As autonomous procurement develops, the playing field for negotiations becomes increasingly level, says strategic advisory firm Disrupting Consultancy CEO Ian Russell.
With advancements in artificial intelligence (AI) and ever-deepening insights gained from greater access to information, the information asymmetry between buyer and supplier has become less pronounced.
Information asymmetry is the idea that one party, usually the seller, knows more than the other party, usually the buyer. The seller will attempt to leverage this knowledge advantage to increase the price, whereas the buyer will attempt to gain more knowledge to decrease the price.
During negotiations, this information disparity between parties is narrowed until a fair deal is agreed upon.
“Information asymmetry is one of the oldest and most basic economic principles. It is the foundation for negotiations. However, the advent of autonomous procurement technologies is narrowing this information gap before negotiations even begin. As the gap is narrowed, so too does the negotiation power of both sides,” Russell explains.
With autonomous procurement automating routine tasks within the procurement profession – such as paying invoices, performing spending analytics or analysing commodity prices and movements – the role of humans has decreased.
Despite this, Russell believes that humans still play a vital role in “doing deals”, even though information technology (IT) has changed the way humans can leverage knowledge for an advantage in negotiations.
Although increased information asymmetry can be viewed as a desirable outcome of a healthy market economy, decreasing information asymmetry can also translate to increased chances for fair deals and fewer chances of fraud.
Russell points out that, in many cases, fair deals do not occur. In most cases, the buyer is at an information disadvantage and will pay more than what the product is truly worth.
In rarer instances, the seller will be at a disadvantage, selling at a loss – a more than fair deal for the buyer.
Moreover, Russell notes that, with the advances in IT, the arbitrage of the procurement sector can be levelled for greater fairness, but this also means that the human factor in negotiations is diminished.
However, he adds that, despite the diminishing human factor, the decrease in information asymmetry creates opportunity. Humans can still add value in the realm of negotiations.
“The critical element, from a procurement perspective, is how to access the insights gained from automation, AI and IT, and use them to one’s advantage in negotiations.”
Russel explains that, because deals are still often done between humans, face to face, there is still the unquantifiable power of emotional and psychological influence that can be leveraged.
Automation and Jobs
With advances in AI and automation, those involved in the procurement profession are concerned about the way this affects their ability to remain employable.
The latest South African unemployment statistics from research organisation Statistics South Africa show an increase in unemployment from 27.6% in the first quarter of 2019 to 29% in the second quarter – the highest unemployment rate in the country since 2003.
“The reality of Industry 4.0 is upon us and it has a huge impact on the procurement profession – particularly in the private sector. There is much discussion around which jobs are still going to exist in the next few years, and how the industry can embrace modern technology without increasing the problem of unemployment,” says event organiser Smart Procurement content head Mediacy Mudekwa.
He mentions that automation has the potential to lower operating costs, improve efficiencies, improve service delivery and minimise corruption.
“Machines tend to take bribes a lot less often than people do,” quips Russell.
However, these positive advancements require that procurement professionals diversify their skills set to remain employable.
The indaba will, therefore, also focus on the encroachment of automation on the procurement role, with talks, case studies and workshops to discuss the way it can be leveraged to improve the overall quality of the profession and ensure that it does not increase unemployment rates.
A key speaker at the event on this topic will be UK-based international procurement transformation leader Ian George, who holds the only doctorate globally in procurement and supply chain transformation. His work activities cover academic research, training and consulting in a multitude of public and private sectors globally.
Robotics company Cobots sales manager Frederik Langenhoven will deliver a talk on studies performed by the company on how increased automation means that procurement tasks are shifting from being menial to strategic.
Russell will speak at the Smart Procurement World Indaba industry leaders executive breakfast, themed The Dawn of Autonomous Procurement.
Other topics include State-owned entity governance, enterprise and supplier development trends, automation analysis and travel spend analysis.