The challenges faced by professional procurement personnel are more daunting than ever before. In recent years, supply chain disruptions and rising costs, which consumers are very familiar with, have had a significant impact on corporate procurement.

At the same time, procurement teams are not only expected to meet business needs but also to contribute to business growth and profitability, thus they are under increasing pressure.

The Deloitte 2023 Global Chief Procurement Officer Survey indicates that procurement teams are now being asked to address a broader range of corporate priorities. These measures include improving operational efficiency (74%), strengthening corporate social responsibility (72%), and increasing profit margins by reducing costs (71%).

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To meet these growing expectations, many procurement teams are turning to advanced analytics, artificial intelligence, and machine learning technologies to transform the way they make intelligent business purchasing decisions and create value for the organization.Artificial Intelligence Unlocks New Procurement Capabilities

Artificial intelligence (AI) and machine learning tools have long been assisting procurement teams in automating routine and manual procurement processes, allowing them to focus on more strategic matters.

However, Julie Scully, the software development director at Amazon Business, states that the latest advancements in natural language processing (NLP), pattern recognition, cognitive analysis, and large language models (LLM) "open up new opportunities for enhancing procurement efficiency and effectiveness."

The good news is that procurement teams are already well-prepared to leverage these technological advancements. They have access to rich data sources such as contracts and invoices, which enable AI and machine learning solutions. These solutions can illuminate the insights contained within this data.

Taking action based on these insights can unleash new capabilities that can enhance decision-making and improve spending patterns across the entire organization.Predicting Supply Chain Disruptions. In an era of constant supply chain disruptions, procurement teams often face material supply issues, which can have a negative impact on employee and customer experiences.

In fact, the Deloitte 2023 Global Chief Procurement Officer Survey found that only 25% of companies can "largely" detect supply disruptions in a timely manner.

Artificial intelligence tools can help address this issue. They can identify patterns indicating that supply shortages are imminent and automatically recommend two to three product alternatives to business buyers, thus preventing supply disruptions.

These predictive capabilities also enable procurement teams to formulate purchasing policies proactively, taking into account items that are more likely to be in short supply.

Rapid Response to Urgent Issues. For procurement personnel, sifting through data to understand the causes of supply chain disruptions, product defects, or other risks is very time-consuming.Scully said that chatbots supported by large language models can simplify these processes by understanding complex inquiries about orders and "coming up with decent answers."

"Artificial intelligence can query various sources to quickly and comprehensively answer questions in a natural and understandable way." In addition to providing fast and accurate answers to urgent questions, artificial intelligence will also reduce the need to explain procurement issues. Instead, it will proactively analyze orders, purchasing patterns, and current situations to provide immediate support.

Offer customized recommendations. As business buyers increasingly demand personalized experiences, procurement personnel are seeking customized interactive methods.

Scully gave an example of an employee who needs to host a holiday party for 150 employees and needs to decide what to purchase.

She said that for such a scenario, an AI-based procurement tool could generate a shopping cart, filtering "millions of data points, and recommending things to the employee that he might not have thought of at all."Even better, she added, "When we have truly large-scale language models, artificial intelligence and machine learning can understand your specific situation in more detail, helping to answer questions or assist in purchasing items you didn't even know you needed."

Impact on compliance spending. The goal for procurement personnel is to strike a balance between the freedom employees have to purchase what they need and minimal intervention. However, freedom should not come at the expense of proper expenditure management, productivity, and policy compliance.

Sculley said, "There is always a healthy tension between how a company ensures they have the right controls and oversight, while also enabling reasonable spending patterns."

Fortunately, she said, "Artificial intelligence can provide tremendous value" by alerting the procurement team to "anomalies" before any damage is done.

Sculley said that artificial intelligence can also help ensure compliance by enforcing spending policies and expectations, so that employees "can still confidently purchase the right goods."This capability can minimize the risk of overspending and also help companies fulfill their contractual obligations, such as meeting spending commitments to specific suppliers.

In the future, AI-driven anomaly detection triggers may even be used to inspect large datasets to identify non-compliant purchasing data.

Increase spending transparency. AI and analytical tools can provide greater transparency for overall procurement spending by automatically analyzing data and unlocking timely analysis.

These data-driven insights provide procurement personnel with a comprehensive view of where they allocate budgets and areas where they may be able to cut costs.

But increasing transparency in procurement spending can also enable organizations to respond to emerging business priorities, such as adopting more socially responsible procurement practices. Scully said: "Companies can prioritize local businesses or businesses with a lower carbon footprint."With a deeper understanding of their procurement models, organizations can guide business buyers towards climate-friendly products or suppliers that help achieve their environmental, social, and governance (ESG) goals.

Enhancing procurement productivity. Monitoring supplier performance, ensuring expenditure compliance, and identifying supply chain disruptions are all time-consuming activities that distract procurement personnel from focusing on more critical business objectives.

Sculley said: "If the procurement team is always mired in the quagmire of daily processes, they cannot think about the company's overall strategic objectives, whether they can achieve these goals, and what areas they might want to optimize."

By automating labor-intensive processes such as expenditure analysis, product selection, and order tracking, advanced procurement tools can allow procurement teams to focus on value-added activities.Best Practices for AI Procurement

Considering the many advantages of advanced analytics, artificial intelligence (AI), and machine learning solutions, procurement teams must take steps to ensure that these innovative tools are used to their best potential. The relevance of AI models depends on the training data they are fed.

Scully said that, for this reason, organizations need to be aware that "models may sometimes have blind spots, or may not immediately recognize when the business begins to shift its strategic focus." As organizational priorities evolve, the training data for the models must keep pace to reflect new business objectives and environments.

To make the most of their advanced technological tools, procurement teams should ensure that they support the company's overall procurement goals and business strategy. These goals may include working with a more diverse range of suppliers and purchasing more sustainable goods.

Regardless of the expected outcomes, the procurement function must link the use of new AI tools to the achievement of its business objectives and regularly assess the results.Advanced analytics, artificial intelligence, and machine learning unlock new procurement capabilities that can help businesses rethink how they approach procurement.

With the development of generative artificial intelligence and related technologies, complex procurement use cases may multiply, bringing significant financial and operational benefits to procurement teams.