The AI advantage: Navigating the future of procurement with Generative AI

Generative AI (Gen AI) is no doubt the new “white hot” technology, with tremendous potential for transforming Source-to-Pay processes. In fact, AI can deliver cost savings of up to 40 percent according to research by Oxford College of Procurement & Supply. With its widespread adoption and inclusion in digital transformation initiatives across every industry, Gen AI has become a must-learn technology. It has the potential to improve productivity of Procurement teams tremendously to eliminate time consuming and repetitive tasks and free up time for more strategic thinking. In fact, Gen AI can reduce time spent on some procurement processes by up to 60 percent.

This enables Procurement teams to elevate their strategic impact and spend time on more creative aspects of the function that have a bigger impact. 

However, some procurement professionals feel threatened by AI. Recent data from Ivalua found 35 percent of procurement leaders are concerned that their role will be replaced by Gen AI. But the reality is, procurement professionals who learn to harness Gen AI will be more employable than ever. 

Gen AI Meets Procurement

So where should procurement professionals start? Gen AI can assist procurement teams in numerous ways, many yet undiscovered. Some examples include content creation, data analysis, insights and recommendations. When you think about the Procurement function, a lot of activities involve content - RFXs, contracts, performance evaluations, purchase orders, invoices, etc. 

Where there is content, there is use for Gen AI -- common tasks such as supplier selection, information gathering and contract summarization, obligation tracking, user assistants and so much more that be automated -- streamlining procurement processes for the better. Gen AI empowers organizations to make data-driven decisions, improve efficiency, and respond effectively to dynamic market conditions quickly -- such as mitigating the impact of supply chain disruptions.

While Gen AI is still an emerging technology (albeit a fast developing one), many organizations are still in the early stages of formulating their strategies. Ivalua research reveals that very few organizations are investing in their own Gen AI infrastructure. In fact, 63 percent of procurement professionals surveyed admitted to not having a strategy in place for AI or are in the process of creating one. Ultimately, those who adopt Gen AI within their procurement practices can harness its efficiency and analytical benefits to pull ahead of the pack.

Use Cases for Gen AI in Procurement

Organizations must ensure they are thinking about a business case for how best to adopt Gen AI. There must be robust testing to determine the best use cases, and strict guardrails put in place to ensure it is used responsibly.

For example, Gen AI can enhance procurement tasks in several ways, including:

1)      Contract summarization: Gen AI can help summarize a contract document in a selected language, helping procurement teams to identify and digest important details saving valuable time.  

2)      Improvement plan assistance: By implementing Gen AI, procurement teams can generate improvement plans based on supplier evaluation -- helping organizations determine the threshold for suppliers and drive high-quality results.

3)      Mass communication assistance: Gen AI can assist organizations by crafting mailing campaigns to suppliers based on draft content and instructions.

4)      Guided supplier creation: Gen AI can help create detailed supplier profiles by searching the internet to enrich profiles with accurate information.

The Data Challenge

But, before organizations engage with Gen AI, procurement leaders must accept that Gen AI solutions are only as good as the person using them or the data that it is fed. AI needs to rely on a solid data foundation that reduces the risk of ‘garbage in, garbage out’. Poor quality data will hinder the value organizations can reap from Gen AI.

This is why organizations must take a smarter approach to procurement, digitizing their procurement processes from end to end, ensuring they have a 360-degree view of their supplier data in one place. With the right data foundation, organizations must then ensure Gen AI solutions are embedded seamlessly with existing procurement solutions and technologies.

Data privacy is also a key consideration, as firms must ensure prompts, inputs, and completions used in Gen AI models are not available to other customers or third parties. Data must not be used to train third-party models, or stored outside the organization’s instance of the technology.

If implemented correctly, Gen AI will be able to help procurement teams engage in a free-form discussion with users, search the internet, summarize documents, and respond to questions regarding their content -- for example, questions about a supplier ESG reports or contract document.

With the right data and right processes, procurement will be better placed to predict and manage risk, navigate uncertainty, and identify opportunities for future growth with assistance from Gen AI.  

Transforming Procurement Practices for the Future

Gen AI has enormous potential for revolutionizing procurement processes by automating content-related tasks and enabling strategic focus. But as the field continues to evolve, it is crucial for procurement professionals to stay informed and explore the possibilities offered by Gen AI. Those who fall behind will miss out on critical cost benefits, efficiency, and more accurate insights -- failing to match the offerings of their other more AI-savvy competitors.

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Vishal Patel is VP Product at Ivalua