The Future of Procurement and Sourcing: The Effects of Artificial Intelligence in the Industry

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SIG University Certified Sourcing Professional (CSP) program graduate Lauren Redden shares an excellent essay on the power of AI to transform the smart sourcing industry, in balance with the potential risks that companies must evaluate in employing more intelligent automation into their processes.

One of the lessons that I found most interesting in the Certified Sourcing Professional Program through SIG University was in Week 4 regarding Artificial Intelligence (AI). The rapid advancements in AI have notably impacted various business functions, including procurement and sourcing. Businesses and organizations continue to strive to enhance efficiency, reduce costs, and gain a competitive edge, and AI technologies have begun to revolutionize the procurement landscape. In this paper, I will highlight the effects of AI on reporting, outsourcing, and contract management as we learned in the lessons. Additionally, I will examine the risks associated with adoption and the process to adapt it to existing procurement practices.

AI-powered technologies are set to revolutionize the reporting aspect of procurement and sourcing. With automated analytics and data processing capabilities, businesses can obtain valuable insights from large volumes of data. Often this data can be overwhelming and cumbersome to a human. AI algorithms can identify patterns, predict trends, and generate real-time reports in a much faster and more efficient manner. This can lead to more informed decision-making from business executives. An article by Forbes titled “Smart Sourcing: AI Can Amplify CPO-Led Human Intelligence” noted the idea of ‘Smart Sourcing’ which starts with tackling a huge volume of relevant data associated with every individual purchase. If approached correctly, this could deliver breakthrough performance in accountability and collaboration – “two fundamental values of great sourcing performance."

AI is transforming the outsourcing landscape, which is undergoing an exciting revolution with cutting-edge technology. As we learned in the lessons, outsourcing has had a large effect on the global economy and overall cost savings. Organizations are now looking to utilize AI to remain competitive and enhance their services. In procurement, these advancements are being used to streamline supplier evaluation, selection, and management processes. Intelligent algorithms can analyze supplier profiles, performance data, and market trends to identify the most suitable vendors for a business’s specific requirements. Overall, the impact of business outsourcing is leading to cost optimization, improved efficiencies, enhanced customer service, and data analysis

Contract management is a critical aspect of procurement, and AI has the potential to transform this area. It has been estimated that inefficient contracting may cause firms to lose between 5% to 40% of value on a given deal, per the Harvard Business Review. AI-powered contract management systems can bring back some of that value by allowing companies to review contracts quicker, organize and locate large amounts of contract data easier, decrease the potential for contract disputes, and increase the volume of contracts it is able to execute.

While the adoption of AI in procurement brings numerous benefits, it also presents certain risks. One significant risk is confidentiality and privacy considerations. In my experience in financial services, security, and privacy laws are being regulated more every year. Organizations must ensure that the proper security measures are taken so that confidential information (such as PII) remains secure from malicious hackers. Additionally, with data collection practices, companies should consider any privacy concerns and adhere to data protection regulations to mitigate these risks effectively when deploying AI solutions4. 

I was interested in understanding how companies can successfully adapt AI to existing procurement processes since change management can be a challenge. The company Simfoni provides procurement automation products, and I have personally used their EC Sourcing tool to run bids. They have highlighted methods for implementing AI best practices in procurement:

  • Assess organizational readiness and start with the simplest tasks
  • Extract as much high-quality data as possible
  • Collaborate with technology vendors and subject matter experts to develop and deploy AI solutions – avoid giving complicated or unclear tasks
  • Develop a change management plan to ensure smooth adoption and address employee concerns
  • Leave room for human input 
  • Continuously monitor and evaluate performance 

In conclusion, AI holds tremendous potential in transforming procurement and sourcing organizations. It will enhance reporting, outsourcing, and contract management by improving efficiency, accuracy, and decision-making capabilities. However, organizations must be mindful of the risks associated with adoption, including privacy and data security concerns. By following a structured process, organizations can effectively adapt the technology to their procurement processes and gain a competitive edge in the marketplace. I look forward to using these methods as I move forward in my career.

The Certified Sourcing Professional (CSP) Program is a 10-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.

Lauren Redden, Procurement Manager, Exact Sciences

Lauren Redden, MBA, is a Sourcing & Procurement Professional with 14 years of procurement experience in the financial sector of Fortune 500 companies. She specializes in category management, strategic sourcing and procurement policies and procedures. She has a background in construction, with widespread knowledge of corporate real estate practices, including design standards, cost strategies and corporate sustainability. Lauren is a dynamic, goal-oriented business professional with 19 years of extensive contract review and negotiation experience for multiple million-dollar contracts. Lauren is also a Licensed Notary Public in the State of Florida.