Transforming Procurement With AI: Opportunities, Challenges, and Best Practices

Procurement leaders have been cautiously intrigued by the potential of artificial intelligence (AI) in recent years. At first, the subject was fascinating, but for many professionals, it seemed far off and futuristic. Everything changed at the end of 2022 when AI suddenly became tangible and essential, driven by breakthrough tools like ChatGPT and Google‘s chatbot Bard. These mind-blowing technologies have made AI a must-have tool for procurement professionals, redefining what‘s possible in the industry.

As companies across diverse industries race to adopt AI and gain a competitive edge, procurement leaders are left wondering how they can leverage this transformative technology in practical ways to achieve a material advantage. By investigating the possibilities and acting strategically, forward-thinking leaders can take advantage of AI’s momentum and avoid being left behind.

From harnessing the power of AI-driven innovation to unlocking procurement‘s potential, this white paper serves as a guide to help today’s procurement leaders navigate the rapidly evolving AI landscape and capitalize on the advantages AI offers. Whether you are looking to power up your procurement processes with AI or rethinking procurement altogether, you will find valuable insights in this paper to help you make the most of AI in your procurement operations.

Reducing Time-to-Value: Challenges and Obstacles

A significant portion of many organizations’ procurement functions still rely on traditional processes and technologies. This can negatively impact the effectiveness and efficiency of companies striving to modernize their operations and gain a competitive advantage.

Procurement leaders recognize the need for change. Fortunately, AI is a transformational technology that can help them move forward to overcome obstacles and unlock potential.

A good starting point is to understand the challenges that act as roadblocks to reducing time-to-value for procurement in today‘s fast-paced business environment.

As you can see in the progression below, one challenge can lead to another:

1. Procurement operations frequently involve time-consuming manual processes and rely on inefficient or outdated technologies.

2. Procurement teams spend too much time on routine tasks that can keep them from focusing on strategic initiatives that drive practical value for the organization. This can lead to missed cost savings, reduced innovation, and increased risk.

3. Employees may experience frustration and burnout due to the repetitive and time-consuming nature of their tasks, resulting in decreased engagement and morale as well as higher turnover rates.

4. Risk mitigation has become an urgent concern due to the current climate of geopolitical unrest and the economic downturn. In the modern business landscape, it can be very challenging to stay up-to-date on global events no matter how many resources are assigned to this task.

5. Decision makers choosing to implement AI technology must take the previously mentioned challenges into account, identify the most important use cases to address, and find the right vendor and solution.

6. Execution challenges such as implementation timeframes and user adoption require strategic planning. Implementation success does not guarantee project success because procurement teams are often reluctant to adopt new solutions that come with different workflows and processes.

As mentioned previously, many procurement functions continue to rely on manual processes, which can lead to inefficiencies and limitations in the daily activities performed by procurement professionals.

According to Levvel (now Endava) and as shown in Figure 1, a research survey of approximately 300 professionals revealed that a large portion of procurement employee activities hovered around the following main topics:

? Researching and evaluating suppliers;

? Creating POs;

? Qualifying and assessing suppliers.

Furthermore, the survey revealed that the biggest challenge for procurement departments is still “manual data entry and inefficient processes” (see Figure 2)

Strategic Approach for Strategic Impact

The first step in overcoming the challenges is to look to AI and machine learning (ML) technologies to automate typical procurement tasks such as these:

? Certificate validation;

? Supplier onboarding;

? Research;

? Risk and performance monitoring;

? Matching invoices with POs in the procure-to-pay process.

Such AI-driven automation can help save time and money, reduce errors, and free up resources for initiatives that improve time-to-value. However, a strategic approach is required to achieve maximum impact.

In light of the recent surge in generative AI tools, numerous vendors are racing to create AI-powered solutions for procurement professionals. Yet there is a risk that some of these solutions may not adequately address the concerns of those who need them or bring success in practical use cases. Inefficiencies, disappointment, and wasted resources are often the outcome when such things occur.

In the process of developing truly valuable AI tools, it is crucial for a vendor to identify urgent pain points and address key questions such as these:

? Will the client have enough of the right kind of data?

? What business case clearly articulates the benefits for the client?

? How will the human-machine collaboration work?

