Who is Arkestro and what is predictive sourcing?
Who the hell is Arkestro? And what is predictive purchase orchestration? These are the two questions that brought me to Optimal22 last week, a one-day event in Las Vegas billed as the “Predictive Sourcing Leadership Summit.”
The first is the easier of the two questions to answer. The company was co-founded about 5 years ago by the CEO Edmond Zagorineas Auction operations. The company’s description read: “Auction operations take the headache out of collecting, comparing and benchmarking numerous quotes from numerous vendors. Whether s Whether sourcing from a small group of long-standing vendor partners or a diverse global portfolio, Bid Ops AI will perform basic optimizations around geography and seasonality, as well as more complex optimizations for trading behavior , risk profile, logistics and packaging, as well as optimization for multi-priced or long-tail deals.”
Fast forward and the company has attracted experienced and sophisticated investors including Rob DeSantis, co-founder of Ariba and an early investor in LinkedIn, which invested $26 million in a Series A funding round, and a board that includes Jeffrey Immelt, the former CEO of GE . It was renamed Arkestro – think orchestration – at a corporate conference in New York last May. Among other awards, Bid Ops/Arkestro was a Gartner Cool Vendor.
As for exactly what predictive sourcing is, I’ll give you the short version here, but for more you can link to a White paper here. The concept, as Zagorin explained at the conference and later in an interview, is to use emerging technologies such as AI, machine learning, game theory and behavioral science to shorten and automate the procurement process, especially with suppliers with whom you already have a relationship and history. But not exclusively. “The idea is to encourage faster deals that build trust with suppliers, who will know they’ll get an order earlier in the process,” Zagorin said.
So how does he do this? Arkestro is a middleware platform that sits just above your systems of record, such as your ERP system, and, perhaps, just below your procurement systems. When a shopper decides to make a purchase, they can enter the product they wish to purchase along with other relevant information determined by the shopper. This could include quantity, delivery requirements, packaging requirements, and any other special contractual arrangements. Arkestro then does its job and reviews the history of the organization with that item or the items from the vendors it has qualified to supply the part. Once the magic happens, it comes up with a suggested price for the item and emails that information – including the recommended price – to the vendors.
Suppliers can then review the potential order and accept the price, suggest a higher price, or if they are really hungry, enter a lower price. The idea, as I understand it, is to first automate and therefore speed up the process and build trust in the system by being transparent with suppliers. Speed also comes by eliminating what many may consider the tedious process of ping-pong negotiations.
According to Zagorin, it won’t work on every occasion. During his presentation, he said that since going live, vendors have accepted the suggested price just under 14% of the time. In a follow-up interview, he said the 14% was definitely a time saver, but the real savings for organizations came from around 2% of deals that resulted in significant cost reductions. This was either because the system suggested a price with significant savings, or because the supplier entered an even lower price.
Several customers, including Bel Brands USA, Westfall Technik and BASF, gave presentations on how they used the tool to generate savings. Linda Chuan, Head of Strategic Sourcing and Sourcing at Box, explained how she uses dashboards of her sourcing spend with various vendors to report back to customers and update her board on progress. of the organization in its supplier diversity initiative. Auction opportunities may come later.
Along with discussions about the Arkestro tool, there were several themes echoed by the presenters, who were all senior procurement executives, which reinforced the messages I’ve heard at other procurement conferences, like the ISM last May, and in discussions with other senior purchasing managers.
Procurement not only owns supplier diversity, but also other ESG initiatives: As mentioned above, Chuan’s presentation focused on provider diversity, including as the Justice Coalition in the Bay Area which includes Box, Slack, Zoom, Intuit and Tinder. But the importance of sustainability was also mentioned 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 are the companies that will win in the market because they will have of a supply. Although Zagorin didn’t put it that way, he did note several times that Arkestro is really a tool for vendors. A presenter asked to raise their hand to find out how many people in the audience had sent out a tender and got crickets in return. The thing is, the supply base is as thin as the customer base and simply doesn’t have time to respond to all the quotes that come their way. Thus, suppliers go with their best customers. It’s SRM.
Trust and transparency may well be the currency of the kingdom: John Henke, a Michigan-based scholar and researcher, has published an automotive supplier confidence index for years. The index surveyed Tier 1 suppliers to the six largest US automakers and basically asked them about their relationships with the automakers – how much do they really trust them? Henke’s thesis, which he was able to correlate with automaker stock prices over the years, was that the OEMs with the highest confidence index scores got the first crack at the supplier innovation that led to market share. In a completely different realm, McDonald’s has long attributed its success to the relationships it maintains with its suppliers, which it considers integral to its performance. It’s a long-running way of influencing 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 this is exciting, the ultimate success of any organization may hinge on its ability to integrate new transformational technologies into existing infrastructure. The best example at Arkestro was an automaker who described automating some of their sourcing practices only to end up manually entering results into a 20-year-old record system they just couldn’t get away from. .
I found it to be a fascinating event. And while I’m still fuzzy on predictive sourcing, just as I’m a little fuzzy on probabilistic planningthis is a concept to watch for the future.
About the Author
Bob Trebilcock Bob Trebilcock, Managing Editor, has covered material handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Chicago. He can be reached at 603-852-8976.