Earlier this month, I sat down with riskmethods’ Co-Founder and Managing Director, Heiko Schwarz, to learn about his background in business, his impetus for establishing riskmethods, and what he believes is the future of supply risk management. It was a fascinating and fruitful interview, and like most of our Procurement Influencer spotlights, we broke it down into two parts. Today’s article is the second of two articles from our interview (click here to read the first article).
As a refresher, riskmethods “provides a solution that automatically identifies threats around supply networks, both inbound and outbound.” Artificial intelligence (AI) is a central part of riskmethods’ solution. Integrated with AI capabilities, riskmethods’ platform “supports the assessment framework to identify the impact to the individual customer organization.” By combining intelligent data analysis with prescient supply chain data and information, riskmethods can help customers holistically understand their supply risks and begin to prepare the organization for various threat and risk scenarios that could result in supply disruptions, operational downtime, lost revenue, reputational damage, or fines and penalties.
Artificial Intelligence vs. Augmented Intelligence: What’s the Difference, and does it Matter?
Because AI is an integral part of riskmethods’ platform, it warrants noise cancellation, clarifying terminology and usage. The term, AI, gets thrown around a lot. Many organizations play fast and loose with it, but there has been a growing number of solution providers that are distinguishing between augmented intelligence and artificial intelligence. When asked about this distinction, Heiko shared an anecdote from a recent two-day event in Berlin about disruptive procurement technologies.
In nearly eight of ten presentations, AI was said to fuel procurement processes, like spend analysis, procure-to-pay, or contract management. But in 80% of those cases, AI was based on a rule-based or algorithm-based way of providing efficient support to procurement. Presenters were using the term lightly, as they often do. “The deeper you dig,” Schwarz said, “the less AI you’ll actually find. Maybe 10% of use cases promoted as AI are really AI – that go beyond early-adopter status to the next maturity level.
“Whoever knows how this really works,” he said, “knows that it takes years to create, teach, and train an engine.” Indeed, riskmethods started developing its deep-learning AI layer five years ago. After their fourth customer, Schwarz, Zimmer, and others realized that “rule-based engines and algorithms” could not keep up with the Big Data deluge. For starters, “it took years and millions of training sets that had to be supervised by analysts to provide the correct feed to the deep learning layer to understand the pattern recognition, the relevance scoring, and the threat-use detection.” Finally, “after years of highly automated self-optimizing,” their work paid off. Schwarz states that they were able to develop a data engine that provides real automation and value to the customer.
What is the Future of Risk Management?
For Schwarz, the future of risk management, particularly within procurement, will see even more automation than enterprises are experiencing today; and it will blend into other procurement processes. The development (or integration) of “plug-and-play” business applications into the leading source-to-pay platforms today creates a seamless user experience for suite users that want risk management capability. “Automation and integration,” he said, are where “procurement organizations can get the next level of value, because better risk information and data will lead to better sourcing and onboarding decisions.” Category managers can develop sensible sourcing strategies based on the supplier risk data available to them, like the number of high risk suppliers for a particular category, sub-tier bottleneck exposures, facilitation time frames, risk scoring, financial health, CSR compliance, and so on. There will be more value driven by those integrations.
Schwarz also believes that it will become even more important for procurement organizations to add value beyond savings. “That is a great trigger of procurement transformation,” he said. “Procurement professionals and leaders are looking for use cases where they can prove to the CFO or CEO” that they are more than glorified order takers and penny pinchers. Things like protecting the brand, ensuring business continuity in the face of commodity shortages, and driving compliance to ethical or regulatory standards are ways that CPOs and procurement leaders can add value. They can also combine supply risk data with “assessment-driven scoring models” to help business leaders make better supplier onboarding decisions.
The future of supply risk management will also mean that many innovative and robust technologies will become standard on solution suites and point solutions. For example:
- Sensors are being embedded within shipping contains that, when linked to supply risk management dashboards, can increase visibility into risk factors that could affect the quality of the shipment (e.g., humidity, security, temperature, vibration). They can also track the geo-coordinates to increase the preciseness of alerts;
- Micro satellites or drones that provide live footage of incident areas (e.g. flooding) for every geo-coordinate and upload or stream that footage through the cloud to supply chain/risk managers. This could help them assess impact of manmade or natural disasters, and help them determine best routes to take to avoid disruptions.
- And digital assistants, with the help of speech-recognition algorithms and software, may replace traditional human inputs, at least partially. Certainly, “these digital enablers will change the way that applications in general but information in particular is going to be consumed by an organization.”
In short, Schwarz believes that there will be much more automation in procurement and supply risk management; and that users will get more support from digital assistants and innovations like augmented reality to conduct remote supplier audits. “Procurement work will be much more intellectual and communication driven, and standard processes, procedures, and tasks will be surrendered to robots.”
No, Robots will not Take Over
From there, the subject turned to robots, and whether they will render human workers obsolete. Like many industry insiders, Schwarz does not believe so – at least not all workers. Rather, he believes that robots, robotics, and intelligent systems more broadly will actually create jobs for highly-skilled knowledge workers. Take riskmethods’ journey, for example. When they started to build their AI layer five years ago, they needed technical staff to train the system. Over time they had to hire more staff; and they now have close to 20 risk analysts that continuously improve the layer, either by writing lines of code or by providing training to increase the precision of data analytics engine. “We didn’t take away any one’s job,” Schwarz insisted, “we created new jobs by inventing this! And we didn’t take away anything from procurement organizations because they didn’t do this job before.”
Schwarz concedes that robots and robotics will probably continue to replace manual, unskilled, or lightly skilled workers, jobs that have long been at risk of being automated or outsourced to low-cost countries. “But at least, there will be no jobs lost in mature industries in Western countries.”
Living in Uncertain Times
Although the future of supply risk management will certainly involve more automation, robotics, and other intelligent innovations, and that they will create opportunities for highly-skilled workers, the present day is less certain for Schwarz and others across the pond. “I think the common understanding or opinion of American politics right now,” he said, sitting in his office in Munich, “is the fear of not having a government in place that’s as predictable and reliable as it was before.” Beyond the presidential bombast and Twitter rants, what really concerns Europeans is that unlike prior U.S. administrations, “there is no straight line or clear direction in economic, political, or foreign affairs that Europeans can rely on.” Indeed, in the fifteen months that President Trump has been in office, his administration has withdrawn from the Trans-Pacific Partnership and the Paris Climate Accord and slapped tariffs on steel-producing countries, only to temper its actions, or signal a willingness to reverse course.
“It seems to be emotionally-led,” observed Schwarz, which is “something trade-partners have a hard time dealing with.” It makes long-term business planning difficult, particularly in such a globalized business world.
Final Thoughts
Supply risk is a fascinating topic here at CPO Rising, precisely for the reasons Heiko Schwarz discussed with us. It is a moving target, both in terms of the risk classifications that CPOs and their procurement teams need to monitor and manage, and also in terms of the innovations and tools that are available to them. Artificial (or augmented) intelligence, automation, robotics, sensors, and digital assistants are converging to drive more transparency into and control over extended supply chains; and these technologies are poised to create new and new kinds of jobs for the future workforce that will need to have the skills to match. And while this much is certain, political conditions this side of the Atlantic are making a challenging discipline even more challenging, as business leaders struggle to keep up with the ever shifting political and economic landscapes. There is never a dull moment, a sentiment that looks to continue well into 2018 and beyond.
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