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Procurement Approaches Gen AI with a Skeptical Eye

April 15, 2024
As generative artificial intelligence becomes more prevalent in the business world, procurement teams are well positioned to harness its power.

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Chief procurement officers (CPOs) are skeptical of artificial intelligence’s power to change the way things have always been done in the procurement field, but that’s not throttling growth in the AI procurement market. In fact, ELINT Market Research says the global AI “intelligence procurement” market surpassed $63.4 billion last year.

“The dominance of the AI market results from the growing adoption and integration of AI technologies across industries and market sectors worldwide, influencing business operations and overall strategic outlook,” it says, noting that the proliferation of AI-driven solutions underscores a core strategic change in how businesses approach procurement and technology integration.

“As companies seek solutions to improve their efficiency, reduce the cost associated with various processes, and gain that competitive advantage,” ELINT adds, “the importance of AI software has become apparent.”

That may be so, but CPOs remain skeptical of AI’s influence on and involvement in their corner of the corporate world. According to a new McKinsey & Co., study, these C-level executives are keeping a particularly close eye on generative AI, or those deep learning models that can generate high-quality text, images and other content based on the data they were trained on.

Not Quite Sure

Right now, many CPOs are questioning the potential positive impacts of gen AI. The arguments range from overly niche functionality to concerns about the accuracy and security of using the large language models (LLMs) that underpin it. “More often, though, we hear skepticism about the start-up cost and initial duplication of existing work,” McKinsey says. 

In fact, 66% of CPOs surveyed in McKinsey’s latest CPO 100 survey believe gen AI is still years from generating substantive business results. For example, a key procurement use case is automating document creation to reduce manual work. Yet many CPOs believe that this type of content generation is not yet mature. 

“Gen AI is a great toy. It’s good to play with, but our day-to-day work remains unchanged,” a senior procurement executive of a Fortune 100 medtech company told McKinsey. Other companies are already leveraging gen AI’s power in their procurement departments. For instance, the consultancy says one of its clients developed an RFP engine, leveraging sanitized templates and cost drivers from more than 10,000 RFPs and their responses. 

“The technology replicated complex ‘best of best’ analyses in a fraction of the time,” McKinsey explains. “It also learned what drove winning bids and redesigned future RFPs for optimal bid structure and cost granularity. Finally, it predicted, and prevented, omissions and mistakes in the bids.”

To the untrained eye, gen AI applications in procurement may appear niche or gimmicky, McKinsey concludes. In reality, it says LLMs are trained across multiple knowledge domains, which allows them to handle broad, layered questions and draw implications that lead to good conclusions. 

“It is one of the key capabilities that procurement organizations need to evolve and strengthen,” the consultancy adds, “moving from a pure executing function to a strategic, business-leading function.”

Putting Gen AI to Work in Procurement

In How Generative AI will transform Sourcing and Procurement Operations, Deloitte discusses the impact of gen AI on the sourcing and procurement landscape. 

“Sourcing and procurement operations have historically been at the forefront of technological disruption. From leveraging advanced analytics for spend categorization to deploying conversational AI for guided buying, source-to-pay tools have continuously innovated to address process challenges,” Deloitte says. “However, many sourcing and procurement functions continue to struggle to optimize efficiency, manage risk, and manage costs (inflationary pressures in recent times).”

According to Deloitte’s 2023 Global Chief Procurement Officer survey, CPOs have continually invested in enhancing digital capabilities. Digital transformation remains the third priority over the next 12 months, it adds, with 80% of CPOs reporting it as their organization’s top priority. In assessing the various types of technology that make up a procurement team’s digital portfolio, Deloitte says gen AI can support teams on several different fronts.

For example, gen AI can be used in procurement compliance management to monitor procurement processes and identify potentially fraudulent activities or anomalies. It can also assist organizational governance by analyzing policy documents and reports and identifying areas of noncompliance to take corrective action. Finally, it can help buyers more efficiently identify, evaluate and select the most suitable suppliers based on the organization’s needs.

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About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.