Sourcing and Procurement

Changing the procurement landscape with AI: Revolutionising efficiency, insight, and strategic decision-making

Artificial Intelligence (AI) is transforming the procurement landscape, revolutionising traditional processes, and driving significant improvements in efficiency, insight, and strategic decision-making. The recently launched AI tool, ChatGPT is creating a roar, intriguing the masses with its humanlike responses. Amidst all, the use of Generative AI in procurement functions and processes has drawn much interest from the community.

Smart value addition

It is known that leveraging AI technologies can help organisations streamline operations, gain valuable insights from data, and make better-informed decisions. In procurement, the application of generative AI has a wide range of potential benefits, you can:

• Automate routine tasks by eliminating manual and repetitive activities such as purchase order processing, invoice validation, and data entry, to ensure that senior professionals can focus their time on more strategic decisions.
• Leverage machine learning algorithms to process volumes of procurement data, track patterns, and extract valuable insights to optimise supplier selection, negotiate better contracts, and identify cost-saving opportunities based on data-driven decision-making.
• Offer predictive analytics for demand forecasting by analysing historical data, market trends, and external factors to help procurement professionals optimise inventory levels (prevent stockouts and reduce excess inventory) and reduce supply chain costs by making proactive decisions.
• Manage suppliers, monitor their performances, and mitigate risks such as financial instability or compliance issues by analysing a wide range of data sources, including financial data and news articles. This enables procurement professionals to take proactive measures, diversify suppliers, and mitigate potential risks in the supply chain.
• Enable intelligent contract management by using natural language processing and machine learning to extract key information from contracts, identify risks, and ensure compliance.
• Facilitate real-time interaction with suppliers, provide instant responses to inquiries, manage routine communications, and assist with order tracking via AI-powered chatbots and virtual assistants. These intelligent interfaces improve communication, streamline collaboration, and enhance the overall supplier experience, leading to better relationships and increased efficiency.
• By providing valuable insights and predictive capabilities, AI empowers procurement professionals to make strategic decisions and optimise procurement strategies. AI can analyse market trends, supplier performance data, and cost models to identify opportunities for cost optimisation, innovation, and value creation. This enables organisations to drive sustainable growth, achieve a competitive advantage, and align procurement with broader business objectives.

‘Prompts’ for leveraging generative AI for procurement

Despite offering myriad potential and benefits, working with Generative AI needs skills and training to achieve the desired outcomes. For procurement professionals, taming this technology without any guidance can deliver biased and dissatisfactory results. And thus comes the role of ‘Prompts’, a communication strategy that eases giving commands to generative AI tools.  Prompts are an elaborative step-by-step set of instructions that helps the AI tool understand the precise requirement. These commands can be as detailed as setting the context of the task, describing the role of the AI tool and the audience, setting the tone as well as giving the parameters such as word limits.

If used correctly, prompts can help procurement professionals benefit from generative AI in two most essential areas - negotiations and category strategy.

The benefits of generative AI in negotiations cannot be ignored. With its ability to analyse data and deep dive into insights, it has the power to equip procurement professionals with informed decisions and effective strategies. Further, it can be utilised for its human-like conversation to practice negotiation skills and to get familiar with anticipated potential responses that can help professionals prepare accurate strategies and negotiation processes. However, here it is important to understand these desired results can only be achieved if using correct prompts.

Furthermore, when simplified to the core, category strategy becomes mere content. Given the limitations of generative AI, while a thorough category strategy won’t be delivered, it would certainly help to create a framework and give the professional a push for further brainstorming. Using its human-like conversational skills and leveraging data-driven insights, generative AI helps in creating approachable strategies that further ease the effort of demonstrating the product.

AI is a game-changer for procurement, revolutionising traditional processes and enabling organisations to achieve new levels of efficiency, insight, and strategic decision-making. Procurement professionals can leverage automation, data analytics, predictive modelling, and intelligent interfaces from AI technologies to optimise operations, mitigate risks, and drive value across the supply chain. Embracing AI in procurement is essential for organisations aiming to stay competitive, adapt to evolving market dynamics, and unlock the full potential of their procurement function.