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Where to next? AI in procurement

by | May 11, 2018

On a daily basis, we see artificial intelligence (AI) impacting our lives, and its advancement is not slowing. It’s already at work in iPhone’s SIRI and Amazon’s Alexa.

Not so long ago, the greater part of the AI talk appeared to be centered around future transformations and future possibilities. Now we see that that future is now, and this game-changing technology is everywhere. AI is trading stocks, flying planes, and making highly-accurate recommendations for our next consumer purchases.

Artificial Intelligence is as of now all over the place. And now we are beginning to see it in the supply chain, too, and has the potential to support key business departments in their quest to solve a growing number of critical problems – and AI in procurement is no exception.

From identifying new markets and tracking exchange rate volatility to managing risks and identifying the best suppliers, procurement leaders are looking into solutions that utilize AI to leverage big data to streamline processes and improve decision-making. Spend analytics software, for example, is beginning to enjoy widespread adoption, helping procurement teams identify where cost savings can be made.

But spend analytics – along with contract analytics, too, for that matter – are for the most part limited to automating the processes of collecting, cleaning, classifying and analysing an organization’s expenditure data. Yes, they identify areas where savings can be made and point to paths of greater efficiency, but this is only scratching the surface of the transformative powers of AI in procurement. You can read here more about our approach on spend.

This article explains some ways that AI could rapidly transform enterprise procurement organizations over the next five years:

  • Cognitive systems replace supply chain assistants
  • Cognitive systems replace purchase order systems
  • Cognitive systems replace supplier on-boarding workflows
  • Cognitive systems forecast prices, generate contract templates and evaluate suppliers before a human does

Today, procurement technology vendors are developing solutions that bring AI into the realms of advanced strategic reasoning and strategic sourcing.

Procurement Bots?

One of our partners, cloud procurement solution provider SAP Ariba unveiled last year, an AI-powered enterprise digital procurement bot that allows users of its cloud-based applications to manage key tasks with greater efficiency, simplicity, and speed. Leveraging machine learning, the bot is able to “understand” and implement company policies and procedures to guide actions, reduce errors, and speed processing on things like invoices and payments.

Existing tools must update and adapt

Aside from high-functioning bots, AI technology is also expected to achieve greater levels of trend analysis, with financial modelling being used to predict future pricing patterns and even for risk assessments. For example, if invoices are submitted late, an AI program may trigger an internet search for red flags that may indicate internal problems on the supplier-end. In spend analytics, an AI system will be able to cross-check every single invoice that’s entered, instantaneously flag-up any errors or inconsistencies, and identify and alert the appropriate persons on both sides of the order – a process that can take days when done manually.

In order for organizations to start creating significant value from AI, they must deploy the technology on top of the right platform, data, and processes. It means a mandatory use of e-sourcing, and, as an absolute minimum, that all contracts are stored in a dedicated repository with smart procure-to-pay solutions properly configured and populated by relevant suppliers. Only this way will AI be able to help solve the most pressing, contemporary challenges facing the procurement function today.

Skills are a vital piece of the puzzle and are often neglected. Application leaders who lack the right analytical and data science skills will struggle to understand the opportunities and limitations of AI in procurement.

Once the right platform and skills are in place, an organization is ready to experiment with pilot programs in areas where there are existing use cases for machine learning and automation.

Without doubt, artificial intelligence is coming. It will impact jobs on the operational side and affect many sectors of the business. Once the companies can fix the quality of the data and data integration within the company, they will be well positioned to make this change and take the procurement department to the next level.

Want to know more on how to integrate AI in your procurement department? Let’s have a chat!