Conference season is upon us and my team and I will be slowly wading back into the waters for the first time since the shutdown. Trip #1 for me was a quick one down to New York City for Arkestro’s inaugural Optimal ’22 conference. Most of you reading this have never heard of Arkestro and that’s simply because the company announced its new name at the start of the conference. The newly-renamed company has been around for a while (founded in 2017) and operated as “Bid Ops” until last week.
After unveiling the new name, Arkestro’s CEO, Edmund Zagorin kicked off the conference with a presentation entitled “Why Predictive Procurement Orchestration Changes Everything” which was part origin story for his company and part argument for and explanation of ‘predictive procurement orchestration.’
Arkestro’s Origin Story
Arkestro’s story begins with that of its founder who, like most of you reading this, stumbled into procurement by happy accident. Early career training in procurement, whilst an academic, eventually led him into sourcing and contracts work and consulting while his interest in data science led to the founding of Bid Ops in 2017. The company began by focusing on the inefficiencies that exist in the sourcing process, driven by poor data and poor strategy. The early team then worked to develop a solution that could sit on top of other supply management applications (like eProcurement) to facilitate smarter negotiations and better pricing. What emerged was a company and solutions focused on predictive procurement orchestration (“PPO”). The value proposition of and the market opportunity for PPO as well as early results with several large enterprises like BASF and Diver Chemical and several prominent CPOs including CPO Honors winner (and “procurement dancer”), Jean-Michel Dos Remedios and CPO Honors Finalist (and rock star), Linda Chuan was enough to convince one of Ariba’s founders to invest in the company (he received a “co-founder” title at the event).
Introducing “Predictive Procurement Orchestration”
From Edmund’s perspective the journey to predictive procurement orchestration began with the complexity and inefficiency of the current procurement process that is paved with meetings, emails, and spreadsheets. He and his team wanted to create a solution that could “Orchestrate” — organize, automate, and simplify the many data streams, systems, and processes in place at the typical procurement organization — and utilize “Predictive Procurement” as a way to “amplify procurement’s influence.”
As described by Edmund and other company presenters, the Arkestro combines data science (to simulate or predict supplier pricing) with behavioral science to drive the negotiation to its optimal outcome. When a company has a need, Edmund explained that the Arkestro solution can (1) simulate the procurement cycle before it begins (2) generate and email suggested price offers to suppliers and (3) manage the back and forth of the supplier negotiation, including instant counter offers, until an agreement is reached. So when a need arises, the system helps identify preferred suppliers to approach (from within the company’s own supply base) and prompts them with an offer. When prompted with suggested pricing (on one or many items), suppliers that respond begin an automated negotiation. Edmund states that Arkestro’s clients save considerably more when using the solution.
Deeper discussions by Edmund and his team focused on the behavioral science at play in the Arkestro-supported supplier negotiation process which includes the use of game theory, anchoring, and reward uncertainty, among other concepts as a way for procurement teams to optimize their supplier pricing. Perhaps the clearest explanation of how the system works was given by the company’s CTO, Ben Leiken, when he said that “people [suppliers] love recommendations and hate making decisions.” (Sidebar: If you are interested in these ideas in the context of procurement, you may be interested in our CPO Rising 2017: Tools of the Trade report which looked at the psychology behind the “Procurement Mindset” and organizational decision-making.)
As I noted above, the team says that the Arkestro solution is not designed to replace an existing technology infrastructure but rather, to enhance it. The Arkestro solution integrates into and then sits on top of the standard supply management solution or solution suite. Additionally, suppliers do not need to login to any solution to conduct a negotiation using Arkestro, which is one reason why the company believes that it can be used for 100% of spend.
The ideas shared at Optimal ’22 are quite novel and it is great to see a new company attacking many of the traditional flaws in the supplier negotiation process. Edmund’s enthusiasm is contagious, as befits any evangelist and he has been shouting from the rooftops (or the 14th floor, on this day) that “Predictive Procurement Orchestration embeds preferred outcomes & instant feedback in any process.”
RELATED RESEARCH
Procurement 2021 Big Prediction – Big Data & AI Make Major Impacts
The Art and Science of Big Data Management
Procurement Rising Podcast – Jean-Michel Dos Remedios, Bel Brands
CPO Rising 2017: Stepping Inside the Procurement Mindset