In a world where vendors develop AI tools without fully considering the primary objectives of each client, it is more important than ever to acknowledge that AI is no longer just a buzzword, but a practical approach to creating value. Businesses across multiple industries are already aware of this fact and cannot afford to lose sight of it.

Empowering Procurement Professionals with AI: Practical Applications

Leveraging the multiple subfields of AI — including ML, optical character recognition (OCR), natural language processing (NLP), and smart recommendations — can be beneficial, but it is essential to have effective use cases to solve problems successfully. To truly empower procurement professionals and free them from tedious tasks, leaders should consider the following practical applications that show how a robust AI model can make the work of procurement teams easier and more impactful.

Use Case 1: Establishing the Supplier Relationship and Onboarding Suppliers

In the supplier relationship and onboarding process, hundreds of certificates and documents might be required to evaluate suppliers before doing business with them. Manually checking each document is a repetitive task that is often accompanied by errors. However, by leveraging AI in a combination of ML and OCR technology, supplier documents can be automatically validated without the need for human intervention.

In fact, an AI algorithm can deliver results in a matter of seconds compared to manual checking, which could take up to two minutes for a simple document. Considering the need to verify multiple documents daily, an AI system‘s time-saving benefits can be significant.

Use Case 2: Analyzing Multiple Data Points to Increase Efficiencies

The ability to use an AI model to analyze multiple data points can enable a procurement professional to accomplish the following tasks almost instantly:

? Identifying specific supplier development actions for underperforming suppliers

? Sending an alert to indicate that the timeframe for a specific sourcing event should be extended

? Suggesting changes in supplier status when a document expires

? Recommending the most appropriate suppliers for high-priority sourcing events

? Identifying supplier coverage as it relates to high-risk categories to minimize supply chain disruptions.

All of these tasks, if done manually, would consume a significant amount of time for procurement professionals. This use case clearly demonstrates a beneficial way to free up their time while empowering them to work on strategic activities.

Use Case 3: Rapidly Matching Invoices to POs

Procure-to-pay operations involve a great deal of manual input, particularly when it comes to matching invoices received without a PO to their respective POs. Without an AI-powered solution, an accounts payable specialist could manually scan through hundreds of POs to find the right one to match with each invoice.

However, with the help of a specific AI model, this process can be fully automated. In fact, when an invoice without a PO is received, the system can automatically suggest a shortlist of related POs based on specific invoice data such as item description, quantity, date, and other relevant factors. This saves valuable time and improves efficiency in the procurement process.

AI Benefits: Unlocking Efficiency, Accuracy, and Value

Integrating AI into procurement processes like those described in the previous section can result in significant business benefits for organizations seeking to optimize their procurement operations. The tangible advantages of AI include the following and more:

• Increased efficiency: AI-powered procurement systems can automate time-consuming tasks such as data entry and document processing, freeing up procurement teams for more strategic activities;
• Improved accuracy and reduced risks: Through ML algorithms and NLP, AI can improve the accuracy and consistency of procurement activities, reducing the risk of errors and improving compliance.
• Real-time insights: AI can provide real-time insights into procurement tasks, enabling organizations to make more informed decisions and respond quickly to changing market conditions.
• Cost savings: By automating manual processes and improving efficiency, AI can help organizations reduce procurement costs and achieve greater value from procurement activities.
• Enhanced supplier relationships: AI can help organizations better manage their relationships with suppliers, identify issues, and address concerns faster and more effectively.

Clearly, leveraging AI in procurement gives companies the opportunity to move forward, become more effective, and add value as they reach for a foothold in today’s shifting market environment. Adopting AI can also position organizations for success in the long term.

Embracing the Future of Procurement

To summarize, AI is transforming the procurement industry and has become a crucial tool for organizations striving to improve time-to-value and gain a competitive edge. By using AI to automate routine tasks, reduce errors, and free up resources, procurement professionals can focus on more strategic initiatives that drive practical value for the organization. AI also opens new doors of opportunity for employee growth and development.

As AI continues to evolve and become more advanced, procurement leaders must stay ahead of the curve and explore the possibilities of this groundbreaking technology. The future of procurement is undoubtedly powered by AI, and organizations that embrace it will be able to achieve significant competitive advantages.

The time is now to leverage valuable insights and practical approaches for integrating AI into your procurement operations. Reducing time-to-value in procurement requires a shift towards more strategic initiatives, and AI is the key to unlocking this potential.