It’s Time for a No-Nonsense Discussion About Artificial Intelligence (AI)

It is also time for procurement teams to start considering practical AI applications

It is hard to believe that Chat GPT will only turn three later this year. AI is yet another technological development that comes with its own glossary – the IT crowd can’t help themselves. Yet, as wild, remarkable, and seemingly complex as AI appears to be, it is possible to understand it quickly and, more importantly, consider how AI can be applied in business without needing a chip inserted into the back of your head. AI is the simulation of human intelligence by machines, particularly computer systems, that can learn, reason, and adapt.

We might say that AI is to information processing what electricity was to physical power – not the first revolution in its domain (others include writing and the move from analog to digital), but AI is a more refined, flexible, and ultimately more transformative revolution than its predecessor.

So, AI makes everyday computer power smarter, allowing computers to perform more automated tasks, recognize and interpret patterns in data, and learn from their activity. It is steadily becoming more refined. In the meantime, businesses across the economy are finding ways to deploy AI technology to improve productivity, save time and resources, and allow humans to spend more of their time doing higher-value tasks. There are many ways procurement teams can leverage AI to achieve performance improvements. The following three examples illustrate the real-world value of AI technology for procurement-specific tasks.

Spend analytics & optimization

A common type of AI is known as limited memory AI, and it includes predictive AI or machine learning. This type of AI can quickly identify, categorize, and generate valuable insights from a multitude of input sources to help uncover cost savings and opportunities.

Moreover, this type of AI can also be used to not only extract data from documents, but also to enhance the quality of data. AI can accomplish this by harmonizing, categorizing, and enriching data, leading to cleaner, more accurate results. From here, we can use AI to index historical data and then take that information to make year-over-year trajectories, based on both current and past market conditions and build these insights into meaningful and actionable plans. This allows you to capture maximum value from the opportunities presented, ultimately leading to greater spend compliance and a reduction in overall spend.

Sourcing and category management

AI is used in sourcing and category management to reduce the time needed to analyze large volumes of data, identify and qualify vendors, create RFx packages and compare responses, and provide real-time risk management. AI can drastically reduce the turnaround time to define adaptive category strategies, conduct sourcing events, and manage supplier relationships.

Additionally, AI can be used to profile supply base risk, identifying the probability and impact of contingent scenarios and suggest mitigation measures. The increased visibility and real-time updates that AI provides allow organizations to make faster and better-informed decisions, decreasing downtime in priority situations. Procurement specialists will still need to consider the other side of category management, blending the use of AI with thoughtful supplier and stakeholder relationship management, as well as in change management projects. However, overall, these tools empower organizations to deepen their understanding of strategic categories and manage them more effectively.

Contract lifecycle management

Another valuable use of AI (using natural language processing or NLP) is to relieve many tedious aspects of the contract lifecycle management (CLM) process by gaining greater visibility into key contract metadata points and terms. This form of AI can read contracts and extract necessary information such as important dates, and entities, provide summaries of key contract terms, and even produce contract drafts and suggest alternative clauses. This allows both sourcing teams and stakeholders to have a firm understanding of important contracts, without the need to navigate extensive legal jargon and helps organizations move quickly when conducting contract negotiations to better ensure both business and legal perspectives are aligned for approval.

As technology evolves, we continue to see more and more applications of AI as it relates to procurement. Hopefully, these three examples provide a taste of the practical benefits AI can offer. At Infosys Portland, we see AI as a key technology in the next generation of procurement and we have it integrated into the next-gen model we use with clients.

Where to start?

Typically, we will work with clients first to assess their current operating model and their technological environment. This allows us to identify near- and long-term opportunities to leverage AI technologies to enhance procurement functions.

Detailed specifications can then be developed to bring the technology to life. This would include the identification of the best possible suppliers and the wider criteria needed to evaluate possible solutions. Our expertise is also often engaged to oversee implementation and ensure the new capabilities are integrated into business operations in an optimal way.

In our experience, you can be confident that AI will result in greater cumulative value for procurement professionals. Like other next-gen strategies, practical AI applications free up valuable time and resources, allowing professionals to devote more of their expertise to the big-picture questions facing their organizations.

Finally, we also need to keep in mind that AI is not going away. Do you remember the advent of cloud computing and “cloud-first” demands? The same is happening with AI. More and more organizations are expecting, even insisting, that AI technology will be part of the capability potential suppliers are being assessed on. Having AI tools supporting your own procurement expertise and in your relationship with suppliers is fast becoming the new normal, and early adopters, as always, gain greater advantages.