Artificial intelligence is a sophisticated technology distinguished by its unique ability to adapt behavior based on data specific to the system in which its operating. By introducing AI into procurement practices, organizations can streamline more complex processes that would otherwise require manual efforts. Not only will this ultimately reduce the risk of human error but will help to drive operational efficiency as well.
While AI can be identified as any software consisting of smart algorithms, there exist a variety of subsets underneath the broader definition. From Machine Learning (ML) to Natural Language Processing (NLP), all present a capacity to adapt behaviors based on distinct data-powered algorithms designed to imitate human intelligence. Valued at $20.7B in 2018, the AI market on a global scale is estimated to reach $202.6B by 2026.
The introduction of artificial intelligence has the power to advance the procurement process in numerous ways specifically procurement contract management by way of spending analysis, vendor matching and risk identification. Independent of AI solutions, these intricate processes would otherwise require an individual to comprehend, analyze and approve large data sets of information with acute attention to detail to avoid errors that could have detrimental consequences regardless of how slight.
So, what can AI do for procurement?
1. Eliminate Risk of Human Error and Increase Productivity
Since procurement involves tedious manual labor, there is a heightened risk of human error. With AI powered software programs that instead automate these practices, it reduces risk of discrepancy in addition to freeing up time to be used more productively.
2. Make Smarter Decisions
With the capacity to analyze millions of data points within a short period of time, AI powered tools can offer valuable insights to aid in procurement contract management. By extracting data to perform cost-benefit analysis, organizations can identify partnerships that are fiscally beneficial, associated with the least amount of risk and perform to industry standards when compared to competitor activity.
Companies can then apply these insights to identify and secure other opportunities that help to reduce capital, generate revenue and increase profit margins.
3. Supplier Management
With the help of AI-powered analytics in real time, companies can oversee supplier activity with the ability to discover any erroneous behavior including but not limited to duplicate transactions, questionable spending or anything that would be considered breach of contract. Equipped to alert companies if there is any detection of suspicious behavior, organizations can avoid any unwanted costs or frustrations that would have otherwise been overlooked.
4. Contract Management
Incorporating artificial intelligence throughout the procurement cycle can also help companies manage and assess relationships with current suppliers to ensure the partnership is adding value to the organization. By analyzing data including quantity, cost and other variables at both the micro and macro level, machine learning can help companies determine if it’s a partnership worth continuing at the time of renewal.
AI can also aid contract renegotiations by providing the necessary data to justify concessions earned by combining supplier spend under one contract or increasing overall spend to trigger a more substantial discount. And as the market grows, so will AI’s role in procurement contract management as analyzing data won’t be the only way it contributes to contract discussions. Just last year, a California based AI tech startup announced how its use of chatbots will actually handle contract negotiations including cost, deliverables as well as terms and conditions.
5. Smart Tools, Smarter Businesses
By leveraging AI-powered tools to improve operational proficiencies across the entire procurement cycle, organizations can make data informed decisions that benefit the company as a whole, while also fulfilling the needs of each individual department. From spend analysis and reduction, resourceful supplier management and increased productivity, teams can shift their focus from completing tedious tasks, to developing innovative solutions that drive value.
Intended to improve profits margins as much as it does productivity and operational efficiency, artificial intelligence continues to work harder so that companies can work smarter.