January 31, 2019

Getting to Work: Where AI Can Make a Difference

Where AI Can Make a Difference 600pixels

In this article, experts identify which steps in the procurement process are most likely to benefit from the AI revolution.

Data-driven decisions

One of the main uses for artificial intelligence in procurement is to meld internal and external data to provide enhanced supplier risk management.

“AI is fantastic at finding patterns and correlations,” says Marc Shrimpling, a partner at Osborne Clarke, an international legal practice headquartered in London. “Knowing the ‘normal’ pattern of something means that you can also spot anomalies.”

Data can drive decisions and inform choices – and beyond that, it can also identify more alarming trends.

“Advanced data analysis algorithms can be used to spot the risk of bid-rigging in response to a procurement tender,” Mr Shrimpling adds.

“Bid-rigging – a form of cartel – is illegal in most countries under competition law and can also be a criminal offence, including in the United Kingdom. The UK Competition and Markets Authority has worked with [data analysis firm] Spend Network to produce a ‘screening for cartels’ tool, which is free to download as open-source software.”

“It looks at the number and pattern of bidders, pricing patterns, the origins of tender documents and signs that ‘low endeavour’ has been used in creating the bid. Based on that review, it generates a suspicion score for the tender proposals,” he says.

Smarter sourcing

Nicholas Walden, a senior director at The Hackett Group, a business improvement leader for digital transformation, suggests there are two ways in which AI can be used for smarter sourcing in procurement.

He explains: “The first is the automation and increased speed to execute low-to-medium value and risk market opportunities. For example, AI-powered auction and negotiation bots. In future these will become more advanced and we expect to see bots on both sides of the buyer-seller relationship.”

“The second – and more important – use relates to AI-powered tools helping to rapidly collect, present and even analyse commodity, market, and supply intelligence to inform market strategies.”

“Early users report being able to react much faster regarding buying decisions, reducing time from weeks to days, as well as applying statistical analysis to recommend the number of suppliers to invite, the day of the week for best pricing, etc.”

Pick that low-hanging fruit

Enhanced data analysis will greatly assist when it comes to detecting low-hanging fruit, or the easy pickings for procurement organisations, such as rate dispersion and working capital optimisation.

“AI’s use of advanced analytics like probability, pattern and predictive analytics will bring capabilities to assess business transactions for opportunity prediction, identification and prevention capabilities,” says Mr Walden.

“Potential uses include identification and warning of early or late payment, missed discount opportunity, or excess ordering or inventory on hand.”

Mr Walden cites Microsoft as an example of a business using machine learning in procurement in three areas: “First, detection – for example, detecting similar orders or deals that can be consolidated. Then, forecasting – proactively predicting procurement actions through use of historic spend trends and asset information like refresh and predictive maintenance rates. Finally, personas – identifying different stakeholder groups and behaviours in order to create better engagement.”

Reduce risk

“Digitisation has also opened the door to totally new levels of supply-chain transparency,” says Marcell Vollmer, chief digital officer at procurement software provider SAP Ariba.

“This will help to ensure procurement is acting in ethically responsible ways that make the world a better place. For instance, by combining historical and real-time purchasing data with supplier intelligence and data analysis, based on external information – such as social media, news, etc – procurement can shine a light on the materials, regions, and industries that are most likely to have forced labour and take action to combat it.”

There are other benefits from using AI to open up the supply chain and improve transparency, Mr Vollmer says.

“Using business networks, organisations can connect with a wider pool of minority, woman, LGBT and veteran-owned businesses and enable global supply chains that are more diverse, responsible, sustainable and inclusive.”

This article was originally written by Oliver Pickup and featured in our recent report, The AI Revolution in Procurement, which you can download for free.

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