How leveraging AI in procurement will revolutionise spend management
Efficient sourcing and procurement processes have a direct impact on an organisation’s financial health. A robust financial position lends a competitive edge to an organisation, enabling it to make bold decisions. It also helps the organisation have better business relationships and invest in R&D, towards more innovations and better products and services. These are just a few reasons that have led to automation in the procurement processes. While most other business practices have been early technology adopters, procurement has not. One of the major reasons for this is the intricate workflows involving many functions and stakeholders, resulting in fragmented solutions. However, with the advent of Cloud and AI, this scenario has changed significantly over the past few years.
Understanding spend management
Spend management, a key term associated with procurement, refers to a set of processes that collate and analyse the procurement processes to ensure they serve the best interests of the organisation. It helps maximise value from the company spend, while ensuring costs are reduced and financial risk is mitigated. Supplier relationships improve through enhanced supplier management when companies understand and implement spend management. Decision makers in procurement can utilise spend analysis for better clarity. The benefits of spend management are many: Greater efficiency and transparency, lowered risk and supply costs, better collaboration between all stakeholders, and higher productivity overall.
The role of AI in spend management
AI has the capability to automate even the most complex workflows, including labour-intensive tasks. AI will help revolutionise procurement in several ways. Leveraging image- and speech-recognition technology and free-form data, automating contract management and performing an in-depth analysis of all purchase and transactional data are some ways in which AI can transform procurement. One of the major positives of using AI in procurement is its impact on spend management. AI classifies the spend data into relevant categories such as structured, functional, and standardised. This provides valuable insights that help to easily identify any purchase anomalies like irregularities or duplicates. Importantly, it helps procurement decision makers to identify cost saving areas by keeping a close watch on spends. Listed below are a few such key areas, and a brief on how AI impacts each.
Traditional procurement workflows involve a lot of repetitive tasks such as form-filling and multiple stakeholder approvals. Tasks such as purchase order generation, invoice approval, and vendor payment clearance are time-consuming. AI technologies and tools can improve agility* by automating these to bring clarity, speed, accuracy, and efficiency. While the usage of image recognition technologies for processing requisitions is being explored, speech recognition technology can significantly revolutionise approvals. AI also facilitates monitoring and auto-renewing supplier contracts. Procurement cycle time can be almost halved by the use of technology. The time saved thus may be used by procurement personnel to focus better on strategic sourcing and supplier relationship management.
Organisations gain actionable insights to improve the bottom line when AI is used in spend analysis. It helps identify various patterns such as unusual frequencies or quantities, anomalies or discrepancies in pricing, and comparison of a contract to order and invoice data. Any possible frauds or human errors can be easily identified and corrective action taken. AI adds great value through category spend analysis, with a meaningful classification of spending as structured, functional, and standardised. Such classification helps understand purchase and spend patterns. The historical data can also help spend analytic tools to predict future trends in purchase and spending. These inputs are highly valuable in AI powered spend intelligence; they help to save costs and facilitate funds and time better utilised for deriving greater value for the organisation.
AI effectively helps strategize sourcing as it can detect supplier patterns and indicate any risks involved. Real-time monitoring of supplier and supply chain patterns allows identifying high-risk suppliers or problematic locales well in time, thereby offering the option to make the necessary changes too. AI also assists in making intelligent supplier recommendations based on your sourcing patterns. AI-based predictive analytics helps an organisation better understand market prices and identify and evaluate new vendors. AI also helps transform inventory management processes completely. It helps in better utilisation of storage space through automated industry best practices. Guide buying is another trend seen in sourcing. Procurement teams can access the right channels or use chatbots for assisted buying for better sourcing. Catalogue management, supplier spend analysis and supply chain management are a few related areas where AI can bring revolutionary changes to sourcing.
Thus, almost all aspects of procurement are now utilising the power of AI to find value through spend management. This is aiding better decisions and higher productivity with reduced costs and stronger supplier relationships.
*For organizations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organizational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organizations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organizations that are innovating collaboratively for the future.