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What is the Role Of AI in Procurement?


Introducing AI in Procurement

In this innovative information age, things move at breakneck speeds. Age-old processes are changing overnight, and the way work is conducted is evolving rapidly.

Data is one of the key drivers of this. With the volume of data growing rapidly, it’s crucial to try and keep up to make optimal business decisions.

This is where Artificial Intelligence (AI) comes in.

Simply put, AI is advanced technology where computers are programmed to think like humans and mimic their actions.

It does this by processing massive volumes of data and identifying patterns within it.

Essentially, it’s a technology with the ability to learn, adapt and evolve. So, although its reputation appears daunting, its software solutions will have numerous benefits for your business.


AI in Procurement

Let’s clear up the AI mystique: intelligent algorithms are software solutions for upgrading processes. It’s quicker, more efficient, and solves human error.

AI’s role within the procurement function is still relatively new, but its potential is clear to see.

It’s helping to innovate procurement rapidly. Today’s procurement environment is unpredictable. Current events like COVID-19 and the war in Ukraine have thrown supply chains into chaos.

More and more companies are using AI technology to adapt to this volatile environment. AI’s ability to analyze enormous streams of data at high speed makes it a highly effective tool for staying agile in the face of this uncertainty.

Think of common tasks: sourcing, contract management, spend analysis, etc. Embed these within an algorithm and it will proceed to carry out those functions accurately and quickly, saving time and resources.

Companies are harnessing AI to stay ahead of the competition, change their processes and provide decision-makers with the tools required to have a competitive edge.



AI algorithms in action

Before we investigate where these changes are useful to your business, let’s familiarize ourselves with the different AI algorithms and what they do.

Artificial Intelligence (AI)- software with the ability to learn, adapt and grow.

Machine Learning (ML)- Group of algorithms that identify patterns and use them to make predictions and give forecasts.

Natural Language Processing (NLP)- Algorithms that can understand human language.

Robotic Process Automation (RPA)- This allows you to input software to perform repetitive tasks.

hubspot data

Benefits/ Examples of AI in Procurement

Spend Analysis

Clean, visible spend data is essential for your future sourcing and strategy.

Spend classification algorithms search through line-item details then flag keywords or phrases to match with spend categories. NLP can help to understand the context which links these together before ML optimally categorizes the output.

The benefits? According to a Deloitte study, “Projects that use AI spend classification have been able to achieve around 97% accuracy in classification of data.”

Meaning a more precise analysis, maximizing profitability, and extracting true value from data.

Insightful Sourcing

AI algorithms can recognize high-level sourcing strategies.

They do this by determining the value of various sourcing strategies and recognizing shifts in global supply trends.

This allows you to assess your options with additional insight, helping you to anticipate changes and stay a step ahead of your competitors

Continued Compliance

We all know the importance of compliance. Nevertheless, adhering to compliance can be a painstaking process if the right systems aren’t in place.

A set of AI algorithms automatically identify non-compliance with suppliers and alert users to any discrepancies with contracts or invoices. AI creates a focal point that allows for easy access to audit documents.

Extract maximum value from your contracts by drastically reducing the cost of human error and reacting quickly to any occurring mishaps.

Access to information

Procurement teams are reliant on multiple systems and can often struggle to find the right info quickly. Chatbots are software applications that conduct online chat conversations via text. They help by interacting with customers through automated conversations.

In procurement, they can assist any users of the system. Simply input all the information you want it to process, and it will be on hand to answer queries to employees, customers, and suppliers 24/7.

Data extraction

AI will help to pull out invoice and contract data automatically. It uses a combination of NLP and computer vision to enable quick extraction.

This helps to: reduce fraud, speed up processes, and gain a better understanding of an organization’s spend pattern.

It also helps to highlight the risks within contracts, highlighting things to review.


Final Word

The age of Artificial Intelligence has arrived, changing the way of work and driving procurement forward.

Despite its evident value, it does not replace humans as it has no emotive reasoning. However, human resources can now be distributed effectively into other areas of the business, enhancing productivity and raising the skillset of your teams. Removing the time suck jobs such as data gathering and analysis can help free up time for more valuable work.  

To harness AI’s potential, you must conduct thorough research and align it with your strategies. Arm yourself with the knowledge required to wield it effectively and innovate your business to stay ahead of the curve.