Who the hell is Arkestro? And what the heck is predictive procurement orchestration? Those were the two questions that brought me to Optimal22 last week, a one-day event in Las Vegas billed as “The Leadership Summit for Predictive Procurement.”
The first of the two questions is easier to answer. The company was co-founded by CEO Edmund Zagorin as Bid Ops about 5 years ago. The company description used to be: “Bid Ops eliminates the headache of collecting, comparing and benchmarking many bids from many vendors. Whether sourcing from a small group of long-standing supplier partners or a diverse global portfolio, Bid Ops AI performs fundamental optimizations related to geography and seasonality, alongside more complex optimizations for negotiation behavior, risk profile, logistics and packaging, and optimization for multi-award – or long-tail bids.”
Fast forward and the company attracted some seasoned and seasoned investors, including Rob DeSantis, Ariba co-founder and early investor in LinkedIn, who invested $26 million in an A-Series round, and a board member that included Jeffrey Immelt, who the former, belongs to CEO of GE. It was renamed Arkestro at a company conference in New York City last May – think orchestration. Among other awards, Bid Ops/Arkestro was a Gartner Cool Vendor.
What exactly Predictive Procurement is, I will give you here in short form, but to find out more, you can link to a white paper here. As Zagorin explained at the conference and later in an interview, the concept is to use emerging technologies such as AI, machine learning, game theory and behavioral science to shorten and automate the procurement process, especially for suppliers with whom you already have a relationship have and a story. But not exclusively. “The idea is to encourage faster agreements that build trust with suppliers who know they will get an order earlier in the process,” Zagorin said.
So how does it do that? Arkestro is a middleware platform that sits just above your systems of record such as your ERP system and possibly just below your procurement systems. When a shopper decides to make a purchase, he or she may enter the product they wish to purchase and other relevant information as determined by the shopper. This may include quantity, delivery requirements, packaging requirements and other special contractual arrangements. Arkestro then does its thing and examines the history of the organization with that item or the items of the suppliers it has qualified to supply the part. Once it’s in effect, it gets a price suggestion for the item and emails that information — including the suggested price — to the suppliers.
Suppliers can then review the potential order and accept the price, suggest a higher price, or if they’re really hungry, enter a lower price. The idea, as I understand it, is first of all to automate the process and thus speed it up, and to build trust in the system through transparency towards the suppliers. Speed also comes from eliminating what many see as a lengthy process of ping-pong negotiations.
According to Zagorin, it will not work on every occasion. During his presentation, he said that suppliers have accepted the proposed price nearly 14% of the time since go-live. In a follow-up interview, he said that the 14% was certainly a time saving, but the real savings for the organizations came from about 2% of the bids that realized significant cost reductions. This was either because the system was suggesting a price with significant savings, or because the supplier had entered an even lower price.
There were presentations from several customers including Bel Brands USA, Westfall Technik and BASF on how they are using the tool to generate cost savings. Linda Chuan, Box’s Head of Strategic Sourcing and Procurement, shared how she used the dashboards of her sourcing spend at various suppliers for reporting to clients, and updated her board on the organization’s progress on its supplier diversity initiative. Bidding opportunities could come later.
Aside from discussions about the Arkestro tool, there were several issues raised by the speakers, all of whom were senior procurement executives, that reinforced the messages I heard at other procurement conferences such as ISM last May and in discussions with other senior procurement professionals had heard leaders.
Purchasing not only has the variety of suppliers, but also other ESG initiatives: As noted above, Chuan’s presentation was all about vendor diversity, including as the Bay Area’s Justice Coalition, which includes Box, Slack, Zoom, Intuit, and Tinder. But the importance of sustainability was also discussed in other presentations.
Supplier relationship management has never been more important: In a blog on SCMR.com, Len DeCandia, the former global CPO of Johnson & Johnson, argued that in the years to come, the companies that invest in SRM will be the companies that will win in the market because they have an offer will have. Although Zagorin didn’t put it that way, he remarked on several occasions that Arkestro is truly a vendor-centric tool. A moderator asked for a show of hands, how many in the audience had sent out a tender and received crickets in return. The point was that the supplier base is as thin as the customer base and simply doesn’t have time to respond to all the offers that come their way. So suppliers go with their best customers. This is SRM.
Trust and transparency could only be the coin of the empire: John Henke, a Michigan-based academic and researcher, has published an automotive industry supplier confidence index for years. The Index surveyed the Tier 1 suppliers of the six largest US automakers, essentially asking them about their relationships with the automakers – how much do they really trust them? Henke’s thesis, which he was able to correlate with car manufacturers’ share prices over the years, was that the OEMs with the highest trust index values got the first crack in supplier innovation, which led to market shares. In an entirely different area, McDonald’s has long attributed its success to relationships with its suppliers, which it views as an integral part of its performance. It’s such a long-winded way of dithering that the words trust and transparency appeared in virtually every presentation at the Arkestro event.
My last takeaway is that for all the excitement surrounding digital transformation, and it’s exciting, a company’s ultimate success can depend on how well it is able to integrate new, transformative technologies into an existing infrastructure. The prime example at Arkestro was an automaker that described automating some of its sourcing practices, only to end up manually entering the results into a 20-year-old record-keeping system that it just couldn’t get away from.
I found it a fascinating event. And while I may still be fuzzy on predictive procurement, just as I’m a little fuzzy on probabilistic planning, it’s a concept to keep in mind for the future.
About the author
Bob Trebilcock Bob Trebilcock, Editor-in-Chief, has covered materials handling, technology, logistics and supply chain issues for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. Trebilcock is a graduate of Bowling Green State University and lives in Chicago. He can be reached at 603-852-8976.