The end of intermediaries in services procurement

Services procurement spend constitutes a major part of the contingent workforce spend accounting for almost 60% of the ~US$300 billion spend. However, until last few years, this major spend category was hidden from buyers as it was spread across the organization within different department’s individual Statement of Work (SoW) engagements.

As buyers realized the quantum and importance of this spend, they became increasingly interested in realizing savings from their consulting engagements, offshore initiatives and other outsourced services typically procured through a statement of work. This interest from buyers led to development of specific technology tools for managing SoW engagements. These tools enabled the organizations to have a centralized view of their services procurement spend and relieved them of the pain of managing these processes through compartmentalized and basic methods.

There is no doubt that these technology tools have provided organizations suitable options to manage their services procurement spend; however, these tools are not self-sufficient and need human intervention which makes them susceptible to various inefficiencies. Some of them emerge from inherent bias for some suppliers while others originate from their intent to defraud the organization and benefit out of the mismanagement. There are other issues such as security concerns, process inefficiencies and low customization options which plague some of these tools.

Service providers have been trying to free their tools of these long persisting problems. However, till last 12-18 months, there was no viable technology which could help them automate their tools and also provide a strong layer of security. But with significant progress on the Artificial Intelligence (AI) front and successful implementation of blockchain’s use cases, there is hope that these technologies can act as catalyst for service providers to start working on a platform which can operate with minimal human intervention and with highest level of security.

The whole process starting from requisition creation to invoicing and payment can be automated and secured using analytics, AI and blockchain enabled technologies. The whole platform will require a core analytics engine to make decisions along with AI enabled bots for operationalizing the whole system and blockchain acting as the channel for interaction between different market constituents in addition to providing an extra level of security.

Requisition creation process can be automated by leveraging AI enabled bots where only the required information is fed to the system and bots complete the rest of the work. The core analytics engine than mines through an open source database of SoW providers present on the blockchain. This not only enables easy and cheap access to a large database but also saves a lot of time and money as there is no need to check service provider’s credentials due to inherent nature of information stored on blockchain. Once service providers are shortlisted, bids are invited and received from them through a blockchain enabled secure channel.

Once secured bids are received, the core analytics engine goes through all the bids to match them to the requirements and benchmarks them against similar type of engagements completed in past. Based on this exercise, it decides whether to finalize a supplier or ask suppliers for updated bids. Once the terms and conditions given in the requisition are finalized, AI enabled bots chart a SoW and the information is stored on blockchain as a smart contract with relevant time and expense information.

The administrative part of the onboarding process is enabled by AI bots where these bots help the SoW provider get familiarized with buyer’s organization and the team with which they will be interacting. Again, the process of resource and information transfer can also be automated; however, the extent of this is dependent on the type of SoW engagement. Once the team is onboarded, AI enabled bot can act as an administrator to check whether all milestones are met or not and with proper deliverables.

Once all milestones are met per conditions fed into the smart contract, a smart contract is triggered and an invoice is generated. As this invoice is present on blockchain, invoice scanning is not required which makes the reconciliation process far less cumbersome as all authorized stakeholders can review the same transaction. This also reduces the settlement timelines saving a lot of hassle for both the buyer and supplier. After all parties agree on the transaction details, the payment is processed and transferred to the supplier through a digital cryptocurrency instantaneously.

As the information from blockchain enabled transaction is directly fed into the accounting system, there is complete transparency between the original and accounting transaction. Again, as all transactions are stored on blockchain, it provides a strong tamper proof audit trail for tax purposes. 

The administration of engagement through AI bot and blockchain also enables all the parties to gather information regarding other stakeholders involved in the process. This helps in developing referral mechanisms and scoring of stakeholders which further improves the effectiveness of the overall process and forces all stakeholders to perform to best of their abilities.

I have broadly looked at how blockchain and AI can change the face of services procurement in years to come; however, the extent to which this vision will materialize will be determined by the commercial considerations around implementing these technologies and by the progress in broader AI and blockchain landscape.