Technology inherently advances technology. This is a concept that results in an exponential growth in technological advancement and invention as more advanced technology becomes widely and readily available. In other words, the era of the internet and the computer brought an abundance of change to the technological landscape; and the same is happening again with artificial intelligence (AI). AI is changing sourcing and procurement alongside a multitude of other industries and markets.
Artificial intelligence has actually been around a lot longer than recent inventions like Alexa and Siri would have you believe. The true invention of AI dates back to the 1950s. Followed by a couple of decades of basic models, but the very first driverless car was invented in 1986. Fast forward another 30 years to 2011 and IBM created Watson, a powerful and independent AI to compete on Jeopardy, and win (don’t worry, the money was donated to charity).
Needless to say, AI has already been a massive game-changer, and the opportunities seem boundless at this point. Which is great, but – how does this all tie into procurement? AI is changing sourcing through integrated technology and advanced computer networks, ultimately leading to a myriad of benefits for your business as a whole.
AI In Sourcing and Procurement
One thing that should be clear is that artificial intelligence is very powerful and is likely here to stay. The integration of AI into more and more fields of work and industries is inevitable. Understanding how artificial intelligence plays into the landscape of your procurement team and strategic sourcing will prove extremely beneficial as AI and additional technologies continue to advance.
Data Analysis
Artificial intelligence is changing sourcing, in part, with the power of data and expenditure analysis. One of the main functions of AI technologies in the procurement world is streamlining the collection, cleansing, and classifying of expenditure data which then provides deeper insight into the costs and spending habits of the organization.
This data can be used to make informed decisions about contracts, purchasing cycles, and a wide variety of other procurement-related activities. This allows procurement teams the ability to minimize excessive costs and weed out contracts with uncompetitive payment terms, duplicate suppliers, and bad purchases, all of which can be significant in terms of excessive spending.
Utilizing AI to break this data down saves time and man-power, while also contributing true-value to the organization, procurement, and management teams.
Reducing One-Off Purchases
Another common goal in procurement is to reduce one-off purchases. AI is, by nature, able to process a high volume of transactions with minimal errors. This means reducing mistakes that uncommon procurement options might normally cause. However, when handled by AI, the procurement stream isn’t interrupted because of a seldom-used supplier or sourcing out of the country.
Minimizing the errors related to the procurement cycle in this way cuts the overall cost of procurement processes throughout the entire year.
Supplier Risk Management
Artificial intelligence, in the realm of procurement, is going to likely be more of a computer program or procurement software, than it is a robot or talking neural network. As such, one pillar of the AI in procurement is, by necessity, supplier risk management. Artificial intelligence can more quickly and accurately identify a sudden-change with a supplier or vendor and then accurately assess the increase or decrease of risk that change brings.
This is a massive upgrade, as the AI system in procurement will very likely assist your procurement team in weeding out high-risk suppliers. The continuing partnership with high-risk vendors and suppliers can lead to significant losses and extremely high-costs. Simply, they aren’t worth keeping in your pipeline. AI sees beyond the surface and can conduct risk analysis much more quickly than a human being – making it an integral aspect of your e-sourcing strategy.
Inventory Management
Not only will AI assist in your procurement team’s ability to reduce costs and weed out bad contracts, but artificial intelligence is also used in procurement for inventory management purposes. After all, the goods and services sourced need someplace to be delivered.
Artificial intelligence will help your company in identifying the best inventory practices for your business specifically, while also optimizing the storage space available.
Wrapping Up
Artificial intelligence is changing sourcing. There’s no getting around that. Since its first true model was invented in 1955 to the wild capabilities, we see AI performing today – it’s only a matter of time before artificial intelligence is being used in every industry. Procurement and sourcing methods are already seeing benefits and improvement from the integrated use of artificial intelligence.
From minimizing excessive cost in the procurement cycle to running data analysis on spending habits and purchase cycles, all the way to seeing risk in suppliers and vendors in real-time. Artificial intelligence is changing sourcing in a myriad of ways and is quickly becoming an expected aspect of your procurement software system.
For more information on procurement software, information and knowledge, or how AI is changing sourcing, visit ProucrePort today.