In
the financial services industry, the procurement professional plays a
particularly important role. All organizations benefit from the knowledge and
skills of procurement to find the best goods and services at the best price. Those
who work in the FSI must at the same time help manage regulation, competition
and risk for one of the most highly regulated industries on earth. Supplier evaluation
and performance are crucial, since supply risk events put a damper on profits
and may draw unwanted attention from regulators.
Smart
procurement choices can lead to a higher profit margin and competitive advantage.
Consequently, as organizations create procurement
policies, they need to be sensitive to that expertise. Otherwise, blind
enforcement of generic policies may result in people finding ways to go under
the radar. Purchasers sitting within their silos make isolated purchasing
decisions based on their experience alone rather than the collective experience
of the enterprise. In addition, there are always bad actors who try to game the
system. (Just ask the U.S. Navy, which
recently fell victim to a $2.7 million procurement scam.)
Financial services organizations also need to consider business agility
when creating procurement policies. Tighter controls may restrict agility even
as they yield greater efficiency. To accelerate procurement without
compromising efficiency, enterprises need to empower people to make quick
purchasing decisions without losing control over how the money is spent.
Overcoming Analysis Paralysis with Artificial Intelligence
Procurement
has a variety of challenges, but chief among them is the
quality of intelligence available on purchase transactions. It is dated by the
time it is received, leaving little or no time for any kind of interception or
guidance. Part of this intelligence is derived through traditional analytics,
which employ a slice-and-dice approach to analyze data. They help understand
the spend distribution over a period of time and identify opportunities for
optimization.
The problem is that these analytics aren’t able to dive down
further to reveal specific patterns of buying behavior that may need to be
probed, encouraged or stopped. While intelligence is also derived from subject
matter experts or consultants who analyze the spend distribution and provide
advice based on industry benchmarks and best practices. However, that doesn’t
always drill down to the transaction level to provide specific recommendations.
Because there is so much procurement data being generated
non-stop, analysis at a granular level that provides a true understanding of
what’s happening is essentially impossible. Purchase transactions have patterns
hidden deep within them, some of them good and some bad. These patterns reveal
the nuances of buying behavior, and they constantly evolve. The problem is that
you don’t know what they are upfront. Hence, you cannot define any rules to
detect their occurrence. That is why traditional slice-and-dice approaches fail
– and why artificial intelligence (AI) is so helpful.
AI has the capacity to find those patterns, increasing the transparency
in procurement. It can auto-discover patterns in purchase transactions that
look odd using algorithms and then highlight them to humans. It can observe and
learn which of those patterns are accepted by humans as worth monitoring
through feedback loops. It can then use this knowledge to detect and predict
anomalies in live transactions, allowing humans to intercept and take timely
action. That’s when the procurement function starts to become cognitive.
AI and Exceptions
Exceptions
take on several forms within procurement. Some
adversely impact spending because of avoidable price variance, some impact the
cost of operations because of avoidable delays and some are non-compliant with
procurement policies. Exceptions can be positive as well, such as transaction
sets that are always compliant and never result in price variance or delays.
How do exceptions occur? Finding that out involves finding an exception and then identifying influencing
factors that could influence its occurrence. The outcome could be price
variance, which is the difference between the price quoted in an invoice and a
standard price at which the item might be bought. There could be any number of
influencing factors behind such an exception: business unit, plant, buyer,
supplier, item, time of the year etc.
Leveraging AI can help you find an outcome like this, in addition
to any number of
influencing factors. It can also help predict likely exceptions ahead of time. Sophisticated
algorithms then take over to crunch a purchase transaction data set and
discover patterns that require inspection and are presented to humans with
transactional evidence. Such a virtual procurement expert would be able to
compute and present a financial impact of every identified pattern. Then human
procurement experts can validate these patterns.
Using
a combined approach of humans and AI, you can move on to learn what drives
other types of exceptions such as transaction fallouts, mavericks, anomalies or
the unavailability of a purchase order against an invoice.
Additional Wins from Using AI
The procurement department of FSIs will be able, aided by AI, to work
at the speed required for rapid business growth and do so with greater
efficiency. When a layer of intelligence is always at work, organizations can
continuously monitor and guide people to make the right decisions based on the organization’s
collective experience. Exploiting hidden opportunities to optimize spend by
identifying and eliminating maverick transactions produces an efficiency boost.
Similarly, working with AI helps to eliminate different types of exceptions
that would otherwise cause a drag in the process and increase the cost of
operations.
Using AI brings with it the additional benefit of better compliance.
Instead of forcing people to comply with a generic set of policies, the
application of AI allows procurement teams to become more sensitive to real
business needs. It enables them to continuously engage with people on the
ground and help them make the best choices within their constraints while
staying compliant. For those trying to game the system, AI acts as a deterrent
and reduces instances of non-compliance.
Adding
AI for Better Procurement
Financial
services firms know how important it is to have a well-functioning procurement
team, as it helps lower costs, maximize profits and protect against risk. In
all these ways, they add value – but they can be stymied by overly strict
policies and ineffective analytics. AI helps by taking on the redundant
activities of procurement while providing helpful insights that provide added
value. To achieve this, FSI companies need to switch from focusing on process
to focusing on data so the procurement team can become even more agile and
efficient.
Summary
Article Name
The Case for AI in Financial Services Procurement
Description
In the financial services industry, the procurement professional plays a particularly important role. All organizations benefit from the knowledge and skills of procurement to find the best goods and services at the best price. Those who work in the FSI must at the same time help manage regulation, competition and risk for one of the most highly regulated industries on earth.
Author
Akhilesh Tripathi
Publisher Name
PaymentsJournal
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