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AI’s transformative role in empowering companies to optimize procurement
Shaz Khan |
January 25, 2024 |

 18,466 total views

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Artificial intelligence is a transformative force, reshaping the procurement landscape and offering companies an unprecedented opportunity to revolutionize their supply chain operations. This powerful tool accelerates problem-solving, data analysis, customer service and product innovation, making it a game-changer in the world of procurement. 

Procurement processes are replete with repetitive tasks, transactional documents and vast historical data — the perfect breeding ground for the introduction of AI solutions. These technologies bring compliance, control and speed to the supply chain, enabling organizations to measure supplier risk, streamline onboarding and offboarding processes, automate purchase order deliveries and monitor tax compliance across different countries.

Procurement, in the age of AI, is on the cusp of becoming the digital showroom that defines organizational efficiency. The integration of AI promises to automate and digitize many laborious processes in sourcing and procure-to-pay cycles, resulting in remarkable gains in productivity, significant cost savings and enhanced operational efficiency.

How AI is currently reshaping the procurement landscape

AI is a tool that is accelerating the way companies attack solutions to complex problems, analyze and crunch large amounts of data, deliver exceptional customer service and innovate new products for the market. Procurement and sourcing have clearly defined and repetitive processes, transactional documents, large amounts of historical data and a list of clearly defined business outcomes from cost savings to document processing costs. 

Because of these characteristics, procurement has the opportunity to become the leading AI digital showroom for organizations. Many repetitive and time-intensive processes in the sourcing and procure-to-pay cycle can be automated and digitized with AI, leading to immense productivity gains, incredible margins and substantial operational cost savings.

While the introduction of AI solutions is still in the early stages for procurement and sourcing organizations, we are seeing incredible use cases in the market.

For example, with intake, a new employee can interact with a chatbot integrated into their existing messaging platform to request a PC laptop and AI can orchestrate the entire approval and ordering process for the user without the user having to log into any formal user interface or application. Similarly, in accounts payable, AI can extract and analyze any type of incoming supplier invoice data, process the invoice, and send approved invoices for payment and other invoices to a quarantine queue where they can be reviewed by a manager to resolve issues. 

I would categorize the areas AI is making an immediate impact on procurement into four broad buckets:

  • Document orchestration – Initiating and processing purchase orders and invoices with pre-approved supplier pricing, identifying reliable and cost-effective suppliers and automating business workflows.
  • Supplier management – Automating the identification and management of new suppliers; tracking supplier compliance, updating supplier data and detecting any early warnings or risks with suppliers.
  • Contract and tax compliance – Process invoices with the jurisdictional tax and in-country compliance requirements; ensure incoming invoices align with contract pricing and terms; ensure employees are purchasing from electronic marketplaces aligned with corporate goals around CSR, sustainability and small business and diversity goals.
  • Predictive analytics – AI can analyze spending patterns and historical data to provide insights into organizational spend data such as spend by category, location and provide alternate sources of supply. In addition, AI can be used to provide insights into potential fraud or supplier risk.

These capabilities share a theme of increasing supply chain velocity, enhancing buyer-supplier collaboration, reducing order costs and boosting company profitability and customer satisfaction.

How AI can support and enhance the role of procurement professionals

AI is a disruptive force driving automation of repetitive business tasks. It provides higher quality outcomes more quickly, enabling companies to make faster, more informed decisions. 

While some jobs will be replaced with AI, I believe the likelier scenario is that AI will be an accelerator for new jobs and business roles. Within the next three to five years, today’s procurement professionals will look markedly different, focusing not only on core competencies such as supplier negotiation, risk management and cost savings, but also on embracing data science, technology networks, software platforms and recruiting top talent to drive innovation and secure a competitive edge for their companies. 

While AI can be seen as a threat to jobs, Korn Ferry said in a recent study that by 2030, “there will be a global human talent shortage of more than 85 million people, or roughly equivalent to the population of Germany.”

Every procurement professional will need to include an appropriate budget for training and upskilling around AI-based technologies and implementation in order to stay competitive and engaged with the future workforce. For example, procurement professionals should understand why synthetic and historical data are equally important in driving a foundation for AI-based procurement playbooks and cost savings models for their annual planning exercises.

Roles such as Chief Data Scientist, Head of Platforms and Infrastructure, Spend and Commodity Manager, and Cash Optimization Specialist are all areas that I foresee intertwining with procurement responsibilities. 

Ethical considerations to keep in mind when leveraging AI in procurement

As companies adopt AI in procurement, there are many considerations they should be planning for in terms of ethics and security. 

AI is a technology that requires vast amounts of data to be ingested and analyzed, subsequently offering recommendations to drive business outcomes. While some of this data may be historical, a significant portion can also be synthetic, or artificially generated.

Procurement professionals should keep a few concerns top of mind when working with AI: 

  • Supply chain selection bias – AI algorithms can unintentionally perpetuate biases in procurement decisions on supplier selection and exclude small or diverse suppliers from the decision criteria which can have downstream impacts on spend diversity goals and corporate fairness objectives. A solution is to regularly audit AI algorithms to ensure there is a wide representation of data sets that reduces selection bias. This can be done on a semi-annual basis.
  • Accountability – How do you hold a computer generated scenario or outcome responsible in case of errors or unethical behavior? You can develop clear procurement policies and guidelines to determine accountability for AI-driven processes and execution.
  • Data privacy and security – AI may process sensitive supplier and customer data, and companies must ensure data privacy and protection in accordance with their own policies and supplier guidelines. As for a solution, procurement can collaborate with IT and security teams to establish robust data governance and security practices, while also assessing risks associated with AI’s data access to ensure proper monitoring is implemented.
  • Legal and regulatory compliance – AI will process contract data and also provide a framework for how companies need to be compliant with local laws and regulations. A prime example of this is ensuring that companies operating in different countries are compliant with the local eInvoicing and tax calculation requirements for purchase orders. To mitigate this, procurement should integrate with legal teams to understand new and existing legislation that will impact their document policies and procedures.

Procurement teams will need to proactively engage in online dialogues with all stakeholders — including employees, customers, and suppliers — to address concerns regarding the implementation of AI-based technologies, as well as the associated risks and benefits. As the industry matures in its oversight and ethical considerations of AI technology, companies will also need external audits and third-party certifications. This creates another class of vendors that procurement must onboard and manage.

AI’s future in procurement relies on strategic deployment

Looking ahead, the adoption of AI in procurement is essential for organizations to remain competitive and strategic in the marketplace. AI is set to revolutionize every aspect of sourcing and procurement — from identifying key regional suppliers to automating orders and digitizing invoices. With a surge of new AI solutions emerging, companies must pinpoint their specific challenges to choose the most effective tools. 

To prepare for AI integration, companies should consult with AI solution experts for strategic planning and implementation, and invest in training on various AI technologies, including large language models, no-code development and process orchestration.

As we embrace this technology, we will not only unlock efficiency gains but also empower procurement professionals to evolve and embrace new roles. However, we must remain vigilant about ethical considerations in AI adoption. 

The future of procurement is intertwined with AI, and companies that adapt and prepare for this shift will thrive in a rapidly changing landscape.

Author: Shaz Khan

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