The use of intelligent automation has steadily grown in recent years. At this point, it seems inevitable that machine learning will continue to become a bigger and bigger part of business.
Now a new kind of artificial intelligence has caught everyone’s imagination: Generative AI or “Gen AI,” a technology that can generate text, code, speech, and even images based on what the application has been trained to create.
For procurement, such a tool offers opportunities that previous AI tools did not. Unlike past automation tools, such as robotic process automation and predictive analytics, which generally demanded structured data, Gen AI can be useful in handling complex and ambiguous situations that the procurement function tends to have in abundance.
Based on our research, we expect that the way you spend your day as a procurement professional will soon be very different than how you worked before:
- You receive 15 responses to a request for information. Instead of spending days copying and pasting, reading, paraphrasing, and comparing the responses, your Microsoft Copilot presents a table summarising their important differences in seconds, cross-checks those figures against different data sources and automatically drafts your clarification emails, and sends an enquiry to your legal or quality colleagues. Finally, imagine training an AI tool to understand your organisation’s context so it can assess supplier proposals without any human preconceptions, and give you an independent score?
- Your new procurement cockpit will give you instant visibility into sourcing activities across your 17 operating companies, drawing on 30+ ERP, e-sourcing, and spend analysis systems, giving you an instant understanding of your activity across suppliers. Imagine training your Gen AI procurement colleague to keep an eye on your trusted financial stability data sources, market intelligence partners, key commodity prices and global news publications to proactively notify you about your firm’s own leverage and opportunities?
- Imagine saving 90% of the time you spend going back and forth with your legal colleagues because your tool has already learned to draft text in a style that the lawyers might recognise as their own. (This timesaver is not that far away: the leading contract lifecycle management tools can already deliver detailed contract reviews and analysis at high speed, extract metadata from a large quantity of scanned contracts, and provide an audit trail of the contract negotiations with external parties.)
Native platform applications. Gen AI is being powered by broad platforms serving a variety of needs at scale. Examples include OpenAI’s GPT-4, and ChatGPT, Anthropic’s Claude 3, and Meta’s Llama 3. Organisations can integrate and build Gen AI solutions leveraging these platforms by directly working with the provider or through their preferred cloud infrastructure provider such as AWS or Microsoft Azure.
Procurement suites and point solutions. Most procurement-specific technology vendors are also planning on integrating and embedding intelligent automation and Gen AI into their tools. But be on your guard when discussing these new features with a vendor: these capabilities will help all the vendor’s clients in a similar way thereby providing very little competitive differentiation, a fact that should be taken into consideration when evaluating these solutions.
Domain-specific solutions. These Gen AI solutions, trained on specific industry data and language (such as that in contracts or regulations), enable you to address domain-specific use cases with greater accuracy and relevance.
While all three forms of Gen AI will be useful to procurement, we believe domain-specific solutions are likely to have the biggest impact. Having a digital assistant on tap that understands all the nuances of your industry’s vocabulary, your company’s business strategy, and its operational realities, is likely to be very helpful to over-stretched procurement professionals.
Notice that we said assistant, not replacement. That’s because although a lot of the coverage of Gen AI has focused on its potential to replace people, we believe CPOs will find it much more beneficial to use the technology to increase the amount of spend their teams can influence, the risks they can mitigate, and the value they can add. As good as these systems are going to be, they will be better working in partnership with an experienced procurement specialist freeing up time to become a trusted advisor to the business.
This is not to say that the procurement function won’t be changing. Far from it. In the next few years, we expect to see major changes in how procurement specialists work and where they focus their time.
Five next steps
For CPOs, succeeding in this transition will require a lot of preparation. Five steps in particular should help ensure that it proceeds relatively smoothly:
- Bust the myths. There is a lot of hype out there about Gen AI that is either incomplete or inaccurate. Vendors are making enormous promises that they have yet to deliver on. At the same time, as the examples above suggest, Gen AI has potential to be a real game changer. You need to educate and inform your executive team and level-set their expectations.
- Identify your biggest opportunities to add value with Gen AI. Talk to experts who can guide you through heat maps of where AI would generate the most value for you. Rank your priorities by value and ease of implementation.
- Mind the gaps. Review your data quality and availability, skills, governance, and infrastructure to ascertain your readiness. Most of all, make sure you have the talent on your team to understand your data streams and processes. Procurement teams aren’t going to be replaced by Gen AI tools, but they will need to learn how to prompt them and incorporate them into their processes.
- Study use cases that apply to your particular situation. Examine real life examples of use cases that have been implemented and learn the critical success factors from the early adopters.
- Start practicing now. Set your team to work on low-risk pilots using their new Gen AI tools as soon as you can, to give them experience and confidence, and to build momentum and enthusiasm for more change.
The bionic buyer
Far from being a technology that replaces procurement professionals, Gen AI will make you even more productive. As a machine learning solution, Gen AI will learn right alongside you, helping you manage your company’s spend with more intelligence than ever before, and sharing that knowledge with your entire enterprise and your partners.
Vicky Kavan is a Director of The Hackett Group‘s Sourcing and Procurement Executive Advisory team.
