With more than half of the world’s supply chain, procurement, and financial professionals revealing that their organizations are ready to make major investments in artificial intelligence (AI) over the next two years, it brings up two questions: What does AI really look like in the procurement world? And how will it impact the way buyers conduct business with their suppliers?
“There is clearly a huge appetite for AI, and this will only increase as more relevant applications and success stories come to light,” says David Khuat-Duy, CEO of Ivalua—which conducted the research with Forrester Consulting—in a press release.
Defined as “the capacity of a computer to perform operations analogous to learning and decision making in humans,” AI helps machines learn from experience, adjust to new inputs, and perform human-like tasks in a way that computers haven’t historically been able to do.
Here are four ways AI could change procurement models, helping buyers work smarter, better, and faster in the future:
1. Smarter procurement processes. In terms of the practical uses of AI, Ivalua’s study found that AI may have the most impact in alerting the enterprise and suppliers to supply chain disruption (44%), recognizing and flagging supplier compliance issues (39%), and quickly identifying instances of fraud (37%). For example, AI can enable smarter procurement, Ivalua reports, “which can create efficiencies and enable better decision making, offering a real competitive advantage to those that adopt.”
According to Gartner, basic machine learning technology (a subset of AI that utilizes statistical techniques to give computers the ability to learn) is already used by some procurement applications in areas such as spend analytics and contract analytics. “This is mostly limited to automating the processes of collecting, cleaning, classifying, and analyzing expenditure data in an organization,” the research firm points out, “to identify savings or paths to greater efficiency.”
2. Greater automation of menial procurement tasks. In addition, companies think that AI adoption will lead to greater automation of menial tasks, making them actionable in minutes or seconds, instead of hours or days. “Two of the biggest areas flagged by respondents as having the greatest potential for automation is invoice processing (51%) and approval of proposed purchases (35%),” Ivalua reports. In Artificial intelligence: Time for procurement to reap the rewards of automation, former CPO Jean-Phillipe Collin discusses the huge volumes of complex data that procurement teams deal with on a daily basis, and how this data creates administrative burden and takes up the buyer’s time. Procurement’s efficacy comes from regaining control of data and the way in which it is managed, he writes, so teams that use AI can delegate day-to-day tasks—such as checking invoices against contracts, recordkeeping, and transcription—to a digital assistant.
“Such programs automate the control of thousands of line-by-line invoices by comparing them with purchase orders, supplier contracts or accounting plans and then automatically populate complex databases,” Collin writes. “This, in turn, frees up procurement professionals to focus on higher-value work and spend more time developing relationships with both suppliers and internal stakeholders to create additional value for the business.”
3. Better identification of opportunities that deliver bottom-line impact. In The Profound Benefits of AI Adoption in Procurement, Shamli Prakash says new digital technologies and advanced data analytics that equip procurement will give buyers “unprecedented ammunition for identifying opportunities to deliver bottom-line impact.” And the more dollars procurement is able to save, Prakash notes, the greater its value to the overall business: “Until recently it was a challenge for procurement to even have an accurate understanding of what an organization’s total spending was.”
However, when advanced analytical methodologies are leveraged to build a solid data foundation, they can then “be analyzed through multiple algorithms to find hidden opportunities across multiple levers,” Prakash writes, noting that AI may help procurement attain 15-25% savings on addressable spend.
4. A bigger role for procurement in the C-suite. The benefits of AI in procurement extend beyond the transaction. According to Prakash, it may also help position procurement in a more prominent and strategic role in driving business decisions. “Procurement is almost always relegated to a support function, an important one no doubt, but not one of strategic importance,” she writes. “However, as more and more procurement organizations are changing to a data-focused approach, this paradigm is fast changing.
“While the journey to becoming an AI enabled procurement organization needs time and effort, it is well worth the investment,” Prakesh continues. “Once the data foundation is in place, there are many different avenues through which procurement can leverage it to deliver consistently higher value.”