AI is ready to transform procurement, but is procurement ready for AI?

Posted: 03/11/2020 - 01:35
AI procurement digital transformation

Veteran sourcing executive Purvee Kondal discusses ways that artificial intelligence (AI) is transforming the acquisition and management of IT in the enterprise. Listen to her interview with SIG CEO and President Dawn Tiura on The Sourcing Industry Landscape podcast.

Most people in procurement are nowhere near using AI yet.  Why not?

Forward-thinking companies are deploying it to create competitive advantages now. According to Gartner, only about 7% of CIOs had AI identified as a priority in 2018, but by 2019, the number jumped to 40%. For Chief Procurement Officers, this number is likely smaller since many don’t realize that bringing AI to procurement can pay big – and fast – dividends, with very little investment. While these kinds of transformations start at the board and CEO level and the agenda is driven from the top down, the practitioners need to be active participants to effect the change.

When the C-suite becomes aware of AI benefits, it becomes a priority. Remember when people were hesitant about outsourcing and offshoring? AI is still “too new” for many people… and markets. Training is needed to change this, but it’s difficult to obtain. If you’re interested in AI, where do you go for information? It calls for hands-on and self-directed learning.

Many people need to overcome the fear associated with AI – that it’s going to replace their jobs. This is simply not true. It will free them up to do more meaningful things that add value to the organization.

How do you overcome these barriers?

The first step is to follow what’s out there and look for great use cases. Then you’ve got to start thinking about who’s best to partner with, internally and externally, and what isolated processes in the organization can be used to illustrate the benefits of AI.   

There is no huge barrier to trying AI in business processes. AI has many applications so it’s important to be strategic and focused on what you need most, and how AI can help facilitate that. 

I would encourage procurement people to talk to their vendor community: they are already starting to offer these capabilities. Your vendors will give you use cases – they’ve done the legwork. You must be willing to hear them out and listen to their ideas about how AI can work in your organization.

In terms of procurement, how is AI being applied?

AI requires you to re-imagine what you’re doing and really think through what you want. In procurement, this could mean new levels of automation and visibility into transactions, inventory, usage, contracts, pricing, spending, financial analysis, suitable vendor identification, vendor onboarding, vendor performance, risk assessment, security – the list goes on.

AI can spot irregularities, trends and opportunities in these areas exponentially faster than a team of human procurement experts.

Besides crunching vast amounts of data, AI also harnesses voice and image recognition technologies.  Imagine someone using voice commands or a photo to reorder products. Imagine automating the pre-vetting process to get a short list of suitable suppliers from the thousands that are out there. Many, many business interactions can be radically improved by the self-service capabilities that are emerging. 

You have to re-think the entire workflow. Remember when procurement required triplicate purchase orders? Now think about the simple process of buying something on Amazon – sometimes with one click. Someone re-imagined the purchase order as a PDF or a transaction query, eliminating dozens of steps and redundancies.

Who are the early adaptors in the enterprise?

The business team. People in sales and marketing are using AI and machine learning to understand customer preferences. HR is using AI to identify ways to be more inclusive and eliminate bias in the hiring process, recruiting for qualified candidates faster than the traditional methods. The finance department is using AI to identify risk, automate processes that are easily readable by machines using unstructured data. In technology areas, IT Security professionals are using AI to triage the thousands of alerts that come through every day, and helpdesks are using AI to solve user issues quickly and effectively. The legal department is using it to review contracts. Attorneys spend about 90% of their time reviewing contracts – AI is so much cheaper than their hourly rates!

There are many flavors of AI and depending on the business use case, the right approach is now more identifiable than before, so anyone in the business can be an early adaptor.

How can procurement and sourcing use AI to elevate their roles in the organization?

Procurement is a business enabler: it can contribute to the business’ bottom-line driving profits and adding value in a significant way. This means procurement is in a great position to become a thought leader on AI. It must be prepared with a specific AI strategy, and identify a pilot program with evidence of its success elsewhere. When a member of the C-suite comes to procurement, the group must show they understand the market and are ready for AI-driven transformation – before even being asked. 

Transparency and inclusion with relevant stakeholders on an AI project will showcase procurement’s talent to understand business strategy and ability to quickly identify qualified vendors to help drive projects.

Procurement will have a seat the table if it is willing to take on projects that show management the value of AI. They can galvanize their reputation as an enabler of enterprise transformation.

In terms of procurement, which areas will not be applicable for AI?

AI is perfect for number crunching, trend spotting and even predicting things like demand and pricing. It can provide great data for these functions, but business relies on strong leadership and human relationships. AI won’t be able to replace the strategy nor the decision-making of your team which ultimately results in better ROI and greater likelihood of meeting your company’s yearly/quarterly KSIs, though AI will certainly provide information and resources for your team to make better decisions.

In some areas, AI can help with building leverage; it can provide insight into supplier behavior and performance, but it cannot take over to build or manage deal leverage. It can’t do the actual negotiation with suppliers, or set strategy, or manage relationships and so on.  Maybe in the future, AI will be able to negotiate, but it would have to be taught first.

What companies are using AI in procurement right now?

Companies that want to gain a competitive edge in their industry are already implementing or planning to use AI for their business. We’re already seeing this in banking, insurance, automotive and high-tech, and organizations that want to be competitive in the next decade will have to follow suit.

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About The Author

Purvee Kondal's picture

Purvee Kondal is a Senior Director at Globality, helping multinational companies connect with the world’s best service suppliers at the right price for each and every sourcing need. Purvee is a seasoned executive with more than 15 years of experience leading transformational changes, most notably at organizations such as Johnson & Johnson, Capgemini, General Electric, and Ross Stores. She helps companies identify value and improve efficiencies for Procurement, Sourcing, and Vendor Management functions through collaboration and partnerships. She was recently nominated for “Transformation Leader of the Year” by the Women in IT Summit & Awards Series. Purvee has an MBA from the Kellogg School of Management at Northwestern University.