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The Role of AI in Procurement
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The Role of AI in Procurement

June 29, 2023
Last Updated:
July 23, 2023
5 min read

Explore how Artificial Intelligence is transforming procurement. ✔Learn about AI's role in automating tasks, driving cost savings, etc.

The Role of AI in Procurement

Table of Contents

If you’re in the supply chain industry, what kind of edge do you need to stay competitive?

The answer is technology - more specifically, Artificial Intelligence (AI). AI is transforming the way a lot of industries are managing their workload.

While there’s a lot of buzz around AI in marketing or AI in the supply chain in general, the excitement about AI in procurement is lagging a bit behind.

However, we can’t tell why — there’s a lot to be excited about. The 42% of procurement professionals that use it daily can confirm.

We’ll explore exactly how AI is revolutionizing procurement processes and what it means for businesses like yours.

What is AI in Procurement?

AI in procurement refers to the application of artificial intelligence technologies to automate and enhance various aspects of the procurement process.

This can include tasks such as supplier selection, purchase order processing, contract management, demand forecasting, and inventory management.

Role of AI in Procurement

For decades, the everyday processes of procurement professionals have remained the same — characterized by manual workloads, countless spreadsheets, and minimal use of technological assistance.

But now, times are changing, and with the growth of Artificial Intelligence (AI), procurement professionals are beginning to see the power of this technology for streamlining work and optimizing outcomes.

In fact, according to Deloitte's Global Chief Procurement Officer (CPO) Survey in 2019, 51% of the respondents are utilizing advanced analytics. Additionally, there has been an increase in the adoption of AI/cognitive solutions, with 25% of respondents either currently using or testing these technologies.

Let’s delve into the role AI plays in procurement…

Support for Procurement Professionals

In today's fast-paced world, data has become a precious commodity in business. However, analyzing huge volumes of data from disparate sources can be a daunting task for procurement teams.

With AI-powered tools, this is now a thing of the past. These tools offer procurement professionals a helping hand by assisting with data analysis and decision-making. They allow procurement teams to sift through mounds of data and uncover key insights that humans may have missed, enabling them to negotiate better deals with suppliers and reduce costs.

By leveraging AI, procurement professionals can elevate their decision-making prowess to new heights and drive results that were previously thought to be unattainable.

Transformation of the Procurement Process

The possibilities seem endless when it comes to imagining the changes that artificial intelligence can bring to the procurement process. One of the most obvious transformations is the shift from manual to digital processes. This is a change that has been happening across all industries for a while now, with companies recognizing that digitization can offer many benefits, including increased efficiency, lower costs, and reduced error rates.

Moreover, with the adoption of predictive and proactive strategies, AI enables organizations to better understand their procurement processes and identify potential bottlenecks or supply chain risks before they occur. This can help procurement teams to optimize their operations and make more informed purchasing decisions, ultimately adding more value to the business.

Types of AI in Procurement

There are three types of AI in procurement, which are:

Types of AI in procurement
  • Machine Learning (ML): In procurement, ML is used to analyze past data to identify patterns and predict future trends, such as demand or supplier performance, and automate decision-making processes. For example, Keelvar or IBM Watson Supply Chain.
  • Robotic Process Automation (RPA): RPA involves using software robots to automate repetitive tasks in procurement like invoice processing, data entry, purchase order issuance, and supplier onboarding. For example, Automation Anywhere.
  • Natural Language Processing (NLP): NLP is used in procurement for tasks like contract analysis, extracting key information quickly and accurately, and in chatbots for efficient communication with suppliers or for internal inquiries. For instance, ChatGPT.

Advantages of AI in Procurement

AI offers numerous advantages in the procurement process, which are backed by impressive statistics:

  • Increased Efficiency: AI automates repetitive tasks such as data entry, freeing up time for procurement professionals. Don’t take our word for it; take a look at the real cost and labour needed for manual work.
  • Improved Decision-Making: Machine learning, a subset of AI, can analyze vast data arrays to identify patterns and trends. According to Gartner, by 2025, context-driven analytics and AI models will replace 60% of existing models built on traditional data, thereby leading to better decision-making.
  • Cost Reduction: AI not only automates tasks but also improves decision-making, leading to significant cost savings. A report by McKinsey reveals that organizations using AI in their supply chain processes can reduce costs by up to 15%.
  • Risk Mitigation: AI helps identify potential risks, enabling proactive measures. A study by Deloitte found that 65% of supply chain professionals believe AI will significantly impact risk management in the next five years.
  • Improved Accuracy: AI reduces human error in data analysis, leading to more accurate forecasting. A McKinsey report found that AI-driven forecasting can reduce errors by up to 50%.
advantages of ai in procurement

These statistics highlight how AI is revolutionizing the procurement industry by making it more efficient, cost-effective, and strategic.

Tips for Implementing AI in Procurement

The prospect of incorporating artificial intelligence (AI) into procurement processes is tantalizing, but it requires a great deal of strategizing, teamwork, and innovative thinking. Industry leaders who want to stay ahead of the curve cannot turn a blind eye to the immense potential of AI SaaS in the supply chain.

However, simply saying that AI is necessary for procurement success is not enough. It takes careful planning to determine where AI should be implemented and which tasks to automate.

Here are some tips to help you jump on the bandwagon…

#1 Start Small

Incorporating AI into your procurement process may feel overwhelming and daunting at first. However, it's always best to start small and work your way up. By beginning with a small pilot program, you can evaluate the effectiveness of AI on your procurement process before fully committing. This approach allows you to identify and address any potential issues before implementing AI on a larger scale.

Additionally, starting small can significantly improve efficiency, accuracy, and productivity. With this careful approach, you can confidently incorporate AI into your procurement process and experience the benefits it has to offer.

#2 Choose the Right Technology

Not all AI tools are created equal, and choosing the right one for your business is crucial. It's imperative to find the technology that is tailored to your procurement procedures and can seamlessly integrate into your existing systems.

More importantly, the tool must have the necessary features to meet your unique business requirements. With countless options available, it's easy to get caught up in the hype of trendy and popular AI tools, but it's important to prioritize your needs and find the one that truly meets your requirements.

By choosing wisely, you can unlock the full potential of AI technology and give your business the competitive edge it needs.

#3 Prioritize Data Quality

Data is the foundation upon which AI stands. Without quality data, AI is like a car without fuel. In order for AI to work effectively, it is important to ensure that your data is accurate, up-to-date, and consistent.

By ensuring that your data is free from errors and inconsistencies, you can ensure that your AI-powered procurement processes operate at peak efficiency. This in turn allows you to make better-informed decisions and drive greater value to your organization.

AI in Procurement is a Tool, Not a Threat

AI has changed how we view procurement from a manual and laborious task to an enhanced and intelligent function.

With the right combination of technology and human skills, this transformation can create more opportunities for procurement professionals and improve business outcomes. It’s time to embrace AI's possibilities, upskill ourselves with new technology, and put our best foot forward in leveraging AI for success.

By rising to meet the challenge of AI, you will help make companies smarter, leaner, and more competitive—an investment your career will surely thank you for in the years ahead.

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