be Procurement’s Downfall, and to be honest, at the rate things are going, Humanity’s downfall as well.

Speed is Not Strategy!

Everyone is still jumping on the I2O (Intake-to-Orchestration), Agentic, and AI-hype bandwagons (and when one heads for the cliff, jumping on the next one) because they see the speed boost it is supposedly giving their peers and the purveyors of this depraved mind porn are promising that it will take them from being tactically-oriented fire-fighters to strategic spend sleuths who will magically save money while reducing stock-outs, risk, breakage and spoilage, service errors, etc. In other words, simply by adopting the tech-du-jour, and getting faster, they will magically improve across the board.

Anyone who isn’t suffering severe (Gen) AI-induced cognitive atrophy should realize this is the biggest crock of bullshit we’ve yet been served in the Procurement space.

It doesn’t matter how fast you go, how many RFPs you can automate, how many suppliers you can search, and how many risks you can theoretically track, it matters how many truly strategic RFPs you can successfully execute properly, how many appropriate suppliers you can develop relationships with, and how many risks you can mitigate. Guess what? Strategic RFPS can’t be successfully executed with speed, only finesse. Relationships take time, as they take trust, and that takes time. Mitigation plans take deep thought, scenario planning, and even war gaming — to understand what will happens when man-made wars or natural disaster (where the environment itself declares war on your supply chain) disrupt your supply chain. This mitigation planning takes deep thought and time to work through the details — time that cannot be reduced by AI. AI can only regurgitate previous responses to previous situations that worked, it cannot predict new eventualities or determine what would work best against them because that requires real human intelligence (HI!).

What everyone forgets is what inevitably happens when you run too fast — you get exhausted too soon, and collapse. There’s more than one reason the tortoise will beat the hare every time. It’s not just because the hare is cocky, it’s because the hare will try to rush that which cannot be. There’s a deeper meaning to Aesop’s Fable than you are taught in grade school.

It’s not how many RFPs you can automate, it’s how many you run where you get real results. You get real results only where the category is strategic, the spend significant, the supply chain unoptimized, and the opportunity for improvement real. You don’t get results simply sending every category to an RFQ and shaving a percent or two off the price. You get results by improving quality, supply assurance, price predictability, risk reduction, and real human relationships. This requires an investment in time, not tech.

Speed does not help, and all technology focussed on simply increasing speed does is hinder.

Strategic Requires A Special Kind of Shift

It’s more than just a shift in speech and activity, it’s a shift in thought and mandate. Even if the business won’t give it to you.

This is kind of a continuation of last week’s series on the problem with simplified graphics, as this post is inspired by another post of Tom Mills’ on how to shift procurement to strategic.

As usual, Tom gives a lot of practical, useful, advice while tackling a very significant topic — and one that needs to be continually addressed because it’s not something that can be summarized in a post, or even an entire guide (which Tom Mills was giving away for free — be sure to follow his ProcureBites site for more free offerings as he launches them).

In fact, for many departments, the shift can’t even be captured in a book. (Maybe an encyclopedia, but given that we’ve writte almost 3.7 Million words on this topic for twenty [20] years here on Sourcing Innovation alone, and probably another million words on other sites, including Spend Matters, and still haven’t addressed everything, maybe not.)

And it can’t be accomplished just by a guide. The reasons are 3-fold.

  1. It’s not a change in speech, or action, but underlying thought. If you are not strategic at the core, you might be going through the motions, but you will never master strategy.
  2. It’s not a change in how you present, but how the leaders perceive. It doesn’t matter how the organizational employees and department heads perceive a shift and how much more ready, or not, they are to work with you, but how the C-Suite perceives you. If you can’t shift their mindset, and all Finance judges you on is cost-reduction alone and Operations on supply stability alone, you’ll never be able to be a strategic Procurement organization.
  3. It’s not a change in how you source, but how you manage your suppliers. If you are not building better relationships, are you truly strategic?

Strategy starts with cognition, something that must be mastered by Human Intelligence (HI!) before any actions can be taken, or any speech can be used to rally the organization, and any real progress can be made.

Once you have the right team with the right mindset and cognitive capability, you can begin to make true progress and follow the advice and guidance of Tom Mills.

The Problem With Simplified Graphics 5: e-Auctions are Not a Strategy

In our last two posts, we discussed the RFP and how the simplified processes that are typically presented by most analyst firms, consultancies, and consultants miss the main point — you need to have a deep understanding of what you need before you can even think of drafting a good RFP, assuming the situation is appropriate in the first place. As per part 3, there are usually (much) better options for a given situation, but most Procurement departments aren’t aware of them. In fact, the only other option most Procurement departments know about is the e-Auction, which is usually not the right option.

Now, today we’re going to pick on Joël Collin-Demers again because his post on e-Auctions gets most of it right.

In his post he breaks new sourcing events down into three categories:

  • no apples to apples comparison capability -> don’t auction
  • strategic or mission-critical -> don’t auction
  • clear specs and 3 or more willing suppliers -> don’t auction yet

And this is pretty close. The reality is that clear specs, apples-to-apples comparison, and 3-or more willing qualified suppliers is more than a don’t auction yet — it’s often a don’t auction, ever.

According to Joel, if you:

  1. run an RFI to qualify suppliers as real potentials
  2. run an RFP to get the full details and verify that the product/service and supplier will serve your needs and you’d be okay with awarding a bid
  3. run an RFQ to get initial pricing, and then select a set of suppliers within, or close to, price tolerance …
  4. you can then run an e-Auction to get the BAFO and find the real value.

But this isn’t always the case.

  • even if you are fully transparent up front, the suppliers who participate won’t be super excited about it and the best suppliers won’t participate
  • the suppliers who do participate will hold back significantly on their bids since they will expect to have to drop considerably during auctions, and you may end up cutting some before the auction because it looks like they won’t be within your price range
  • a desperate supplier will cut too deep into its own margin to win, and that can put it in financial distress which will jeopardize your supply and negate the whole point of the event
  • if a supplier cuts margin too much, they will inevitably cut quality, even if you tell them they don’t have to — that’s just how they see auctions

Auctions shouldn’t be used for anything you need an RFP to qualify a supplier, product, and/or service for. Period. Auctions should only be considered for that for which you don’t need an RFP. After all, nothing prevents you from doing a multi-round RFQ, with feedback between rounds, which will get you the BAFO that won’t jeopardize the product quality or jeopardize the supplier’s existence. In other words, the situation in which you can safely consider an auction is a lot smaller than Joël’s graphic seems to indicate.

Especially since repeat auctions on the same product or service, as we have written before, actually increases costs!

Follow Joël Collin-Demers over on Pure Procurement.