Richard Waugh is Vice President of Corporate Development at Zycus. 30+ year industry veteran and strategic thought leader.
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Procurement is a vital and complex yet fragile function. Today, acquiring goods and services relies on a series of nodes and networks to function without—or despite—minimal interruptions. The past few years of infections, invasions and, more recently, inflation, have caused significant damage to the network and created a perfect storm of challenging conditions.
Organizations are currently in recovery mode, which requires that most or all internal resources are allocated to firefighting before focusing on more strategic pursuits like category management, supplier risk and performance or stakeholder engagement.
But recovery periods are brief, and procurement processes and technologies need to evolve to increase resiliency to external market forces. Consulting firm McKinsey projects a supply-chain shattering event will happen every 3.7 years, on average. Since the pandemic started approximately 2.5 years ago, the clock is ticking before the next potential catastrophe. Now is the time for CPOs to harden their processes and gird their teams for the next seismic shift.
Many CPOs are now exploring artificial intelligence to prepare their organizations for any future contingency. While many had eschewed becoming early AI adopters to this point, stressors such as the recent spate of supply chain shortages and inflationary pressures arising from the pandemic have caused CPOs to realize they can’t afford to ignore AI.
In fact, our recent market research study, “The Pulse of Procurement 2022,” found that 74% of procurement professionals now expect to be equipped with AI-led technology solutions within the next 12 months.
Here are several use cases in which CPOs can use AI to help solve procurement challenges.
1. P2P Processes: Turning Purchase Orders And Invoices “Touchless”
Processing procure-to-pay (P2P) transactions—mainly requisitions, purchase orders (POs) and invoices—consume a disproportionate share of already constrained full-time-equivalent (FTE) resources without adding significant business value. According to a recent Center for Advanced Procurement Strategy (CAPS) report, companies utilizing AI spend less on processing and require 53% fewer transactional FTEs than companies without AI.
AI enables P2P transaction processing resources to be reallocated to more strategic pursuits by making these activities either “low touch” or “no touch.” For instance, AI can triage an accounts payable inbox to understand the intent of inbound supplier emails and suggest appropriate email responses. It can also extract attached invoices from the email message and automatically populate electronic invoices with both header and line-level content, all without human intervention.
For requisition and PO processing, especially in the case of non-catalog requisitions, AI can alleviate time-consuming, manual buyer tasks of validating the requisition to ensure it is properly approved and coded. It can review the requirements to ensure the proper product and supplier have been selected based on past purchases and match price quotes and statements of work with relevant contracts.
By utilizing AI to perform these routine yet important checks (and flag anomalies), you can allow the majority of “AI-audited” requisitions to flow through as “touchless” transactions while managing by exception the relatively few that deviate from the norm.
2. Contract Analytics: Getting What You Pay For
Organizations typically deal with an extraordinary amount of contracts—an infinite amount of pages that are difficult to comb through. Procurement professionals can use AI to ensure they are getting what they signed up for and mitigate any inherent risks.
Robert Handfield, professor of supply chain management at North Carolina State University and coauthor of Cognitive Procurement: Discover How to Embark on Your AI Journey, explains it this way: “Cognitive computing enabled with AI affords the capacity and capability to be able to rapidly scan contracts using specific queries and keywords to help understand exposure, limitations, best practices, and other insights.”
In fact, Gartner has predicted that by 2024, the current amount of manual effort for contract review will be reduced by 50%.
3. Supplier Risk Management: Know Your Supplier
In a world where data is generated at an unprecedented rate, it is becoming increasingly difficult for procurement teams to accurately assess supplier risk. An estimated 80% of supplier-related data is unstructured or “dark data.” Supplier managers can use AI to aggregate and analyze data from a wide range of sources—both structured and unstructured.
Handfield explains: “These [semiautonomous] processes will draw on supplier rating systems, meeting notes, customer input, social media, legal filings, news feeds, employee and customer data, economic indicators, weather data, and multiple forms of data that can be mined to provide alerts that trigger procurement actions and supplier management activities.”
The Verdict
According to Gartner, nearly 45% of organizations have either already implemented AI in their procurement processes or are looking to elevate/pilot further augmentations associated with AI.
It’s OK if you weren’t an early adopter, but don’t be a laggard! With the above use cases, you can embrace cognitive procurement, enjoy the benefits of AI-led solutions, and take your procurement to the next level.
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