Top 10 Uses of AI in Procurement
Artificial intelligence has become one of the biggest trending topics of 2023, highlighted by ChatGPT. With investments in AI expected to reach $200 billion by the end of 2025 (Goldman Sachs), the world is racing to capitalize on the opportunities AI can provide.
In a "Top 10" list published in Procurement Magazine, Georgia Wilson looks at some of the best uses of AI for procurement professionals.
Spend classification
One of the first use cases of AI in procurement. Industry leaders are leveraging AI to improve accuracy by automating the classification process. Using AI, organizations can better process and categorize millions of unique transactions, reduce spend analysis cycle time, and connect disparate spend data into a single hierarchy. Those using AI in spend classification report a 97% accuracy rate in their classification data. This technology, which increases classification precision, adds value to organizations.
Simplifying and controlling invoice data processing
A well-known use of AI in the procurement field is invoice data. Professionals use AI technology to extract invoice data, streamline and automate processes, control workflows, and validate data. AI is often integrated into existing systems and used in conjunction with natural language processing (NLP). AI-based invoicing also makes the traditional accounts payable (AP) workflow efficient and automated, eliminating error-prone manual processes. The use of AI in invoice data has begun to be adopted by large companies in Türkiye. These solutions can save time and money and prevent incorrect payments. While use is limited among SMEs, this technology is expected to become widespread in the coming years.
Extracting Contract Data
Similar to invoice data, AI is also used in contract data extraction. Organizations can obtain important insights by processing numerous contracts thanks to AI. Organizations using natural language processing (NLP) can not only improve compliance and risk assessment but also identify areas requiring review. The use of AI allows teams to process contract data fields such as preferential terms, conflicting commitments, performance thresholds, expense alignment, and the enforceability of the supplier relationship within the contract framework, contributing to the creation of a more strategic supplier relationship. By automating manual data extraction processes in contracts, AI helps procurement professionals analyze contracts faster and more accurately and make better purchasing decisions.
Automated Compliance
The core function of procurement teams is to create value and support the broader objectives of the business and its stakeholders. Compliance is central to achieving this. Therefore, automated compliance solutions are becoming increasingly important, helping procurement professionals follow approved processes for both procurement and supplier engagement. As the complexity of procurement processes and regulations increases, automated compliance solutions become increasingly important. These solutions help procurement professionals streamline their workflows by ensuring adherence to approved processes for both procurement activities and supplier engagement. This not only reduces the risk of errors and delays, but also frees up valuable time for procurement professionals to focus on strategic initiatives and build stronger relationships with suppliers.
Global Distribution of Supply Sources
A multinational organization may have a supply chain of 10,000 or more suppliers, and the transactions and information of this large group create a mountain of data. Organizations leveraging AI can explore high-level sourcing strategies to identify shifts in global supply trends, gain insights into future trends, and thus inform broader sourcing strategies.
Anomaly Detection
By applying AI technology to data management, procurement departments can increase visibility into anomalies. Immediate notification of such anomalies and exceptions, along with recommendations on how to resolve them, is a game-changer. AI can also be used for scenario planning, providing end-to-end visibility to procurement leaders.
Accounts Payable (AP) Automation
Accounts Payable (AP) automation streamlines and strengthens routine vendor invoice activities, enabling procurement leaders to It enables safer, more efficient, and more cost-effective operations. AI enables a holistic, end-to-end payment process encompassing everything from data capture to accounting systems. Procurement leaders also benefit from optimizing supplier portfolios, reducing duplication and errors, mitigating fraud risk, and leveraging early payment discounts.
Contract Lifecycle Management
Artificial intelligence, which supports the creation and negotiation of contracts, is being used to help identify risk areas in contract language. Such solutions help improve cycle times and streamline the management process through the use of standardization, automated drafting, and workflow management.
Strategic Procurement
As an industry undergoing radical change, procurement must operate with strategic thinking to succeed. By applying AI to its operations, procurement can collect, analyze, and present large volumes of data. This facilitates strategic decision-making, as team members benefit from trend forecasting and proactive decision-making skills. Other benefits in this area include increased performance, significant improvements in internal efficiency, and reduced time to market due to a better understanding of markets and their associated risks.
Supplier Risk Management
AI is revolutionizing supplier risk management, providing real-time data analysis, predictive analytics, and enhanced visibility—all of which help procurement teams manage risk and smoothly run supply chain and purchasing operations. As in other use cases, AI aids proactive decision-making, identifying risk and helping monitor potential disruptions. As a result, organizations can reroute shipments, prevent delays, identify patterns, predict future risks, find alternative suppliers, and increase efficiency and improve decision-making.