Procurement is automating more of its repetitive tasks, which allows it to move the focus away from transactions and toward strategy. As it uses the vast amounts of data at its disposal together with technologies such as artificial intelligence (AI), the procurement function is becoming a key provider of insights and guidance in increasingly complex value chains. This will/ can lead to better and more precise decisions and lower costs. But getting there means procurement must adopt new ways of thinking and operating, as well as new technologies.
How does AI support procurement today?
There are an increasing number of great examples of how AI or machine learning adds value in procurement. Below you will find five examples.
Spend classification - With machine learning you can create a training data set, sample transactions, and classify them. After this, the machine learning will take care of the rest.
Supplier information from public source - If you take any supplier, there's a lot of news and noise around those suppliers in the internet, such as social media and so on. You can use AI and natural language processing to capture all that data, put that data together and isolate the noise from the signal.
Contract Management- . Contract documents store a whole lot of information about the supplier relating to terms, liability position and such. That information has been very hard to access in the past because it is unstructured. Through AI and machine learning you can automatically run through many contracts and try to identify all of the key terms without having any human intervention
AI Chatbots - One concrete example of chatbots in procurement is Tradeshift’s Ada, which can interact with users across their platform and provides contextual suggestions based on real transaction and purchase order data.
IoT asset tracking - Internet of things (IoT) is a relatively new field of development enabling fleets and assets to be tracked more precisely in real time wherever they are in the world using remote sensors connected independently to the Internet.
For whom is AI suitable? Larger organizations or is there a case for smaller businesses, too?
Think of machine learning as just a new form of software. Software today is being used widely across all types of businesses, big and small. If you are Postnord or ICA you may have very different software needs than if you are a small business. If you are an SME you probably wouldn’t go about building your own machine learning application just like you probably wouldn’t code your own custom software. You would just look for the right software providers to suit your needs and these are already starting to emerge.
How should you start to leverage AI in procurement?
There are three criteria when considering where to apply machine learning in procurement.
1. First, look for the quick wins.
2. Second, make a decision whether to build in-house or buy.
3. Third, consider whether you can hire the team to develop the work in-house.
What are the risks associated with adopting AI?
AI is not a separate black box, you should look at AI as a collaboration partner. You need to have the right level of trust in AI. If you have too much trust and just let the AI operate, it will create any results and go haywire. But at the same time if you decide that each and every decision made by AI needs to be micromanaged, you are not getting the benefits of the AI. So the conclusion is to have the same approach as you have with your kids, you need to trust them and give some level of freedom, but at the same time you need to be there present, and coach and guide them going forward.
What is the most important thing you should to get started in order to succeed with AI ?
Here are 6 steps how to succeed in building an AI driven procurement organization.
Clarify intent with AI - First, companies must evaluate AI's relevance for the organization and develop a high-level AI strategy based on a comprehensive AI readiness assessment.
Define your Business Case -. Then it’s important to quantify the potential for ex quality improvements, customer satisfaction, risk mitigation or competitiveness. AI will not magically give you a better procurement strategy, but it will transform procurement starting from the most tedious and time consuming tasks.
Involve relevant stakeholders - Companies need to gather internal and external stakeholders to select which AI tools it wants to implement based on the particular challenges of the organization and its entire ecosystem. And together with the stakeholders identify how this will impact the people in the organization. Based on that make the decision how to go forward.
Implement AI in agile way - Now it’s time in a fourth step to implement and deploy AI through a series of sprints, with an understanding that for the more advanced solutions, companies will actually need to create them.
Review, Learn and Adjust - In the fifth step, it’s time to close the circle by capturing the company’s learnings from its successes, failures and ongoing improvements.
Develop employee skills and competencies- Finally, the sixth step involves a systematic development of the cognitive skills of the strategic buyers who will be using the tools.
Good Luck with your AI implementation !
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