AI in procurement – what it can (and can’t) help with

AI’s been making waves in all areas of business – and all kinds of software for business. And procurement is no different. But what exactly can it do? And what are the benefits for CFOs, finance teams, and the entire company? Let’s have a quick look.

The use case for AI in procurement

AI’s certainly been a buzzword in so many industries. But when you look closer, there are some really specific benefits behind using AI to automate processes, ultimately leading to saved resources (whether it’s time or money.) 

Here are some examples of what AI-based procurement software can help with:

1. Enhanced data analysis and insights

AI can process high volumes of data, so you don’t have to. In procurement, this can translate into deep insights from complex data sets, including historical purchase data, supplier performance metrics, and market trends. 

This, in turn, helps make data-driven decisions more confidently, predict future needs, and optimize inventory management. For example, AI-driven analytics can identify patterns and trends that might indicate a future increase in demand for a specific product. With that knowledge, businesses can prepare and negotiate better deals with suppliers.

2. Supplier management and optimization

Managing supplier relationships is key in procurement – we probably don’t have to tell you that. AI can help by analyzing supplier performance data to identify the most reliable and cost-effective partners. 

And because you can use it to monitor external factors such as economic shifts, it can also predict potential supply chain disruptions. This can be a huge help in risk mitigation and maintaining supply chain continuity.

3. Procurement process automation

It’s no secret that AI can automate repetitive and time-consuming tasks such as order processing, invoicing, and contract management. This reduces human error and frees up procurement teams to focus on more strategic tasks at hand. 

For example, AI-powered tools can automatically generate purchase orders based on predefined criteria, match invoices to orders, and flag any discrepancies for review. This means improved efficiency and accuracy in procurement operations – and possibly, across the entire company (because procurement never exists in a vacuum.)

4. Cost reduction and spend analysis

AI can perform detailed spend analysis and identify cost-saving opportunities based on spending patterns across different departments. It can also benchmark prices and terms against industry standards, helping procurement teams negotiate better deals with suppliers. 

Predictive analytics can also forecast future spending trends, helping businesses to budget more effectively and avoid unnecessary expenses.

5. Strategic sourcing and supplier diversity

AI can identify and evaluate a wider range of potential suppliers. It can scan and analyze supplier data for collaboration history, financial stability, compliance records, and sustainability practices. It can also evaluate supplier risks and recommend alternative suppliers.

All this helps build a more diverse and resilient supplier base, promoting innovation and ethical procurement practices.

6. Contract management and compliance

AI can easily extract key information from contracts, track important dates, and monitor compliance with contract terms. AI-powered tools can also alert procurement teams to any deviations or potential breaches. 

AI can’t make decisions for you (and that’s probably for the better)

But it can improve the decision-making process with predictive analytics, providing you with forecasts and insights that will help you make informed decisions about when to buy, how much to buy, and from whom to buy. And this can make a world of difference not just for procurement alone, but for more efficient company operations.