Can Procurement Departments Keep Up with AI’s Evolution?
This article was originally published by EPSNews.
As artificial intelligence (AI) capabilities mature, an increasing number of businesses are investing in AI initiatives and leveraging automation in their daily business operations. This once leading-edge technology is becoming more ubiquitous and is quickly becoming an imperative to long-term success. In fact, analysts project the global AI market to grow from $47.5 billion in 2021 to $360.4 billion in 2028, according to Fortune Business Insights.
But in many companies, procurement functions have been slow to harness advanced technologies, including AI. While other business units are starting to capitalize on AI’s ability to automate data-driven decisioning, procurement is largely still manually collecting and cleaning source data before making it to the decisioning process. This inefficiency limits procurement’s ability to rapidly produce accurate data that can be easily accessed and analyzed to empower strategic budgeting decisions.
Procurement’s manual approaches can all too often produce incomplete or outdated data that limits the perception of its value to other business units. How can procurement harness the benefits of AI to keep pace with other parts of the organization as it seeks to reduce organizational costs, manage risk and drive supplier diversity and sustainability initiatives across the supply chain?
Procurement teams must prioritize the investment in technology and identify the right AI-driven tools for successful organization-wide implementation and adoption. In many cases, companies lack the internal technical infrastructure, resources and expertise to implement advanced technology and support broad organization-wide adoption. Procurement should consider this an obstacle, but not an insurmountable one, as third-party partners can offer their experience and expertise to help roll out a thoughtful implementation plan and ensure organization-wide adoption for optimal results.
Setting out on the AI journey
Fast, accurate data is the backbone of any decision-making process — and decisioning within the procurement department is no exception. Procurement requires comprehensive real-time data to determine where and how capital and operating expenditures occur, which suppliers are being used and track and manage cost and third-party risk with the organization. This data is critical to procurement’s ability to make informed, strategic decisions.
Indirect spending, also called goods not for resale (GNFR), can represent as much as one-fifth of a business’s annual revenue, which is, in turn, a significant amount of data to collect, clean and analyze. Adding to the complexity of managing vast amounts of data, business leaders charge procurement teams with collecting and aggregating spend data from various interrelated sources, like invoices, purchase orders, purchasing cards, contracts, budgeted baselines and historic spend. In addition, these teams are also reporting on suppliers’ financial stability, diversity, sustainability practices and codes of conduct.
The sheer amount of data and varied information sources can make real-time data collection and visualization near impossible to achieve. This is where basic AI functionality can step in. An AI-driven procurement system can help procurement teams collect disparate data, and automatically clean the information and categorize it to create a meaningful broad picture of organization-wide spend. This should include what the organization is spending, with whom and in which spend sub-category, but also provide additional dimensions of information such as supplier diversity status, sustainability practices and third-party risk factors.
Building a realistic roadmap
Identifying clear, actionable steps to AI implementation is just as critical as creating an overall implementation strategy and communication plan. As a company’s AI-enabled solution starts to scale and realize value, procurement should communicate wins with data to shore up support from sponsors and keep stakeholders engaged. Prevent the “explainability challenge” by showing these sponsors and stakeholders how AI works by breaking it down into simple terms (for example mining purchasing data for anomalous patterns in order volumes of supply items to drive demand management opportunities).
A roadmap also helps stakeholders see beyond the foundational improvements AI brings to the table. While procurement teams may understand the importance of automating the tedious yet essential tasks of consolidating, categorizing and enriching data, outside stakeholders may have a more challenging time understanding how this automation will change Procurement’s ability to impact the bottom line. A step-by-step roadmap that shows how these different applications build upon each other will educate stakeholders and solidify support.
Don’t lose the human touch
When creating a plan for AI’s role within procurement, it’s essential to balance automation with work from human operators, especially for supplier relationships. Although AI is essential to modern procurement departments, nothing can replace value-based, transparent conversations between procurement experts and their suppliers. After all, humans still need human connections, and they will have a greater impact than an AI-enabled Hagglebot ever could.
While AI is critical for data aggregation and analysis, the human touch is essential to presenting findings to partners to gain buy-in or building supplier relationships to develop long-term strategies.
Find the perfect partner
The last year’s volatility and resulting supply chain challenges have elevated the need for cost reduction and put increasing pressure on procurement teams to find profit improvement opportunities — often without providing additional resources. Procurement teams may find more long-term success with an experienced partner that can help them develop an overall technology strategy, deploy the program and ensure long-term success.
In today’s business environment, AI is not just “nice to have;” automation is imperative to growing procurement’s capabilities and realizing its true potential. To make sure the procurement function isn’t left behind in the AI revolution, procurement leaders must lobby for meaningful technology investment, outline a roadmap for implementation and adoption and find a partner that is invested in making the initiative thrive.
Without enabling technology, the increasing realization of procurement’s strategic value to the organization will lose momentum, and procurement will risk the continued perception of it as a back-office, administrative function.
About the Author:
Jo Seed is Chief Operating Officer at LogicSource. Jo is responsible for technology, shared services, and client-site operations for all of LogicSource’s current and prospective clients. Prior to joining LogicSource, Jo held a range of business development and consulting positions in both the US and Europe, working on major services engagements with Fortune 50 clients across the retail, CPG, financial services, pharmaceutical and publishing industries. Jo has a BA Hons. in psychology from the University of Reading in the UK.