Key Takeaways
- Procurement departments must leverage automation and artificial intelligence (AI) to improve ROI.
- You should thoroughly evaluate the costs and benefits of AI to determine whether these new technologies will bring value to your business.
- If your procurement team has decided to implement automation and AI within your business, there are several best practices you should adhere to.
With supply chain issues, past examples of failures to integrate technology (Southwest), and a looming recession, procurement must now more than ever dedicate itself to digital innovation and digital transformation. This must come in the form of integrating automation into key areas of the procurement process.
A study by the AI for Good Foundation, UC Berkeley, Columbia University, and the University of Maryland found that between 2010 and 2018, companies that invested in AI “saw an 11 to 15% increase in overall job growth and sales, and roughly a 1% boost in market share.” Firms with more digital capital will see the greatest productivity gains, regardless of industry.
While investment in AI is typically concentrated among the top-performing companies, others will not want to be left behind in this digital transformation. Automation and AI are at the heart of digital innovation, as they are vital to:
- Improving ROI
- Increasing productivity
- Internal innovation
- Automating menial tasks
- Upskilling employees
Incorporating AI into your organization is a sizable task. Nonetheless, you must do your due diligence and explore how AI can help automate processes within your business due to the great opportunities they provide. Even if such investments aren't viable for your business just yet, you'll want to prepare yourself for when the presents itself.
How can AI improve procurement's ROI?
In procurement departments, automated AI tools monitor KPIs, track vendor performance and compliance, process and approve purchase orders, manage contracts, and classify spend. While there are several ways in which automation and artificial intelligence can improve ROI, the clearest and most obvious advantage of this technology lies in improved productivity and efficiency.
AI works faster and operates longer compared to manual systems. When tackling mindless tasks, there’s no comparison between the productive capabilities of AI and typical employees. Incorporating AI can also lower wage bills and decrease administrative costs as you won’t need to hire additional staff, helping your business weather recessions that constrain revenue and profitability.
AI is equally less prone to error, especially errors relating to complex calculations. With better transaction accuracy and greater standardization, the percentage of payments on time will likely increase. Reducing charges related to delayed payment interest expenses dampens the effects of revenue leakage. According to Deloitte, artificial intelligence systems can reduce business process costs by 25-40% on average.
Implementing AI systems increases customer satisfaction and net promoter scores. For example, chatbots can provide answers to customer queries instantaneously with high accuracy, allowing human agents to tackle more complex queries outside of the AI’s expertise. By scanning and tagging emails, human agents can address multiple queries without responding to each customer individually, increasing response times.
Not only is customer satisfaction positively impacted, but employees equally benefit from AI. With the help of AI systems, employees typically assigned simple, monotonous duties – which are among the least enjoyed by employees – can now focus on higher-level, more fulfilling tasks. This enhances the professional development of employees, providing greater value to the company through their while forwarding their careers. We’re not advocating for AI as a method of replacing employees. Rather, AI is a tool that you can use to enhance your employees’ productivity, effectiveness, and capacity.
While AI has measurable advantages, it also can provide insights through detailed analytics and reporting that present additional opportunities for improvement. As you track the performance of your AI system, you should track these unforeseen benefits and improvements to give a fuller picture of the ROI of your AI system.
What costs are considered when evaluating ROI and AI?
The first, and most obvious question to consider when you’re evaluating ROI is whether the AI implemented will generate greater profits, either by reducing costs or increasing sales. In certain industries such as healthcare and finance, AI has a proven track record of success with clear use cases. However, other sectors may find it more difficult to effectively implement AI systems. For example, the retail sector is flooded with data that lacks integrity and quality; without quality data, these businesses are unable to bring out the most from their AI technologies, thus limiting adoption.
While it is true that AI is at the core of digital innovation in almost every industry, it’s possible that AI is not the right decision for your business at this point in time due to the large investments made when implementing such systems. The cost of AI is not simply the price for a developer to build a bot. Investments in clean data, computing power, and storage are paramount. Costs relating to data centers, in particular the cloud and energy use, can be significant.
Next, you’ll need to invest in training IT personnel and business users on how to work with the AI itself. Maintaining and fixing an AI system that is working improperly can be expensive due to the high level of expertise required. Business structures and processes will need revisions, requiring coordination across all departments. Buyers must also consider one-time implementation and integration costs, along with licensing fees.
Because design, compliance, and governance costs can easily get out of hand when not properly managed and monitored, your procurement department and your finance team must evaluate ROI projections over the long term. This includes taking full account of corporate assets necessary for AI implementation.
How do I implement AI in my business or department?
Once you’ve determined that AI presents an opportunity to automate procurement processes and increase productivity, you must then consider how to implement an effective AI solution. There are several ways to incorporate AI into your business. It may not be feasible to internally design and build your own AI solution. Instead, you may want a custom-built solution designed entirely by an outsourced team. Regardless, you’ll want to consider any existing AI products available. If ready-made solutions already exist, it makes sense to pursue these options first, as they will be significantly cheaper to procure and faster to implement compared to custom-designed tools.
You’ll need to find the right processes to automate and ensure automation tools run properly. Even for established companies, many of the automation processes are redundant. Without proper governance practices, AI will not run as efficiently as possible, leading to higher costs.
You’ll also need to have quality data sets in order to increase the efficacy of your AI system. Data should be accurate and complete, with proper annotation and no instance of double records. Establishing data quality assurance practices ensures you’ll train your AI system correctly.
Focusing on near-term goals and tracking KPIs is integral to demonstrating the ROI of AI to stakeholders. KPIs will differ depending on the AI in question. Metrics may include engagement rates, mean time to repair, first contract resolution rate, and customer and employee satisfaction. You can tie KPIs back to ROI – expressed in labor hours, money, and time – and use them to demonstrate the efficacy of the AI system used.
Final Thoughts
Procurement departments can become torchbearers and champions for AI systems that improve the productivity of virtually every aspect of a business. To accurately evaluate the ROI AI to your business, you should track all investments and costs relating to AI, along with key metrics that point to the AI’s success and improvements.
Whether your business implements AI solutions and automation practices in 2023 or not, being knowledgeable of automation practices and AI solutions ensures procurement is not left behind in the age of digital transformation. With a deep understanding of AI’s role within your market, you’ll be ready to pivot when the time is right.
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