From Data to Decisions: Artificial Intelligence in Procurement

Picture a world where the word ‘procurement’ doesn’t send a bunch of thoughts about tallying numbers to your head. It’s not an easy one, we know, but there must be something more to it other than just pouring over the data and cutting costs, isn’t there?

In today’s digital landscape, there have been dozens of tools and programs that have come up to solve and even hasten processes such as procurement for businesses.

Save from a few; none can perhaps ever come close to the potential and advantages that can be brought about by AI in procurement.

What is Artificial Intelligence in Procurement?

Procurement, amongst enterprises, is a term that indicates the effort and activities a business is involved in to acquire the goods and services that it needs.

This can include a wide variety of products – from raw materials meant for manufacturing processes to the software a company’s systems require, etc. And typically sees a sizable chunk of capital and resources devoted to the whole process. 

AI in procurement sees the use of artificial intelligence to dramatically enhance all the tasks and operations pertaining to it. This may see the use of conversational AI to different algorithms and processes leveraging machine learning, etc.And is used to provide a series of benefits to the whole procurement process.

Leading AI in Procurement Examples.

✔️ Amazon

Amazon uses AI in procurement processes so that they can be automated for its company’s functioning. Tasks such as managing contracts, managing the risk associated with suppliers, and sourcing is overseen by AI.

✔️ Procter & Gamble

This company similarly uses AI for procurement and also as a means to reduce costs. One of the ways it achieves this is by setting up AI to negotiate better prices on their behalf with the suppliers, some of which the artificial intelligence has identified itself for dealing with and onboarding.

This company similarly uses AI for procurement and also as a means to reduce costs. One of the ways it achieves this is by setting up AI to negotiate better prices on their behalf with the suppliers, some of which artificial intelligence has identified itself for dealing with and onboarding.

✔️ GE

GE uses AI in procurement by getting it involved in tasks such as processing invoices and bringing suppliers on board for the company. This, in addition to price negotiations, has an impact on the costs GE faces in procuring or sourcing products.

GE uses AI in procurement by getting it involved in tasks such as processing invoices and bringing suppliers on board for the company. This, in addition to price negotiations, has an impact on the costs GE faces in procuring or sourcing products. 

GE uses AI in procurement by getting it involved in tasks such as processing invoices and bringing suppliers on board for the company.

This, in addition to price negotiations, has an impact on the costs GE faces in procuring or sourcing products.

✔️ Walmart

Now it’s no virtual mall but Walmart most famously uses AI in procurement to make its supply chain operations more efficient. This translates into actions such as optimizing inventory levels using artificial intelligence, identifying risks, and implementing strategies to overcome them.

These are some of the examples from various industries where artificial intelligence is being used to enhance the procurement processes in their respective situations. And that’s just barely scratching the surface, as with the right solution and direction, it can be helpful across various use cases for businesses, just like blockchain and AI.

Smart Sourcing: AI in Procurement Use Cases

The use of AI in procurement, for all practical purposes, is still catching on. Similar to AI in gaming, it is in its early stages, and though it will never wholly replace or automate the procurement process, it is bound to have an impact on routine tasks. These are the tasks that are pretty similar across various industries. In some cases, this might also translate into more customized approaches for certain businesses, depending on their requirements. Here are some critical use cases of AI in procurement:

✔️ Analyzing Data on Spending

One of the key ways AI in procurement can lead to cost-saving opportunities for businesses is by analyzing the data on spending. This is done over a period of time for a business after which the AI’s algorithms can detect patterns and trends that will be useful for the business.

Based upon this analysis, it can then be helpful in sourcing from better options, and enable features such as AR shopping for the customers.

For instance, AI in procurement can identify the suppliers that are charging the most from a business when sourcing their products or services. It can also correlate this with those products that the business needs an abundance of.

And thereon, take decisions to mitigate added expenditure by optimizing the procurement process. 

✔️ Alleviating Supply Risks

With access to the internet and different data sets, AI in procurement can for all purposes, help with assessing and dealing with supplier risks. This can stem from various sources, coupled with relevant information about the suppliers and AI can help detect them early on, or once it has been launched for a business.

By using AI, a company can find out which, from among their suppliers have a poor track record when it comes to matters such as quality ratings, compliance, and finance. Irregularities and bad scores can help the program weed out the potentially risky suppliers and mitigate supply risks in the long run.

