Leveraging AI in Procurement & Purchasing Management

Be it cost reduction, avoiding unplanned expenses, efficient use of capital and most importantly risk mitigation, AI can help get a lot more from procurement and purchasing management.

Product Design & Application | 09/18/2019 UTC
Blog Hashbrown

Today there are very few areas of application, especially in the realm of business management, where AI cannot make an impact. The analysis power provided by AI, combined with the conceptualization and derivative skills of humans can uncover tremendous insights across all business verticals.  

Procurement or purchasing management whichever way it is called inside an organization can be helped immensely by the analysis prowess of AI. Be it presenting opportunities in cost reduction, avoiding unplanned expenses, efficient use of capital- both human or otherwise and most importantly the often-ignored risk mitigation, AI can help get a lot more from procurement and purchasing management.

 

Challenges of procurement in businesses

A cursory look at what procurement comprises of in today’s organizations reveals activities like keeping track of transactions, inventory records, contract terms and rates, inventory turnover, warehouse utilization, stock-outs, fulfillment rates, market information, etc. All the massive data generated in the above activities is seemingly mundane and unconnected. As such it is looked at as historical data of record and not something that can generate any business value.

Finance departments, of which most procurement teams are part of are facing challenges in finding new opportunities of expenditure reduction, manual data handling, ensuring compliance of contracts by procurement partners and exposure to unnecessary risk, apart from that of making sense of the enormous data generated.

 

Leveraging AI in purchasing & procurement

AI can analyze millions of data points from siloed enterprise functions and disparate data sources both internal and external, to reveal patterns, correlations and anomalies to give valuable insights to business leaders. AI helps procurement advance beyond spend analytics by giving an enterprise-wide view, especially for mid and long-tail spend which help in making long term strategic decisions on savings, investment and driving long term efficiencies.

AI creates new opportunities to reduce spend and streamline operations by providing full visibility into recurring spends, flag transaction outliers like duplicate transactions, potential fraud and invoicing errors to ensure legitimacy of expenses, rate and recommend suppliers with significant spend growth etc. By automating manual data entry, categorization and normalization, AI reduces operational costs significantly.  

In addition, AI can also improve the outcome of supplier negotiations. AI can help contract managers and legal teams to enter supplier negotiations at the right time, fully prepared with all the relevant data like identifying opportunities for re-negotiating renewals before the supplier’s fiscal year ends, aggregation of all supplier spends under one contract to assure best pricing and volume discounts, and trigger proactive renewal negotiations. This will help the procurement team in taking a stronger negotiating position.

AI simplifies risk identification and in proactive mitigation. Procurement teams generate reports on risk to find suspicious spends, anomalies, fraud and irregularities on an ad-hoc basis. AI automates this report generation and brings in accuracies. AI triggers alerts for risky transactions round-the-clock so that executives can identify business risks before they become a problem.

 

Conclusion

Thus, by connecting data from disparate enterprise systems, external sources like industry data, historical and customer satisfaction data, AI can elevate the role of procurement in businesses to make it a powerful strategic asset.

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