Can AI enhance Procurement’s ability to manage supply chain risk?

What is the role of AI in the supply chain?

Artificial intelligence is being used more and more by procurement experts in assessing supplier credentials more effectively, forecasting potentially disruptive events, and implementing more stringent spending controls.

Deloitte’s 2023 Global Chief Procurement Officer survey highlights that the primary focus for procurement functions is AI-enabled supplier management.

This entails leveraging natural language processing (NLP) and AI to retrieve and analyze data on suppliers, contract performance, risk and compliance, as well as metrics like environmental, social, and governance (ESG) credentials. Machine learning can then utilize this data to detect trends and patterns, potentially predicting future scenarios.

The survey indicates that approximately 80 to 85 percent of companies aim to improve their supplier relationship management capabilities through AI.

In what ways could AI contribute to managing supplier information?

The Deloitte survey revealed that 75 percent of leading procurement organizations currently integrate some form of supplier risk scoring into their sourcing processes.

AI facilitates the provision of real-time insights into the financial well-being of suppliers by accessing openly available data from credit rating agencies and various other sources. Additionally, social media activity can serve as an indicator of potential issues; for instance, a surge in comments or posts regarding delayed payments might suggest financial strain within a company.

Moreover, AI has the capability to evaluate broader supplier performance by leveraging big data and natural language processing (NLP) to monitor online sources, including social media, for information pertaining to specific organizations. This aspect is likely to become an integral part of due diligence procedures, empowering businesses to make more informed decisions. Furthermore, it could lead to increased utilization of smaller enterprises, as AI highlights those with commendable performance to potential buyers who might otherwise be unaware of them.

In what ways can AI enhance procurement’s management of broader supply chain risk?

With an unprecedented amount of data available, the combination of AI, big data, and machine learning holds the potential to forecast events before they occur. Rajiv Bhatnagar, director of product and technology at Amazon Business, said “Machine learning-based analytics can look for patterns much faster. Once you have detected a pattern, you can take action”

These predictive capabilities extend to various domains, such as anticipating weather patterns to preempt disruptions in vital trade routes weeks in advance. AI can also monitor commodity prices, signaling potential increases that could translate into higher manufacturing costs down the line. According to the Deloitte survey, 25 percent of organizations can currently detect supply chain issues promptly “to a large extent”, and 63 percent “to some extent.”

For procurement, this predictive insight suggests strategic actions like bulk-buying commodities or opting for fixed-price contracts or hedging to mitigate potential price fluctuations. Conversely, AI can forecast price decreases, prompting a delay in contractual commitments.

Furthermore, AI can identify patterns indicating potential shortages of materials or commodities. This early awareness enables organizations to diversify their supply sources or seek alternative substitutes, mitigating the risk of being caught off guard and avoiding premium prices.

Internally, AI can flag anomalous activities, such as unusually large orders or requests for invoice or delivery address changes, aiding in fraud detection and risk mitigation. Amazon Business already offers features allowing organizations to set purchase parameters, including mandated supplier usage and spending limits.

In what other ways could AI help procurement professionals?

AI also supports procurement in various other capacities, including streamlining the identification of organizational purchasing requirements and optimal timing. Leveraging historical data and predictive analytics, AI facilitates ensuring businesses possess necessary supplies precisely when needed, thereby averting excessive expenditure.

Furthermore, AI, backed by data and analytics, aids procurement in curtailing unauthorized spending. By enabling staff to swiftly locate products that adhere to the company’s criteria, AI and machine learning, integrated into platforms like Amazon Business, mitigate the likelihood of unauthorized purchases. “It helps businesses align their decisions with company goals, react to changes with speed, and ensures a company has the right products at the right time” says Bhatnagar

AI can enhance management information significantly by extracting and analyzing data and trends from internal procurement or accounting systems. This capability enables procurement professionals to furnish finance teams or board members with deeper insights into expenditure patterns and anticipated future costs. Moreover, AI facilitates the visualization of alternative scenarios, offering valuable decision-making support. Procurement teams can leverage such insights to optimize operations, streamline supplier relationships, and negotiate bulk discounts where applicable.

Additionally, AI can streamline invoice processing and automate workflows for staff members. This efficiency leads to substantial time savings and allows employees to allocate their time to more value-added tasks. Consequently, this not only enhances the attractiveness of the procurement function as a career but also alleviates pressure on existing teams. Rajiv Bhatnagar said “Using analytics, employees feel more productive and know that they’re bringing more value to their job.”

Original Article – Can AI enhance Procurement’s ability to manage Supply Chain risk? (supplychainonline.co.uk)