✔️ Preventing Frauds

Businesses succumbing to frauds is a tale as old as time and for all the checks and balances in place today, there are no guarantees to when a company might face one in their industry.

AI in procurement can go one step beyond recognizing risks by also sifting through financial dealings and activities that are susceptible to such incidents.

For example, artificial intelligence can analyze the invoices generated by suppliers for anomalies. It can also study huge amounts of purchase orders at a time, with reference to the company’s usual spending records.

After that, it can weed out problems such as instances of duplicate payments or situations where a purchase was unauthorized. And prevent them from happening in the future.

✔️ Securing Contracts

Businesses often enter into contracts with companies that they source their products from, including major suppliers and other players in their industry. Using AI in procurement for an enterprise can automate how contracts are maintained and tracked, including all the tasks that relate to it.

For instance, a company can use AI to track various contracts their business has entered, when they will expire, which terms have been negotiated, and more.

It can also be used to automate reminders about when a contract might expire depending on their immediate relevance and point out those that have terms that are not up to par, etc.

These are some of the crucial ways in which AI can become a dominant factor in the tasks related to procurement and sourcing for a business. Given how a company leverages its benefits or doesn’t face any challenges, it can be helpful in freeing up the professionals in this line to focus on other activities that AI is not being used for.

Exploring the Benefits of AI in Procurement and its Challenges

Given how rapidly AI can transform procurement operations, it is clear that the technology poses a variety of benefits for businesses. Just as many would agree on the use of VR in eCommerce and the benefits that it entails.

However, as it’s still evolving when it comes to adapting to a business or an industry, it is also susceptible to issues that can pose specific challenges.

Benefits of AI in Procurement

✔️ Efficient Tasks

Many tedious and repetitive operations in procurement, including as data input, invoice processing, and supplier onboarding, may be automated with AI in procurement. This allows procurement specialists to concentrate on more important tasks such as predictive maintenance and more.

✔️ Reduced Costs

AI in procurement can assist procurement experts in identifying cost-cutting options, such as negotiating better pricing with suppliers or reducing inventory levels. Coupled with technologies such as AR VR in retail sectors, this could help organizations free up a lot of revenue for use in other sectors of their business.

✔️ Faster Decisions

AI can employ data analytics to detect patterns and trends that can assist procurement managers make better decisions regarding sourcing, price, and risk management. AI, for example, may be used to forecast future demand, detect possible dangers, and negotiate better contracts with suppliers.

✔️ Improved Security

Procurement professionals may use artificial intelligence to safeguard their firms from fraud and other security concerns. For example, artificial intelligence (AI) may be used to detect fraudulent conduct in procurement transactions or to identify possible supply chain problems.

✔️ More Visibility

Procurement workers may benefit from artificial intelligence to acquire a better understanding of their expenditure data, supplier connections, and risk profiles. This data can help you find areas for improvement and make better decisions.

Challenges of AI in Procurement

✔️ Quality of the Data

To produce accurate predictions and judgments, AI systems require high-quality data. Procurement data on the other hand is prone to being frequently inadequate and not precise and inconsistent. This can result in erroneous findings and bad decisions.

✔️ Ethical Decisions

Explaining how AI systems make judgments may be tricky. Because of this, it might be challenging to trust AI algorithms and guarantee that they make fair and ethical judgments.

✔️ Initial Costs

The development and implementation of AI technologies for AI in procurement can be costly. Small and medium-sized firms may face difficulties as a result of this.

✔️ Data Bias

AI algorithms might be prejudiced if they are taught from skewed data. This can lead to unjust or biased judgments. For instance, an AI in procurement program educated on data from a male-dominated sector may be prejudiced towards female providers.

✔️ Overall Adoption

AI in procurement is still underutilized and underutilized. This is due to a variety of variables, including the aforementioned obstacles, as well as a scarcity of experienced people capable of implementing and deploying AI solutions.

Explore the Future of Procurement with AI

Despite these challenges, AI still remains one of the best bets for businesses that want to see their procurement operations transformed.

With the global market poised to cross $4 billion by 2025, it’s expected that even more companies will open up to adopting AI for procurement in the coming years.

They’ll overcome the challenges or obstacles to utilizing AI by investing in data quality, training their procurement personnel, improving transparency, and other such corrective measures.

Contact us at EDIIIE and see how smart predictions and the right algorithms for your business can help make procurement – an art guided by science.