Leveraging AI & Machine Learning in Procurement!

Artificial intelligence (AI) is the ability of a software to think, learn and work on their own without being commanded. John McCarthy came up with the name "Artificial Intelligence" in 1955.

Andreas Kaplan and Michael Haenlein define AI as a system’s ability to correctly interpret external data, to learn from such data, and to use those learnings to achieve specific goals and tasks through flexible adaptation.

Any software solutions that include self-learning, smart algorithms can be considered AI.

Arti?cial Intelligence (AI): any algorithms exhibiting any behaviour considered ‘smart.’

Machine Learning (ML): algorithms that detect patterns and use them for prediction or decision making.

Natural Language Processing (NLP): algorithms which can interpret, transform and generate human language.

Robotic Process Automation (RPA): algorithms that mimic human actions to reduce repetitive, simple tasks. RPA is generally not considered a form of AI.

All forms of artificial intelligence involve algorithms which can be defined as sets of rules specifying how to solve a specific problem. Algorithms can be calculated by anyone gifted in math, but they also form the basis of most computer software. The work of algorithms in software is not visible to the human eye, but they can be programmed and re-programmed by experts to solve problems deemed important within software environments.

AI in Procurement

Artificial intelligence is one of the hottest topics in technology, Often AI is talked about as a magic new solution to problems. There is a need to understand this hype and identify the real business opportunity in AI today. From a Procurement perspective, AI is not a replacement of human Procurement expertise, or to be considered a new team member capable of driving organizational change, strategic sourcing or realized savings. For Procurement, AI is not a magic solution you can tap to solve your problems. All AI solutions today in Procurement will require active expert guidance and oversight.

Artificial intelligence is, however, already transforming Procurement. AI is automating or improving many time consuming tasks or giving Procurement experts additional insights based on extremely complex and large sets of data. In simple terms, AI is simply a software solution aimed at resolving a specific task. Because AI is just software, it has the potential to rapidly change work practices across even large organizations. When you think of AI, look beyond the hype and just consider it as a new type of software.

There are an increasing amount of examples of AI being used within Procurement functions. Some of the most common approaches include:

Spend Classification

Using machine learning algorithms to classify procurement spend into categories and sub-categories. For example, reviewing millions of invoices to automatically categorize spend in different categories of cardboard packaging.

Vendor Matching

Using machine learning to connect supplier data contained in invoices and purchase orders to a vendor hierarchy. For example, connecting different local subsidiaries of a freight and logistics company to one international supplier.

Capturing Supplier or Market Data

Use techniques such as natural language processing to look for and capture data on suppliers or specific markets. For example, tracking social media channels for signals about suppliers risk positions.