Key Takeaways
The need for AI-driven procurement solutions is growing amid an unstable global supply chain
AI solutions streamline procurement operations and are forecast to grow more advanced and widespread in use
Procurement professionals should leverage ethical AI solutions when they can to focus on the human aspect of purchasing
Since we published our first iteration of this article in 2020, both procurement technology and supply chain woes have evolved. First, the COVID-19 pandemic has largely been contained from a public health standpoint. However, supply chains remain shaky due to factors like labor shortages, geopolitical conflicts, and adverse weather events. These factors continue to emphasize the importance of utilizing advanced technology in procurement to achieve cost savings and ultimately create value. Below you will find technological opportunities you can leverage in 2024 and how procurement departments should evolve alongside AI.
How AI is changing spend classification operations
AI capabilities are incredibly powerful within procurement spend classification operations. Spend classification is the practice of categorizing a company’s historical spend data based on metrics like suppliers, types of items purchased, and departments involved in purchasing. With AI technology, procurement departments can separate purchasing data into a more digestible format to help you make actionable and deliberate purchasing decisions. You can spend less time swathing through vast volumes of data and figures and instead focus on negotiating weak contracts, eliminating waste, and ultimately achieving value creation.
Why smart containers can increase your supply chain visibility
Smart containers have exploded in popularity in recent years as real-time insight into shipping progress has become paramount amid widespread disruptions. These containers utilize advanced sensor technology to measure data like temperature, humidity, and the physical integrity of products within the smart container. These sensors are extremely valuable for shipping sensitive goods, like organic products or fragile items. Additionally, smart containers are integrated with GPS capabilities, providing real-time tracking of shipping containers. A key benefit of GPS tracking includes a minimized likelihood of lost containers, which have grown significantly in number since the onset of the COVID-19 pandemic in 2020. Smart containers also benefit freight operations as a whole, as port operators can view the progress of inbound shipments to reduce the chance of bottlenecks occurring when shipments reach land. Such bottlenecks can add additional buyer shipping costs due to fuel expenditure and shipping delays.
How Natural Language Processing (NLP) helps contract management
Natural Language Processing (NLP) using AI will become a valuable tool for procurement departments with the advancement of artificial intelligence capabilities. We can see this clearly when using NLP for contract management. NLP programs use advanced algorithms to scan legal documents, which are often lengthy and challenging to obtain key information from. NLP programs discern critical information like termination dates, contract terms, and re-negotiation clauses and extract them into an external database. With NLP programs, you can have all your essential contract information in one place, reducing the need for manual parsing of new and existing contracts.
Why e-procurement is becoming more important
Although professionals in the procurement field are widely using e-procurement, its importance has only grown amid global supply chain challenges. With e-procurement, departments can view, negotiate, and ultimately purchase goods from their network of suppliers. As suppliers are all located in a central software suite, e-procurement software adds a brevity of efficiency and cost-savings benefits compared to antiquated ways of purchasing, like calling or scheduling in-person meetings for buying activity. E-procurement suites can be enhanced through capabilities like AI-driven risk management and automatic compliance checks.
How generative AI is streamlining procurement processes
As many of you have already experienced, generative AI (GAI) like ChatGPT has exploded in popularity in the last two years. According to Deloitte, leaders in the procurement space have already begun utilizing GAI to streamline operations, specifically for the RFP response use case.
As we can see in the diagram above, GAI can significantly improve the RFP response evaluation process for procurement professionals. Essentially all manual steps, from pre-processing to final evaluations, can be automated using Generative AI. Responses are parsed for relevant information, summarized, and finally accompanied by automated scoring reports and visualizations. Like other AI solutions, GAI reduces human error, streamlines processes, and ultimately creates value for procurement users.
As AI capabilities become more advanced and widespread, they will continue to grow into a valuable tool for procurement departments. As AI evolves, procurement departments should evolve too, especially within the composition of procurement teams.
Under the assumption that AI will largely handle manual processes, procurement professionals should be able to focus on other tasks. Instead of responsibilities like manual data entry, you can focus on more relevant priorities like strategic decision-making, supplier relationship management, and negotiations. With AI, procurement professionals will gradually shift from creating data to managing and interpreting the outcomes of AI-generated data, ultimately driving value creation for their firms.
With this, procurement teams can evolve their existing and available job titles. For example, an AI procurement specialist would select suitable AI solutions to leverage in all procurement operations. The role would also train other procurement team members to use AI technology correctly to ensure compliance and value creation. Data analysts should also grow in importance for procurement departments as AI tools extract a large volume of valuable data that could require additional cleaning and sorting. Individuals who can analyze, interpret, and use the data produced by AI systems will be integral to procurement departments looking to make educated strategic decisions.
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