Across industries, artificial intelligence (AI) is revolutionizing business practices — the way we market, communicate and improve processes. One of the last frontiers for AI development is procurement, and that is all about to change.
Precisely because procurement has traditionally been so slow to adapt to rapidly changing technologies, the potential for improvement is tremendous.
Until recently, procurement has been overlooked as a source of cost-cutting efficiency. Businesses clung to traditional methods, using manual processing long after the rest of the world adopted automated systems. In their 2018 survey, Deloitte notes: “Leadership is weak with regard to investing in innovation, leading digital transformation and positive disruption. This will have implications for future performance unless addressed with new leaders or through accelerated capability development, and there is a risk of the procurement function being ‘left behind’”
As AI continues to improve processes, businesses with digitized systems will realize an exponentially higher return on investment (ROI). The key to reaping those rewards is moving to a rapidly evolving digital system.
Here’s how near-future AI will turbocharge your procurement system from end to end.
One of the most interesting aspects of AI in procurement is its ability to process risk factors. Unlike humans, AI has the capacity to analyze billions of data points in seconds to present solutions with accurately assessed risks. Today, this means tracking supplier performance and making recommendations based on reliability, stability and other predictable factors.
• Analyzing weather patterns to predict the best delivery methods and route
• Identifying new sources when existing ones are disrupted or costs abruptly rise due to unforeseeable political or catastrophic events
• Verifying supplier reliability as stability is threatened
• Assessing the rate of raw material depletion to predict the future viability of manufacturing in a specific area
• Monitoring local and global politics to report potential cost increases
In Cognitive Procurement: Seizing the AI opportunity, IBM discusses the future of AI-enabled procurement. “With exponential technologies and data proliferation, the next iteration is upon us: cognitive procurement,” they write. “This new environment transcends the mere automation of existing capabilities.”
The report details how AI will use data from internal and external sources, including soft public data from news and social media, to create competitive advantages for companies who invest in cognitive enterprise.
AI can also facilitate asset tracking and strategic routing in real-time. If a hurricane is swirling in the gulf, for example, and you have a shipment coming by truck from Texas to Atlanta, it would be strategically sound to take a hard left in Alabama, since Interstate 10 is likely to be affected by the storm. Humans may overlook these types of details; AI can deliver the fastest and safest route after considering every detail, including evacuation routes that can bring traffic to a standstill.
AI can also use internet-enabled GPS to track your goods in real-time. Most vehicles and deliveries are already tracked; however, you can take it further. Technology is available to tag shipping containers or even individual items.
For a post on IoT World Today, Daniel O’Shea writes: “IoT sensors can be used to collect data regarding environmental conditions, determine how long a shipment remained in a particular truck or at a certain port, and whether it is being tampered with or moved in a way that violates handling instructions. This data can then be used to resolve invoice disputes, provide evidence for insurance claims or help companies determine when and where they need to make changes in their supply chains that might help them save money or improve efficiency.”
Spend Optimization And Reduction
Aggregating spend data is the primary challenge for most procurement operations. With millions of items scheduled out in short-term and long-term orders, pulling all the data together to classify and organize long-tail spend is nearly impossible without automation. AI is faster and more accurate than the most experienced teams, freeing humans to do more important and fulfilling work.
Across a large organization, accurate spend classification results in more efficient ordering and returns significant spend reduction.
For example, AI is capable of analyzing hundreds of thousands of items purchased by a typical company to identify and compare different unit rates charged by suppliers for the same products. Once opportunities are identified, optimal agreements can be made with key suppliers to maximize savings and increase the percentage of contracted spend.
AI can also automatically identify bottlenecks and inefficiencies in process flows. Once identified, process efficiencies in purchasing and accounts payable processing can be optimized, which can also result in the avoidance of late payment fees.
Meeting Customer Expectations
Identifying suppliers capable of supplying value while adhering to ethical sourcing demands can be difficult. Since AI is capable of assessing whether suppliers rise to the challenge of ethical sourcing — and verifying supplier veracity against oversight tracking organizations — AI-driven tools can choose suppliers from a global pool most likely to meet your standards and deliver real value.
Preparing For The future
While the current state of AI for procurement is piecemeal rather than holistic, with individual functions employing the use of AI and deep machine learning still on the horizon, it’s past time to start ramping up your procurement operations. Here’s how you can prepare:
• Find and develop the talent needed to optimize your supply chain. Capable AI professionals will likely be in short supply, and competition for talent will be fierce.
• Digitize and automate processes available today.
• Adopt a forward-thinking strategy to take advantage of emerging AI technologies as they become available.
Future procurement professionals will leverage AI to create lean, efficient supply chain strategies to minimize risk, streamline processes and lower costs. As AI capabilities grow, so too do opportunities to discover new process efficiencies, foster agile supply chain strategies and prevent cost overruns due to disruptions. The next 10 years will be exciting times for procurement professionals poised to leverage integrated AI to the fullest advantage.