Zero100: Why the Future of Sourcing is AI-Enhanced
“2024 marks the beginning of a decade of transformation focused on the first mile” – the compelling open remark of Zero100’s latest report, Reinventing the First Mile: AI Powers a New Generation of Digital Sourcing.
The supply chain research specialist foresees a future where global operations and supply chains are connected, circular, technology-enabled and people-powered.
While the past 10 years of supply chain innovation has largely taken place in the last mile, Zero100 says the next 10 will see the first mile of supply chains – sourcing and procurement – as a focal point for transformation. This area will be critical for ensuring business resilience, fostering sustainability and enhancing competitiveness.
While sourcing has previously been seen as a back-office function, it's now emerging as a strategic asset, with companies leveraging AI to optimise their procurement processes and improve financial outcomes.
Companies are realising the benefits and untapped potential in sourcing and the power of the CPO to deliver value and a competitive edge.
AI: The key to unlocking value
Zero100's paper says those willing to rise to the challenges ahead must embrace new technologies and digitally transform the way their sourcing and procurement organisations operate.
When it comes to indirect spend, companies will continue to automate processes and give business stakeholders easy-to-use tools for their everyday purchasing needs.
Direct spend will require equipping category managers with powerful intelligence and insights to make more timely decisions and forging much tighter connections.
“Direct procurement is going to win with AI [...] and quants are going to rule direct procurement.”
Despite these ambitions, if procurement is to be successful, reinventing the first mile will require not only a solid data foundation and advanced software but also top-level talent.
- Three times the revenue growth of the other 220+ companies analysed.
- A positive margin growth.
- Two times lower earnings per share (EPS) deviation compared to peers.
While this doesn’t prove a direct correlation between AI and machine learning hiring and financial performance, it does point to an association.
Furthermore, CPOs have shifted their strategic priorities to centre on developing AI-powered sourcing and equipping the next generation of procurement talent with a portfolio of domain, digital and business skills.
This combination of digital technology and talent feeds sourcing’s ability to deliver value in ecosystem integration, Scope 3 traceability and resilience on offence.
We simplified our supply chains and are doing more to leverage data and data analytics to visualize the flow of goods so we can serve customers more efficiently.
The foundations for success
To harness the potential of AI, the report highlights three crucial dimensions: data, technology and people.
- Data: The bedrock of AI-powered sourcing. Many organisations face challenges with AI due to fragmented or incomplete data. However, leveraging AI for data management can significantly improve operational efficiency.
- Technology: Presenting both opportunities and challenges, AI-driven systems integrate seamlessly across supply chain functions for holistic decision-making. Technology can support dynamic capabilities such as predictive analytics, autonomous agents and digital twins to optimise outcomes.
- People: With the role of procurement professionals evolving alongside technology advancements, AI is reshaping job functions. The technology is moving tasks from manual execution to strategic oversight. Organisations must invest in upskilling their workforce focusing on digital fluency, systems thinking and sustainability expertise.
We’re working in a new way with retailers on the totality of the supply chain end to end vs simply trying to optimise our respective pieces. One example [is] using data and machine learning algorithms to optimise truck scheduling to minimise idle time for drivers. We’re also using digital tools to optimise fill rates and for our dynamic routing and sourcing optimisation. [We estimate] US$200–300m of savings opportunity across these areas.
Ultimately, the transformation of the first mile is set to mark significant milestone in the evolution of supply chains. Sourcing and procurement powered by AI not only enhances operational efficiency but also aligns with broader goals of sustainability and innovation.
As companies embrace this shift, they have the opportunity to lead the way in building resilient, responsible and digitally-enabled supply chains.
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