Artificial Intelligence (AI) is ready to transform the overall performance in procurement. Many common tasks, such as accounts clearing, purchase order generation, and delivery of information updates are likely to become entirely automated. This is merely the tip of the iceberg. By leveraging its strengths in pattern recognition and enhancing the capabilities of predictive models, generative AI will inevitably play a major role throughout purchasing in such areas as supplier selection, onboarding, and negotiation.
It won’t be an easy transition though. Our previous paper, “The Struggle For The Successful Implementation Of AI In Procurement”, highlighted many of the challenges in successfully launching AI tools. Good preparation, planning, and execution are all essential, as is ensuring clarity about the purpose of the AI applications. Success in AI comes from ensuring cost-effective use cases, building solid IT foundations, developing the requisite AI skills, ensuring sound data quality and security and, above all, committing management focus to its implementation.
This paper, “How To Unleash Value-Add In Procurement,” assumes that all these things are well in progress. It focuses specifically on the potential sources of value addition from leveraging generative AI, including the potential use cases, as well as how this value can be measured and tracked.
Sources of AI value addition in procurement
Based on conversations with leading practitioners in various industries, it is clear that AI can support multiple use cases in procurement. At its core, AI can add value in three different areas: productivity, problem solving, and ideas generation. In each of these areas, the value created comes both from top-line enhancement, in terms of quality and innovation, as well as from bottom-line cost savings (Exhibit 1).
It is useful to look at each of these areas in a little more detail.
1. AUTOMATION LEADING TO REDUCTION IN MANUAL TASKS
Most businesses are now familiar with the fact that AI is effective in automating routine and repetitive tasks, reducing the need for manual input, speeding up processing times, and eliminating errors. What might be a little less familiar is that the latest developments in AI can handle such tasks even where the process flow has not been standardized.
AI algorithms, which outperform traditional methods at analyzing very large volumes of data, can identify patterns, trends and anomalies in procurement processes such as data entry, invoice processing and purchase order creation. Generative AI extends these capabilities by being able to also respond to situations that have not been previously encountered.
2. PREDICTIVE CAPABILITIES IN ENHANCING DECISION MAKING
AI’s predictive capabilities can help procurement identify and prevent potential issues long before they arise and impact operations negatively. This includes identifying supplier-based risks, stock shortages, and other challenges.
AI analyses can also generate insights that support decision-making, including making recommendations regarding supplier selection, the choice of optimal sourcing strategies, and even the best negotiation approaches. In the latter case, using input from Enterprise Resource Planning systems, the latest generative AI applications can recommend the most effective challenges during negotiation.
3. PATTERN RECOGNITION IN GENERATING INSIGHTS
AI’s powerful pattern recognition capabilities are trained on historical data and can be used to predict future outcomes that would otherwise not be evident. These insights can include predicting future sourcing volumes, demand fluctuations, and shifts in the market.
Such AI insights will enable procurement teams to plan and strategize more effectively. For instance, AI insights into spending volumes can identify spending patterns that enable procurement professionals to optimize budgets, negotiate better prices, and anticipate cost-saving opportunities.
AI use cases are no longer merely passive. For instance, generative AI applications based on large language models now not only display analyses and suggest the next steps but can also interact directly with suppliers to realize the desired outcomes.
Once considered a buzzword and an exotic IT solution, AI is quickly becoming part of the established landscape. In procurement, as elsewhere in business, it is being integrated seamlessly into a wide range of processes. While new possibilities and implementations are still emerging at a fast pace, AI already offers concrete opportunities across the entire procurement value chain, which lead to bottom-line savings and top-line innovations and quality effects at companies that implement them correctly.
