Artificial intelligence is helping procurement professionals better evaluate supplier credentials, predict potentially disruptive events, and impose tighter spending controls.
What role does artificial intelligence (AI) play in the supply chain?
According Deloitte Global Procurement Directors Survey 2023AI-based supplier management is the major focus of procurement functions.
This involves using natural language processing (NLP) and artificial intelligence to access and interpret information about suppliers, contract performance levels, risk and compliance and other metrics such as environmental, social and governance (ESG) credentials. Machine learning can then use this to identify trends and patterns, offering the ability to start predicting likely scenarios before they happen.
The survey suggests that between 80 and 85 percent of companies are looking to improve their supplier relationship management capabilities through AI.
How can AI help with supplier insights?
According to the Deloitte survey, 75 percent of leading procurement organizations already use some form of supplier risk scoring in sourcing processes.
AI can provide real-time insights into the financial health of suppliers using openly available information from credit rating agencies and other information sources. News on social media can also indicate that all is not well; An increase in comments or posts about late payments could indicate that a company is struggling.
AI could also measure the broader performance of suppliers, using big data and NLP to scour social media and the internet and track information produced about a particular organization. This is likely to form part of due diligence procedures in the future, helping companies make more informed decisions. It could also cause them to make greater use of smaller organizations, highlighting companies with strong performance to buyers who might not otherwise have heard of them.
Amazon 2024 State of Procurement Data Report suggests a strong desire on the procurement side to make more use of such capabilities. While less than half (47 percent) are currently implementing AI-powered purchasing decision optimization, nearly all (98 percent) are planning investments in analytics and insights tools, automation, and driven purchasing decision optimization. by AI in the coming years. .
How can AI help procurement better manage broader supply chain risk?
With more information available than ever, AI combined with big data and machine learning can help predict events before they happen. “Machine learning-based analytics can look for patterns much faster,” says Rajiv Bhatnagar, director of product and technology at Amazon Business. “Once you've detected a pattern, you can act.”
This could be related to weather patterns, identifying potential incidents that could disrupt vital trade routes weeks in advance. It could also be used to track raw material prices, highlighting where they are rising and are likely to filter into higher prices for manufactured items in the future. Deloitte's survey reveals that 25 percent of organizations are currently able to quickly identify supply chain issues “to a great extent,” and 63 percent “to some extent.”
For procurement, this could mean that it makes sense to buy items in bulk now or consider other strategies, such as entering into a fixed-price contract or hedging. It could also indicate where prices may fall, in which case it would make sense to postpone making contractual commitments.
Similarly, AI can identify patterns that suggest certain materials or commodities may be in short supply. Having this information ahead of time means that organizations can plan for this, reducing their reliance on a particular component or ingredient, or looking for alternative items as substitutes. This can help avoid a rush to adopt such products when the true situation becomes apparent, allowing acquisitions to avoid paying a premium.
Internally, AI can detect unusual activity, such as large orders or requests to change invoice details or delivery addresses, which can help detect and reduce exposure to fraud. amazon business It already allows organizations to set parameters around purchases, requiring the use of certain suppliers or imposing spending limits.
How else can AI help procurement professionals?
AI can also help procurement in several other ways, including helping to identify what the organization needs to buy and when. Using historical data and predictive analytics, AI can help ensure businesses have what they need when they need it and aren't paying excessive prices.
Reducing unauthorized spending is another way data and analytics, supported by AI, can help in procurement. By allowing staff to quickly identify the products they need that meet company criteria, using AI/ML through systems such as amazon business helps reduce the need and potential for such contrarian spending. “It helps companies align their decisions with company goals, react to changes quickly, and ensure that a company has the right products at the right time,” Bhatnagar says.
AI can generate much more powerful management information, extracting and interpreting data and trends from internal accounting or procurement systems. This means that those working in procurement can provide finance teams or their board with a greater understanding of what is being spent and expected future costs, and can also help visualize alternative scenarios should a course of action be taken. particular. Those in procurement can use such information to ensure they continue to operate as efficiently as possible, consolidating suppliers and negotiating volume discounts where necessary.
AI can also be used to extract information from invoices and automate staff workflows. This can generate significant time savings and free up staff to focus on other, higher value-added activities. In turn, this can make the role more attractive as a career and help reduce pressure on existing teams. “By using analytics, employees feel more productive and know they are adding more value to their work,” says Bhatnagar.
To learn more about how Amazon Business can help your business reduce risk by using AI and ML, Click here.
