Gartner recently published a report discussing the big changes being wrought by artificial intelligence (AI) for procurement. The analysis begins with some intriguing data points:
- By 2026, virtual assistants and chatbots will be used by 20% of organizations to handle internal and supplier interactions, and by 2027, 50% of organizations will support supplier contract negotiations with AI-enabled tools.
- Data literacy and technology skills will be equally as important as social and creative skills (that is “soft skills”) for procurement staff.
- By 2027, 40% of sourcing events will be executed by nonprocurement staff.
- By 2029, 80% of human decisions will be augmented—not replaced—by generative AI (GenAI), as humans will maintain their comparative advantages in ingenuity, creativity, and knowledge.
One of the reasons for the forecasted rapid adoption of AI is that the technology seems to respond to a key pressure point on procurement as a function: the lack of staff or staff with the right skills and experience. Staffing concerns are driving procurement organizations to increasingly lean on digital technologies, especially AI and automation, to help. Let’s explore Gartner's argument.
Substantial increase in interest
Thanks to the advancements in the technology skills of procurement professionals and decision support software, there has been a remarkable 17-fold increase in interest in AI applications for procurement in 2023 compared to 2022. Gartner's team anticipates a substantial surge in AI pilot initiatives in 2024. It also sees this as a trend expected to establish widespread acceptance and utilization of AI in procurement in the years ahead.
In particular, the application of GenAI is expected to expand throughout the entire procurement process—presenting opportunities to enhance both the speed and efficiency of operations within the department. For example, autonomous sourcing solutions driven by AI are progressively becoming more adept at handling responsibilities and decision-making that traditionally demanded the expertise of seasoned sourcing professionals.
This expansion enables organizations to streamline sourcing events effectively, transforming them into a more accessible process. Consequently, individuals outside the professional sourcing realm, such as those in the line of business, can now define requirements, pinpoint supplier sources, and initiate and manage sourcing events. In essence, sourcing is evolving into a skill rather than merely a function.
As outlined by Gartner, failing to adopt AI technologies in procurement may place organizations at a significant competitive disadvantage in terms of cost efficiency and agility compared to their peers. To avoid falling behind, the analyst firm is advising procurement leaders to wholeheartedly embrace transformative technologies that will promote and cultivate collaborative relationships with suppliers.
Making AI your servant, not your master
To be clear, procurement professionals will remain pivotal decision-makers. While human decisions will be enhanced by GenAI, humans will continue to make a vital contribution via their knowledge, creativity, and insight.
The unique contribution of GenAI is its ability to generate fresh content, complete missing information, and formulate sample outcomes or scenarios. This capability will play a supporting role in strategic decision-making, augmenting the human decision-making process. Procurement organizations, for example, will want to use virtual agents to automate repetitive tasks, such as purchase request (PR) approvals, internal and external communication, and supplier approvals, enabling human teams to focus on other areas.
To make this work, procurement staff will need to adapt as technology changes the nature of their work, and companies will need to make attracting top talent a priority. Certain skills will be at a premium as AI becomes more prevalent in everyday operations.
This “future-proofing” of skills needs to occur along two axes. One axis is technical. The cornerstone of all AI models is high-quality data and that means organizations need to foster proficiency in data literacy. The ability to identify pivotal data elements influencing decision-making becomes paramount in unleashing the complete potential of technology investments. This ensures that AI incorporates the most relevant data for its intended purposes.
However, the human element will also remain crucial, and this is the second axis. The creativity of procurement staff will be even more highly valued than it is today, given that AI's limitations lie in comprehending problems lacking sufficient data or precedent. Here, skills such as critical thinking will be essential. It will also be important to make connections with internal and external stakeholders. As a result, the ability to make effective presentations and secure stakeholder engagement are also expected to be in high demand. Companies need to think long-term when it comes to professional development and prepare for a future when these capabilities will be essential.
As another analyst firm, McKinsey, has said, it’s the procurement leaders capable of demonstrating quantifiable and long-term value to the enterprise who will become strategic partners to the C-suite.
Moving the needle in procurement
While these predictions are close at hand, they can sound future tense. Yet leading global companies, like adidas, BT, Tesco, and Santander Bank, are already using AI to maximize returns on billions of dollars of spend via autonomous sourcing.
For example, telecommunications company BT is using an autonomous sourcing platform to manage two-thirds of the organization’s £13 billion annual indirect spend—a percentage that BT wants to increase over time to 100%. Buyers have so far put more than 1,000 projects through the platform, automating admin-heavy tasks and cutting go-to-market time for project delivery that made a difference in overall performance. The platform supports various sourcing scenarios, including requests for proposal (RFP), requests for information (RFI), requests for quote (RFQ), sole source, delivery of staffing, supplier panels, and more. It also enables the creation and customization of requirements and the collection of supplier responses in different formats. Consequently, BT reports that autonomous sourcing allows nonprocurement team members to effortlessly initiate a request “with one sentence.”
Clearly, procurement leaders should make plans now to leverage the full power of procurement AI and GenAI. As Gartner recommends, organizations need to start by:
- Building a roadmap that shows the technologies organizations need in key areas such as collaboration, negotiation, and sourcing;
- Exploring which types of work can be commoditized; and
- Looking very carefully at AI procurement vendor offerings—including their research and development (R&D) spend and focus.
But whatever you do, don't delay. CPOs need to start working with CFOs to introduce AI-powered sourcing quickly and secure the results the organization needs to meet the challenges of an uncertain global economy.
Why? Because this AI future is here today. As committed autonomous sourcing user BT has said, “We’re not thinking about if GenAI could help us. Instead, we’re doing it—and across billions of pounds of spend.”
