The world of procurement has undergone a significant evolution over the years. From the days of manual processes and paper-based records, the function has embraced automation, digitalization, and strategic sourcing. However, a new wave of transformation is upon us – the era of Artificial Intelligence (AI). AI is poised to revolutionize procurement, ushering in a future of unparalleled efficiency, data-driven decision-making, and strategic agility. This impact is particularly significant for countries like India, where rapid industrial growth and digital adoption are the key drivers of economic prosperity.
AI: Transforming Supplier Selection
Traditionally, supplier selection has been a complex process involving a multitude of factors, from cost and quality to past performance and risk assessments. However, AI is changing the game. Machine learning algorithms can analyze vast amounts of supplier data, including historical purchase orders, performance metrics, and financial health indicators. This data analysis allows for a more nuanced and accurate evaluation, identifying the best-fit suppliers beyond just the lowest price tag.
As per a McKinsey report, these new-age tools can cut the time required to find the right suppliers by at least 90 percent. AI also plays a crucial role in mitigating bias in supplier selection. Traditional methods, which often rely on subjective criteria and past relationships, can be susceptible to human biases. AI-powered platforms, on the other hand, make decisions based on objective data analysis, ensuring a fair and transparent evaluation process.
Harnessing AI for Data-Driven Procurement
Within today’s intricate global landscape, traditional, intuition-based procurement strategies are proving inadequate. Artificial intelligence (AI) empowers procurement teams to leverage a data-driven approach, enabling them to make informed and strategic sourcing decisions.
AI tools and platforms can integrate data from various sources, including purchase orders, vendor performance dashboards, and market intelligence reports. These platforms utilize advanced analytics to generate actionable insights, enabling procurement teams to identify cost-saving opportunities, optimize contract terms, and make informed sourcing decisions. This data-driven approach fosters greater transparency, reduces maverick spending, and ensures procurement aligns with broader organizational goals.
Koch Industries, one of America’s largest privately-held MNCs, leverages AI to optimize its supplier base. The AI tool delves into granular data, right down to SKUs, to generate report cards about its existing suppliers. The company uses these reports to make better decisions about its supplier network.
Strategic Integration with Supply Chain Management
Gone are the days of siloed procurement operations. AI is fostering a new era of strategic integration within supply chains. By seamlessly integrating with existing ERP and SCM systems, AI tools can process vast amounts of data in real-time, providing a holistic view of the entire supply chain ecosystem.
This real-time data processing empowers procurement teams to improve supply chain visibility and coordination. AI can analyze historical data and identify patterns that could lead to potential disruptions. This allows for proactive intervention, such as securing alternative suppliers or implementing inventory buffers. AI can also optimize transportation routes and logistics planning, ensuring efficient delivery and minimizing costs.
Furthermore, AI is driving automation within supply chain operations. Automated tasks such as purchase order processing, invoice reconciliation, and vendor communication free up valuable time for procurement professionals, allowing them to focus on more strategic initiatives.
Risk Management and Predictive Analytics
The ever-evolving global landscape exposes supply chains to numerous risks, including natural disasters, geopolitical instability, and commodity price fluctuations. AI serves as an indispensable partner in managing these risks, enabling proactive mitigation strategies.
AI models can analyze historical data and identify patterns that might indicate potential disruptions. These models can predict upcoming events, such as raw material shortages or supplier factory shutdowns, allowing procurement teams to take preventive measures. For instance, AI can analyze weather patterns and predict potential disruptions caused by extreme weather events, enabling companies to secure alternative suppliers or expedite shipments in advance.
AI also facilitates predictive analytics, allowing procurement professionals to forecast market trends and adjust their sourcing strategies accordingly. By analyzing market data and consumer behavior patterns, AI can predict future demand fluctuations. This foresight allows procurement teams to optimize inventory levels, avoid stockouts, and secure the best possible deals with suppliers.
Enhancing Supply Chain Resilience
Downtime in a supply chain can be catastrophic, leading to lost revenue and a tarnished brand reputation. AI can play a crucial role in enhancing supply chain resilience and minimizing downtime. By analyzing large datasets, AI can identify potential issues before they escalate into major disruptions. AI models have displayed an impressive 92% accuracy rate in predicting equipment failures.
AI systems work by analyzing sensor data from the equipment in real-time, detecting anomalies that could signal impending breakdowns. This allows for preventive maintenance, minimizing downtime and ensuring smooth production flow.
Revolutionizing Stakeholder Relationships and Negotiations
Procurement is not just about sourcing goods and services; it’s also about building strong relationships with stakeholders, including suppliers and internal departments. AI is transforming the way procurement teams interact with stakeholders, facilitating better communication and more effective negotiations.
Advanced data analytics and pattern recognition capabilities of AI tools can help procurement professionals understand stakeholder behavior and preferences. By analyzing past negotiation data, AI can identify patterns that reveal a supplier’s willingness to compromise or their preferred negotiation styles. This knowledge empowers procurement teams to tailor their negotiation strategies, leading to better terms and stronger partnerships.
Walmart has already been using an AI software to automate negotiations. The retail giant uses it to negotiate with its ‘tail-end’ suppliers in its network of over 100,000 total suppliers. As per Michael DeWitt, Vice President Strategic Sourcing, Walmart International, “The technology enables us to reach suppliers that without AI we simply would not have bandwidth for.”
The State of AI in India
India’s procurement landscape is ripe for AI transformation. With rapid industrial growth and a growing focus on digitalization, Indian businesses are actively seeking ways to optimize procurement processes and gain a competitive edge. However, implementing AI in procurement also presents certain challenges.
One key challenge is the availability of skilled personnel with expertise in both procurement and AI technologies. Bridging this skill gap is crucial for successful AI adoption. The quality and accessibility of data also remains a concern. Indian businesses need to invest in robust data collection and management systems to ensure the effectiveness of AI-powered procurement solutions.
Nevertheless, the future of procurement in India remains undoubtedly intertwined with AI. Best practices from global companies like Unilever are also trickling down to their Indian counterparts, HUL in this case, that are leading India’s charge towards AI integration in procurement.
Conclusion
AI is transforming the way businesses source goods and services, fostering a data-driven approach, and enabling strategic decision-making. From supplier selection and risk management to negotiation strategies and supply chain optimization, AI empowers procurement teams to navigate the complexities of the global marketplace with greater agility and efficiency.
Businesses that embrace AI and strategically integrate it into their procurement processes will be best positioned to thrive in the ever-evolving economic landscape. By embracing AI and unlocking its transformative potential, companies can propel their procurement function towards a new era of efficiency and success.
The article has been written by Jigyasa Kishore, Vice President Enterprise Sales and Solutions, Moglix
