Value-eroding behaviours in supply chains such as fraud and gamification can be powerfully limited by emerging artificial intelligence (AI) technology, a tech expert has advised.
IT business solutions expert Alan Henson notes that procurement pros have to date adopted two broad approaches to combat value-eroding behaviours in their supply chain – behaviours that can undermine cost reduction efforts, subvert the most valiant strategic sourcing endeavours, and damage reputations and efficiency significantly.
One is to implement high-control measures that centralise procurement and concentrate buying power in the fewest hands.
The drawback here is the unintended incentive to encourage less scrupulous suppliers to engage in gamification, such as winning a contract on a strikingly low bid but then surreptitiously recouping profits by submitting a series of change orders that incrementally increase the net price.
The other is to seek greater agility through minimal controls, an approach that leaves firms more open to human error and less able to detect fraudulent activity.
While AI solutions ought not to be seen as a supply chain ‘panacea’ (the learning algorithm needs to be properly ‘trained’, which presupposes upgraded procurement and financial tech as part of the digital procurement transformation process), it can locate the gaps in existing supplier relationship management.
Because its judgement is never influenced by the emotions, errors and rationalisations that accompany human perception, it provides a complete, data-rooted picture of the supply chain.
In so doing, it effectively ‘digitises’ trust, demonstrating to suppliers that any value-eroding behaviours on their part will be detected: the best policy for all is honesty.
The temptation to engage in gamification and fraud is thereby radically undermined.
As Henson puts it:
“By identifying value-eroding behaviours, AI provides opportunities for companies to engage most effectively with vendors and mitigate supply chain risk. However, shifting the balance of power is not about taking control of the supply chain environment – but empowering an organization with the tools needed to incentivize collaboration and co-value creation.”