Is Procurement Missing Out on the AI Revolution?

Posted by Rick Yvanovich

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Infusing artificial intelligence into procurement heralds a transformative shift, promising unparalleled efficiencies and strategic decision-making capabilities. Yet, as industries across the globe rapidly embrace this technological revolution, one question lingers: is procurement missing out on the full potential AI has to offer?


Is Procurement Missing Out on the AI Revolution?

Understanding AI in procurement

Artificial intelligence (AI) in procurement refers to the use of smart algorithms that solve complex problems more efficiently. These algorithms are embedded in various functions, from spend analysis to strategic sourcing, enhancing operational efficiency through automation and data-driven insights.

In other words, AI plays a key role in enabling employees, decision-makers, or stakeholders to manage vast data volumes, optimising supplier relationships, and improving decision-making processes.

That said, not all AI is the same or there is only "one" AI. It can be categorised into:

  • General AI, or strong AI, aims to replicate human-level intelligence across multiple domains.
  • Narrow AI, also known as weak AI, focuses on specialised tasks like image recognition and language translation.
  • Generative AI, characterised by its ability to generate text and images from data patterns, is emerging as a transformative force in procurement, particularly with developments like OpenAI's GPT models, which enhance secure business applications.

Despite being full of potential, the AI adoption rate as well as opinions on its viability in procurement remain mixed.

Read more: Can't Make Sense of Your Business Data? Here Are 5 Ways A.I. Can Help

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The current state of AI adoption in procurement

While we can see the mass and fast adoption rate of AI, especially Generative AI in sales, marketing, products, or services, the situation in procurement plays a bit differently.

According to Spend Matters, a leading procurement solutions intelligence firm, the procurement industry tends to lean towards more traditional practices and has been slower in embracing new technologies. However, there is a gradual shift in attitudes among businesses, indicating a changing landscape in the industry.

For this industry, the reluctance towards adopting new technologies is not unique to AI but is a common trend with emerging tech innovations. Nevertheless, it is also a fact that procurement and supply are areas where traditional AI (data analysis, correlations, etc.) are more applicable than Generative AI.

On that same note, even when the industry is late to the game, the good news is that the technology itself is already fairly easy to integrate, especially ChatGPT, through API integrations.

Today, we can see various forms of AI embedded in procurement processes, most notably invoice management in Procure-to-Pay (P2P). Reason? The process is incredibly time-consuming.

Various invoice management systems, with the assistance of AI, have been able to automate nearly 50% of the processing by automatically extracting relevant data, reconciling it, matching it with orders, and generating payments. All done without the touch of a human.

Read more: Understanding the Changing Dynamics of Procurement in Hospitality

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Can procurement benefit from AI?

The answer is yes.

With its remarkable capability to swiftly analyse large amounts of data, AI empowers procurement teams to accelerate their decision-making processes. This enables them to free up valuable time that can be dedicated to other essential tasks, such as forecasting potential disruptions and adapting strategies, ultimately enhancing operational resilience.

Read more: Powering the Future of Procure-to-Pay: TRG Teams Up with Yooz

While the benefits of having AI in procurement can be endless, one key benefit that TRG wants to emphasise is supplier relationship management, as it goes beyond efficiency and cost savings.

Supplier relationships are not just about transactions; they are about building trust and a win-win mentality. AI empowers procurement teams to move beyond transactional relationships into building strategic partnerships that contribute to overall business success.

Here is how:

  • Automated supplier screening: AI can analyse vast amounts of supplier data, including financial information, performance metrics, and compliance records. This allows for faster and more efficient identification of qualified suppliers that best meet your needs.
  • Streamlined onboarding process: AI-powered tools can automate tasks like sending standardised onboarding documents, collecting supplier information, and verifying compliance certifications. This frees up procurement teams to focus on building stronger relationships with key suppliers.
  • Real-time performance monitoring: AI can track supplier performance metrics like on-time delivery rates, quality control data, and pricing trends. This enables proactive management of supplier performance and identification of areas for improvement.
  • Early warning system for issues: AI can analyse data to identify potential issues with suppliers, such as delays in production or quality control problems, allowing for early intervention and corrective action.
  • Collaboration and communication enhancement: AI-powered platforms can facilitate communication with suppliers by providing self-service portals for order tracking, invoice processing, and performance feedback. This fosters transparency and strengthens supplier relationships.
  • Data-driven negotiation strategies: AI can analyse historical data and market trends to suggest optimal negotiation strategies and pricing terms for better deals with suppliers. This empowers procurement teams to secure the best value from their suppliers.
  • Collaborative innovation: AI can analyse vast amounts of data to identify opportunities for joint innovation with suppliers, leading to product or service improvements and cost optimisation.
  • Supplier relationship optimisation: AI can help categorise suppliers based on their performance and strategic value. This allows for tailored relationship management strategies, fostering stronger partnerships with critical suppliers.

Read more: The Truth About AI: Separating Fact from Fiction and Harnessing Its Power

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What now? Here are TRG's recommendations

Anticipate more AI developments in procurement

The trajectory of AI in procurement is poised for significant advancement. Many suggest a positive adoption of AI, which will soon handle total process automation without human intervention in routine procurement tasks such as approvals and compliance.

Furthermore, we expect AI to autonomously generate value by identifying and acting on savings opportunities, enhancing spending transparency, and effectively managing agile supplier ecosystems. These developments will allow AI to offer recommendations and take actions across the entire ecosystem, not just from isolated data points.

Strategies for smooth AI integration

For successful AI integration in procurement, organisations should focus on a comprehensive strategy that includes stakeholder involvement and investment in the right technologies. Emphasising the importance of data extraction, relationship management, and the ability to streamline simple to complex processes, AI can significantly enhance procurement functions.

Professionals must collaborate with AI technologies to align systems correctly with business processes for optimal performance. Continuous learning and improvement will be crucial to adapting and maximising AI capabilities in procurement.

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Despite its slow current uptake, the future of AI in procurement shines promisingly with prospects of total automation and proactive savings identification, signifying a leap towards more efficient and strategic procurement practices.

As the journey of AI integration into procurement advances, it is imperative for professionals in the field to lean into this change, embracing AI's capabilities while navigating the challenges it presents.

Ultimately, AI is not a passing trend; it is not just about keeping pace with innovation but leveraging it to redefine the landscape of procurement, ensuring businesses not only survive but thrive in an ever-evolving digital marketplace.

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Rick Yvanovich

 Rick Yvanovich
 /Founder & CEO/

With TRG International Blog, it is our mission to be your preferred partner providing solutions that work and we will make sure to guide your business to greatness every day.

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