The Future of AI in Procurement:
The transformative impact of generative AI
Generative artificial intelligence (AI) is revolutionizing the nature of work across almost every industry, around the globe. We see it in creative work, where large language and image AI models generate automated content. In manufacturing, generative AI augments human-based product design efforts, optimizing key processes, and improving quality control. It’s changing how healthcare is delivered, improving patient outcomes through better diagnosis and information sharing. We have experienced many such use cases as we built tech-enabled procurement organizations for our clients.
To deliver market-leading, AI-enabled solutions to our clients, Arroyo Strategy partnered with dSilo, a leading AI company – and as we collaborated with many of our clients to understand their future vision for AI, we decided to synthesize our findings to present our co-authored Insights series, “The Future of AI in Procurement”. In the first installment of this series, ‘The transformative impact of generative AI,’ we explore how game-changing AI can be to connecting strategic and tactical procurement processes while reducing manual activities significantly. We delve into the transformational potential of AI in procurement, and the unique traits making it a prime use case for AI adoption in our industry, to an extent that previously hasn’t been possible.
A function like no other
Procurement faces unique challenges in an organization. It sits at the junction between external suppliers and other internal functions, making it the lynchpin of an ecosystem that provides the goods and services an organization needs to be competitive. Externally, supplier engagement can vary from a simple buy transaction for a generic item to a complex multi-year relationship ladened with forecasts, exchange of engineering drawings, delivery schedules, post-delivery services, warranty claims, and end-of-life management. Internally, procurement must remain aligned with its organization’s short-term budget considerations and long-term planning needs.
Daily, procurement is managing a highly variable set of processes that are needed to meet the requirements of these multiple stakeholders. Inevitably, this wide range of responsibilities leads to a patchwork of systems as procurement professionals strive to satisfy their stakeholder requirements and meet goals of ongoing cost savings and manage risk and compliance.
If we think about current system landscape, almost every organization has implemented a foundational Procure-to-Pay (P2P) system, frequently driven by their enterprise resource planning (ERP) choice, and these have amounted to significant investments, especially with a shift to the cloud over the past decade. Typically, the P2P provider also offers a “suite” of procurement related modules, but these have often come through acquisitions and hence aren’t well-integrated into the suite, which leads to adding on “best-of-breed” solutions that satisfy needs but at the same time create a patchwork of information silos. Because they are often addressing niche needs, it doesn’t always make sense to integrate them with the foundation, or the ROI is insufficient for IT’s effort.
Bridging the gaps
Enter generative AI, which can help procurement address these challenges in two major ways.
It can close holes in the Swiss cheese patchwork of systems by enabling cost-efficient integration. For example, we have a customer that uses a P2P suite but is unable to reconcile legal invoices at a line-item level between the hourly rates charged on an invoice and the rate table agreed in the contract – especially where in the past, they had to conduct manual spot audits, which they tacitly acknowledged failed to pick up every error.
Today, that’s no longer the case. Our generative AI platform reconciles all line items to the contractual terms and flag discrepancies.
Additionally, generative AI can bridge gaps in payment terms – specifically any variances between contract, invoice, and system defaults. For example, generative AI can reconcile the three data points and notify accounts payable in real-time, eliminating the possibility of any early payments and helping manage free cash flow.
The generative AI platform can execute at scale. It’s not limited in capacity as a human is, although it can replicate the simple, repeatable steps a human would make. In another current client example, we have a case that spins off a business entity. The client needs to know which contracts have an Assignment Clause or equivalent, or Termination for Convenience.
These clauses are typically not captured in a Contract Lifecycle Management tool’s metadata field, and it’s unrealistic for someone to review all documents to find such clauses. Many of our clients have used a platform solution to ingest thousands of documents and using semantic search, have categorized and extracted these clauses into dashboards that can then be filtered by category or geography. Now, for example, the client’s IT Category Manager in Singapore can review the dashboards and identify which of “their” contracts don’t have the desired clauses, so they can act with the supplier. This would not be possible without generative AI enabling analysis at scale.
Deploying AI solutions
As procurement collectively continues the journey with AI, there are steps you can take to engage and maximize your outcomes.
Looking ahead
In the second installment of our “Future of AI in Procurement” Insights series, “Quick wins driven by the power of passive AI,” we explore passive AI and how, along with generative AI, it can enhance the P2P process through examining various use cases including spend analysis, strategic sourcing, contract management, and invoice processing.
