Generative AI (GenAI) is a cutting-edge technology capable of creating content in various formats, including text, images, and synthetic data. Its user-friendly interface, which enables rapid generation of text, graphics, and video, has driven its rising popularity. According to August 2024 data, “39.4% of the U.S. population aged 18-64 reported using generative models, with 28% of employed respondents using them at work and nearly one in nine workers using them daily” (National Bureau of Economic Research, September 2024). Generative AI’s potential to streamline tasks, analyze vast datasets, and support data-driven decision-making positions it as a valuable asset for business functions, especially in procurement. The rapid adoption of generative AI highlights its value in business operations, particularly in procurement.
Current research suggests that generative AI holds potential to significantly enhance procurement. Applications range from automating documentation processes and facilitating negotiations to optimizing supplier selection and monitoring compliance.
In procurement, generative AI simplifies the preparation of essential documents, such as Requests for Proposals (RFPs) and contracts, significantly reducing administrative workload. Academic and industry research indicates that generative AI can add value to the procurement function.
ChatGPT showed some potential in managing supplier onboarding, purchase orders, contract disputes, inventory control, and more”. (A.Shaji George)
By tapping into extensive datasets, AI can produce tailored RFPs and contracts with remarkable accuracy, enhancing both efficiency and regulatory compliance. This shift enables procurement professionals to focus on high-impact strategic initiatives, rather than routine documentation tasks.
Generative AI enhances supplier negotiationsby offering valuable insights and supporting procurement teams with data-driven guidance.
AI tools can analyze key datasets, including supplier performance, market conditions, and spending patterns, enabling procurement managers to make better-informed decisions. Additionally, AI can simulate different negotiation strategies, forecasting potential outcomes based on supplier responses and helping organizations secure favorable terms.
Generative AI significantly strengthens procurement risk management by enabling early identification and mitigation of potential disruptions. By processing historical data, market trends, and geopolitical information, AI can predict risks, providing insights that help procurement teams to shift from reactive to proactive risk management, minimizing supply chain interruptions and associated costs.
AI-driven tools can optimize supplier selection by performing comprehensive data analysis on both structured and unstructured information. By assessing factors like past performance, certifications, and geographic advantages, generative AI tools offer recommendations that align with organizational priorities, helping procurement professionals select the most reliable and cost-effective suppliers.
For organizations prioritizing green procurement and ESG (Environmental, Social, and Governance) compliance, AI provides valuable monitoring support. AI tools can identify anomalies and potential non-compliance issues, ensuring suppliers align with sustainability goals and regulatory standards. This capability makes AI an invaluable asset for companies committed to responsible sourcing.
Generative AI is poised to deliver significant value in procurement, from automating routine tasks to enhancing supplier negotiations and risk management. As organizations continue integrating AI technologies, procurement functions are likely to experience greater efficiency, improved supplier relations, and meaningful cost savings. The future of procurement looks promising with generative AI driving transformational change across the sector.
Also read Driving Value Through Change: Insights from the Procurement Leaders Network Meeting.
References
1- EKENE ODIMEGWU, MCIPS(Chartered), MBA
2- George, A. Shaji & George, A.s & Baskar, Dr. (2023). Leveraging AI to Revolutionize Procurement: ChatGPT’s Hidden Potential to Transform the Procurement Iceberg. 01. 110-131. 10.5281/zenodo.10367172.
3- Alexander, Bick, Adam, Blandin, & David, J. Deming (2024). The Rapid Adoption of Generative AI. NBER Working Paper Series 32966. DOI 10.3386/w32966
