AI for addressing the issues currently facing procurement divisions

AI procurement
May 16th, 2019
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The challenges that procurement professionals need to contend with in 2019 correspond to the radical changes sweeping corporate strategies. The issues are huge and clearly raising questions about how buyers contribute to the performance of the organisation's other business functions. An article on procurement leaders emphasizes the important role played by electronic processes and insists on the need to continue digitisation efforts, while shining light on the tremendous possibilities that artificial intelligence can bring in cutting the challenges down to a more manageable size…

The five challenges facing procurement divisions in 2019

  1. Continue achieving objectives despite the uncertainties clouding the economic environment. What with Brexit, trade wars and geopolitical tensions, organisations need a certain degree of agility to keep their procurement channels open.  

  2. Identify the best opportunities despite suppliers constantly reinventing themselves. Business models are changing ever faster, innovations are modifying how value is shared, and conglomerates are altering their scope of action: maintaining sustainable customer‑supplier relationships is sometimes fraught with difficulty.

  3. Take advantage of public spending cuts to increase bargaining power. The efforts that governments and local authorities are making to reduce spending are forcing traditional public sector suppliers to focus their attention on private enterprises, representing the ideal opportunity for buyers to diversify their procurement sources.

  4. Contribute to improving internal process performance. Since organisations are doing business in a marketplace featuring competitors from around the world, they need to streamline their processes and raise the agility bar. Procurement professionals need to contribute towards this effort in their area of responsibility.

  5. Ensure greater room for manoeuvre in trade. The key to winning a trade war is the quality of the company's direct purchases, but also the extent to which its indirect purchases are appropriate, which may simplify production, help minimise downtime and improve flows between different sites.

Digitising the procurement function: a solution to address the challenges

Incorporating digital technologies into procurement processes undeniably contributes to the organisation's business. Teams may be reluctant to take a critical look at practices, learn new tasks and share indicators, but results show that these strategies are a match for the challenges. Digitisation must continue to be one of the major objectives for procurement divisions. Countless solutions and applications are available to procurement professionals, all of which have the ability to make good on their promise of saving money. Creating value is a multi-faceted process.Of all the technologies that procurement divisions can use to successfully tackle their challenges, artificial intelligence (AI) rightfully takes centre stage.

Artificial intelligence applied to procurement: a new dimension

Spend analysis

Compared to the traditional approach of identifying the priority actions by spending category, by main supplier and by type of country, AI brings an additional layer of effectiveness. The possibility of collecting and processing a massive volume of purchasing data and subsequently comparing those data to the baselines for each category shines a new light on the opportunities for progress, such as identifying possibilities for centralising purchases with a single supplier, spotting instances where contracts are not implemented or pinpointing needs to streamline certain specifications.

Value analysis

Artificial intelligence ushers in a wealth of possibilities for combinations of components and suppliers. Based on specified requirements, AI can be used to test original procurement strategies. Whereas the company is used to sourcing its products from a single partner who delivers a solution comprising a series of subassemblies, it may gain a price or performance advantage by sourcing each subassembly from a specialised supplier. The opposite is true: a value analysis can help the organisation replace a single partner with a series of small suppliers, such as to improve its logistics performance.

Optimising procurement

Carrying out an in-depth analysis of procurement data can generate a wealth of other useful information, such as the times when you buy a given type of product or details of the logistics flows involved in your orders. By taking account of the actual usages, the untapped possibilities offered by your suppliers and all the variables available for analysis, artificial intelligence is capable of suggesting a potentially beneficial change to your practices.

Procurement divisions still face a major set of challenges in 2019. Continuing to digitise processes and integrate AI-based applications gives procurement leaders a greater chance of resolving the problem of streamlining supplier relations and overcoming the issues relating to service operation.