Don’t Get Left Behind: Learn How AI Can Transform Procurement
Artificial Intelligence (AI) has quickly evolved from being a buzzword to a transformative force across various sectors, and procurement is no exception. If you’re still unsure about what AI is and how it can improve your procurement processes, you’re not alone. In this article, we’ll break down the fundamentals of AI and explore its promising applications in procurement.
What is AI?
At its core, AI refers to a machine’s capability to imitate intelligent human behaviour. It encompasses a range of technologies, ranging from machine learning, where algorithms improve through experience, to natural language processing, which enables computers to understand and interact using human language.
The Oxford Dictionary defines AI as “the theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.“
In reality, most of our interaction with AI is with the numerous chatbots and glorified internet search tools that are now standard in workplaces and on most websites. From my experience, AI is not trying to be human and clickbait headlines about robots making cups of tea remain the exception, rather than the norm.
How Can We Utilise AI in Procurement?
We all know and deal with the complexities of procurement on a daily basis—procurement folks are superheroes! The increased demand for faster information, processes, and predictive data isn’t stopping anytime soon. In this environment, AI can make a profound impact, helping streamline these multifaceted processes and drive efficiency.
Here are several ways AI can revolutionise procurement:
- Data Analysis and Insights: AI can analyse vast amounts of data to provide actionable insights. This includes everything from spending patterns to supplier performance metrics. Access to these analytics enables you to make informed decisions quickly and accurately.
- Supplier Relationship Management: AI tools can assess supplier risks and opportunities in real-time, helping you select and manage suppliers more effectively. AI-driven platforms can also predict vendor reliability based on past performance and market conditions.
- Contract Management: Forget the tedious process of contract management. AI can automate contract creation, execution, and analysis, ensuring compliance and mitigating risks.
- Dynamic Pricing and Negotiation: With AI, organisations can harness dynamic pricing models that automatically adjust based on market demand, supplier availability, and other variables. There has even been talk of chatbot-driven AI negotiation strategies for direct procurement categories to help ensure the best price is being sourced.
- Inventory Optimisation: AI can accurately predict inventory needs, avoiding stockouts and overstock situations. This ensures more efficient use of resources and capital.
One of the common concerns about AI is the fear of job displacement. However, AI’s role in procurement is more about augmentation than replacement. By automating repetitive tasks, AI frees up resources to focus on higher-value activities that require complex decision-making and relationship skills. In essence, AI complements human skills rather than overshadowing them.
Where to Begin
How can you start integrating AI into your procurement processes? The journey begins with identifying your pain points and assessing where AI can provide the most value. Here are some steps to consider:
- Do your Research: While AI offers remarkable potential for transforming procurement practices, it’s worth noting that the technology is not fully regulated. This means that organisations need to proceed with caution when implementing AI solutions. Data privacy, ethical considerations, and the reliability of AI models are areas that require close attention. Setting internal guidelines and ensuring thorough evaluations to mitigate risks is crucial.
- Identify Key Areas: Look at your current procurement processes and identify areas that require significant manual effort or have scope for substantial improvement.
- Choose the Right Tools: Numerous AI tools are available, from comprehensive platforms to niche applications focusing on specific aspects of procurement.
- Training and Education: Like any new technology, AI requires training. Equip your team with the necessary knowledge and skills to leverage AI tools effectively and safely.
- Continuous Evaluation: AI is not a set-it-and-forget-it solution. Continuously monitor and evaluate your AI tools’ performance to ensure they deliver the desired results.
Future Trends
One significant emerging trend is the shift from reactive scenarios to predictive capabilities. Imagine having access to demand forecast optimisation tools that allow you to anticipate market demands and stock levels proactively.
Some examples of where AI could help us even more are:
- Supplier risk warnings. By analysing vast amounts of data in real-time, AI could identify potential risks in your supplier network, such as financial instability or geopolitical issues, long before they become critical problems.
- AI-driven contract recommendation systems. These intelligent tools can sift through massive volumes of contracts and extract crucial data points, offering you tailored recommendations that align with your procurement goals. The result? Faster contract negotiation cycles and more favourable terms for you to go into negotiation
- In other sectors, progressions in conversational AI are being developed further to enhance the customer experience. Could procurement provide more of a self-service function for its internal clients?
Ready to Take the Plunge?
The evolution of AI in procurement is an ongoing journey. As these technologies mature, they will continue to reshape the procurement landscape, and we need to be ready to respond. The future of procurement is here, and it’s smarter, faster, and more strategic than ever before.
