How AI Can Help Solve Some of the Biggest Challenges in Procurement

It’s no secret that artificial intelligence (AI) is set to become one of the most significant disruptive forces in years to come, affecting practically all departments in practically all industries. Though we may often tend to talk about the potential for AI in the future tense, the truth is that machine learning technology is transforming many business processes today – and the pace of change is accelerating.

Not so long ago, most of the AI talk seemed to be focused on future transformations and future possibilities – but time has continued to play its inimitable trick, and when we open our eyes in 2017 we see that that future is now, and this game-changing technology is everywhere. Highly sophisticated and intelligent computing engines are in-use today in everything from video games to online customer service support. AI is trading stocks, flying planes, and making highly-accurate recommendations for our next consumer purchases. In the military, it is interpreting satellite photographs to identify targets and threats; in communications, it’s recognizing our speech patterns for security and identification purposes; in our pockets, Siri and Cortana are our very own AI-powered personal assistants.

AI is already everywhere, permeating our daily lives at every turn. And now it’s beginning to creep into 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 procurement is no exception.

From Virtual Assistants to Cognitive Procurement Advisors

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 analyzing 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.

Today, procurement technology vendors are developing solutions that bring AI into the realms of advanced strategic reasoning and strategic sourcing. Namely, these are manifested as cognitive procurement advisors (CPAs) and virtual personal assistants (VPAs) that use natural-language processing (NLP) and natural-language generation as a means to further increase automation and efficiency in procurement. In essence, these VPAs and CPAs are not dissimilar from smartphone favorites like Siri, Google Now and Cortana. The difference, however, is that the new-wave of virtual assistants are capable of much more than completing simple tasks such as setting the alarm or retrieving information from the web. This new technology is able to carry out much more complex operations, like completing transactions based on past, present and predicted contexts.

As Magnus Bergfors, Research Director at Gartner, explains: “A procurement VPA can improve the end-user experience of traditional procurement tools and increase spend under management by guiding people to the correct purchasing tool. A CPA can provide summaries, recommendations and advice in everything from supplier assessments and performance management, to risk management and compliance.”

Procurement Bots

This year, cloud procurement solution provider SAP Ariba unveiled 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.

“Intelligent bots are facilitating a whole new paradigm of interactions that allow people to be more efficient and smarter in what they do,” said Dinesh Shahane, Chief Technology Officer at SAP Ariba in a press release. “We are investing in these types of applications and technologies such as artificial intelligence and machine learning to deliver a next-generation user experience for our customers that promises to transform procurement as we know it.”

Existing Tools Must Be Fit for Purpose

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, such as share price dips or court orders. 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.

But the reality, however, according to Bergfors, is that 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.

The last word goes to Magnus Bergfors. “The first step to automating spend management is to make sure that existing tools are both fit for purpose, and are used throughout the organization. Proper use of existing tools provides the platform for AI, as well as the data on which to train it. Application leaders should prioritize investment in solutions that support automation for spending categories that are not well-served by current systems.”

AI in procurement is set to be a hot topic at this year’s ProcureCon Marketing conference, taking place this November in Los Angeles, California.

Be sure to download the ProcureCon Marketing 2017 Agenda for more top insights and challenges facing the industry today.

Return to Blog