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AI & ML: The New Era Market Intelligence Advisor For Procurement
This disruptive technology has slowly crept its way into the procurement sphere as well and has tremendous potential to support enterprises in their quest to solve some of their most critical problems.
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Artificial Intelligence (AI) in its most simplistic definition is the ability to mimic human intelligence to the level at which it becomes very difficult to distinguish between a human and a machine. Machine Learning (ML) is a method or an algorithm of letting an AI application figure out the steps needed to accomplish a specific task. While it is very tempting to talk about the potential of AI & ML in the future tense, the fact of the matter is that AI & ML technologies are transforming many businesses TODAY. It’s not hard to see that this disruptive technology is everywhere – video games, flying planes, highly accurate recommendations and even in our pockets as our virtual assistants - Siri, Google Assistant and Cortona.
This disruptive technology has slowly crept its way into the procurement sphere as well and has tremendous potential to support enterprises in their quest to solve some of their most critical problems. If we are honest with ourselves, we will know that procurement is not known for being the front runner in adopting disruptive technologies. But this time, it’s different. Pertinent efforts made over the past decade in digitizing supply chains and procurement processes have allowed many large enterprises to adopt these AI & ML solutions today rather than the distant future. However, there is a sense of fear among procurement professionals in embracing these technologies. Keeping in mind all the factors that go into supplier selection, and the sheer amount of data involved, does it make sense to give this task to a machine that can crunch more data than a few hundred humans? AI & ML seem very well suited for these tasks. But the fears that these technologies will take over their entire jobs seem unfounded. For efficient and effective procurement and supplier management, the immediate future is one of collaboration between a human and a machine. Today’s procurement managers must rely on data from various sources of intelligence - suppliers, independent financial databases, social media, and third party services.
AI & ML can help procurement in two different, but closely related category of functions:
- To improve operational efficiencies: Technologies such as spend analytics which help procurement teams identify cost savings; chatbots and assisted buying, which help in making an intelligent buying decision fall under this category.
- To improve strategic efficiencies: These include managing issues related to supply continuity, risk management, sourcing innovation, collaborative value creation, etc.,
Spend analytics and its close cousin, contract analytics, for the most part, are limited to the process of mining, cleaning, grouping, and analyzing an organization’s spend data. Similarly, chatbots and assisted buying are not truly transformational innovations per se. Though these can bring in cost savings and at the same time improve operational efficiencies, they only scratch the surface with regards to the disruptive powers of AI & ML in procurement. The next category, of bringing in strategic efficiencies, is where AI & ML can truly shine. These technologies if implemented correctly, can help organizations answer a multitude of very challenging questions – how do I identify the best suppliers to bring in competitive advantage? Can contract negotiation and supplier selection be done without endless back-and-forth interactions? How can I manage supply chain risk better?
There are companies that are developing AI tools that will tackle these issues – better supplier management, strategic sourcing, tracking innovations in supply chain, true supplier risk management, etc. But for organizations to draw significant value from AI & ML, they must deploy these technologies on top of the right platform, people, processes and data. It is important to ensure that there is a clear strategy in adopting these technologies. They need to ensure that the existing tools are fit for the purpose and are used throughout the organization. This would mean mandatory use of e-sourcing, storing contracts in a dedicated repository with smart procure-to-pay solutions properly configured and populated by appropriate suppliers. Most companies are either unprepared or following a “wait-and-see” approach, often adopting AI and ML prematurely or in a haphazard and uncoordinated manner. In recent research, Forrester found that most companies are “significantly overestimating” their digital maturity level. 65% of the companies surveyed considered themselves to be advanced, but only 16% had the requisite level of digital maturity. Moreover, the adoption period was also excessively long. Only 17% of the companies were able to onboard new suppliers in less than a month and 59% were taking between 1 to 3 months for each supplier.
For any business, there is a clear opportunity to gain a truly competitive advantage over its competitors by adopting these disruptive technologies. However, you need to be realistic in assessing your current maturity, have a clear vision for each stage of your journey and have the right technology base. AI & ML in procurement may not be as exciting as a personal jetpack, but for the people in the industry, it can be a lot more useful.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.