AI Procurement: Why it matters, Applications & Use cases 2024

The number of artificial intelligence and machine learning use cases in different industries expand daily. Procurement is no different. AI procurement applications like real-time monitoring of supplier’s performance and compliance data, identification of market-associated risk (e.g. tracking social media channels for signals about suppliers’ risk positions), and classification of spend and automation of repetitive tasks like invoice processing are bringing various benefits to companies.

What is procurement?

Procurement is the process of finding and agreeing to terms and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process. It involves making purchase decisions under conditions of scarcity.

Why do procurement teams need to leverage AI?

Data is crucial for procurement teams because, without the data, they cannot track the spending on goods and services and manage supplier and vendor relationships. The increasing number of data enables procurement teams to manage cost savings and supplier/vendor performance risk.

Procurement involves making purchase decisions under conditions of scarcity. Data-driven decision-making is required to ensure the buyer acquires goods and services at the best possible price when aspects such as quality, quantity, time, and location are compared. This makes procurement a good fit for AI because AI algorithms can provide insights and help companies make better decisions. According to Deloitte’s 2019 Global Chief Procurement Officer (CPO) Survey, 51% of CPOs indicated they are now using advanced analytics and 25 percent have, or are piloting, an AI/cognitive solution up from 19% in 2018.

What are AI applications in procurement?

Analytics

Strategic Sourcing

Businesses can also leverage NLP to capture data on suppliers or specific markets via the internet so that it can predict market prices, identify and analyze new potential vendors, and help businesses evaluate the relationships with existing suppliers. Contract negotiations also become easier and more effective with the complete view of historical spending, vendor compliance and performance data, and other essential information available on demand.

Spend Analytics

Spend analytics helps organizations proactively identify savings opportunities, manage risks, and optimize their businesses’ buying power. Accurate spend data is foundational in the development of effective category, sourcing, and spend management strategies. Machine learning algorithms can be utilized to classify procurement spending into categories and sub-categories. AI-powered spending classification allows better analysis by enriching this data with external information from the web. In fact, according to a Deloitte report, projects that use AI spend classification have achieved around 97% accuracy in the classification of data.

Contract Management

Anomaly Detection

Artificial intelligence enables businesses to automatically detect anomalies such as fraud, compliance issues, or price changes across the supplier landscape.

Automation of manual tasks

Artificial intelligence can automate various time-consuming tasks like invoice processing where the procurement team spends most of their time receiving, reviewing, and paying the invoice. Invoice automation is a critical part of a company’s procure-to-pay (p2p) process where an average SME company takes about 25 days to process a single invoice when using a manual process. AI and automation reduce invoice processing times significantly and improve the overall efficiency of procurement teams.

Procurement Chatbots

Chatbots can provide support for employees & suppliers, for procurement queries via the text interface. The video below shows an example of a procurement chatbot UI designed for purchase order approvals. Yet queries like order status, shipment status, stock availability, stock price, supplier status, and contact details can be deployed in chatbots. A chatbot can alert the users for approvals of purchase orders and sales contracts to take appropriate action instantly.

If you want to learn more about AI applications from different industries and departments, feel free to check our research articles:

• 100+ AI Use Cases / Applications
• 12 AI Applications in Manufacturing
• 15 AI Applications/ Use Cases / Examples in Logistics
• 15+ AI Applications / Use Cases / Examples in Finance

You can also check out our list of AI tools and services:

• AI Consultant
• AI/ML Development Services
• Data Science / ML / AI Platform
• Procurement software

And if you still have questions regarding AI procurement, don’t hesitate to contact us:

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