Beyond Cost Cuts: How Generative AI Drives Procurement Value

The magic of Generative AI (Gen AI) is waiting to be discovered. From our panel session at ProcureCon Asia, we have learnt that early adopters can get their leg up in this race as they will gain a significant competitive advantage in overhauling and reshaping their operational model. Organisations need to prepare to integrate Gen AI more deeply into their procurement processes, with an astonishing 80% time savings in some procurement use cases when piloting its use. Ranging from supplier sourcing to predicting and mitigating supply chain risks, there are a multitude of uses to unlock its hidden potential.

However, many have warned against its dangers when firms are leveraging on these new technologies to integrate them into their operations without considering their main purpose and function. To foster readiness for digital transformation, Alex Saric, Chief Marketing Officer, Ivalua and Peter Chen, Senior Director, Group Enterprise/Indirect Procurement & SCM, Singtel stressed on the need to tap on the practical applications of Gen AI and use it as a collaborative tool to identify and solve problems in their businesses. They urge firms to avoid succumbing to the industry peer pressure and jumping on the AI bandwagon without first identifying specific needs and focusing on uses cases with a clear ROI.

Knowing when and how to embed Gen AI into their function, aligning it with commercial goals and organisational needs are critical to unlocking lasting value in their future operations.

Beyond cost savings, how can generative AI drive innovation in procurement?

Alex: There are a lot of ways, and these will certainly expand as the technology continues to improve and use cases expand and become more advanced. While right now we see the biggest value being delivered in terms of efficiency by automating operational tasks, there is also significant benefit in improving decision-making. For example, GenAI can create category market intelligence reports and suggest risk mitigation strategies based on what is going on in the market (process, regulations, geopolitics). We do that now in Ivalua. I can also see it helping in ways such as building a complete baseline of carbon emissions and suggesting where to focus to drive a rapid reduction.

How can procurement use generative AI to mitigate supply chain risks?

Alex: GenAI is good at researching and forecasting so can provide a 360-category intelligence report that includes identifying risk factors and suggested strategies to mitigate them.

Peter: Notwithstanding proactive forecasting of risks, GenAI tools as an always on, real time monitor of global developments with adaptive learning continuously improving the quality/relevance of alerts helps procurement to improve reaction time to activate BCP.

What do you think AI cannot do in Procurement?

Alex: I don't see GenAI ever building relationships with suppliers or internal stakeholders and question whether it can ever be as good as humans in strategy.

Peter: We can simulate intelligence, but we cannot simulate emotions and empathy.

While it is important to recall that AI is a "TOOL" not a "TARGET", what are the main points that needs to remember before implementing any AI tools?

Alex: Absolutely agree with your point - the focus should be on the desired business impact. There are a lot of factors to consider. For one, we recommend taking a use case approach to deploying it, focusing on where there is greatest value, and the tech works well in your environment.

Peter: AI should be a platform we use to stand on to reach higher, not a crutch to lean on.

How can we use Generative AI to anticipate/predict Supply Chain/Supplier risks?

Peter: The value of this use case hinges on identifying the right/relevant data sources and the diligence to continuously improve the algorithm to suit your organization's needs. However, I'm personally not sold on its value in predicting the future seeing how volatile / uncertain human behaviour. Benefits of GenAI and digital transformations may not translate to hard dollars and cents.

How do we convince our stakeholders to move forward with adoption?

Alex: From an ROI perspective, the greatest benefits being realized now are in terms of efficiency - automating tasks. You can identify key bottlenecks in your team's work and look for GenAI use cases that automate those to estimate how much time can be saved. Then translate that into what value that time will be used to deliver (or potentially to savings on future headcount if that is your approach). There are also use cases that deliver other benefits, but these tend to be harder to quantify, such as improving access to insights and speed of decision-making. Best to find cases where there was a cost to your company before (ex. lost sales due to time spent searching for alternate suppliers) where there is a GenAI use case that can help.

I ignore LI messages that are AI written & sent out to hundreds at a time. But how do you see Sales find Procurement queries/responses derived from AI tools?

Alex: If it seems like automated, it does increase the threshold to qualify a deal. We would not bid if unable to follow up with a human to qualify, but we sell complex, higher value products. I suspect for low-priced, high-volume businesses there would be more openness.

Could AI replace full procurement processes in near future?

Alex: I believe that in the midterm (3-5) years, we will see some teams truly replace virtually all transactional / operational activity with GenAI, but most will still have some of their time there. I see GenAI shifting the work to what humans do best and can't really be replaced - building relationships and strategic planning.

‘A sword is only as good as the person wielding it’ - do you believe that this applies to AI as well? And to what level should we equip ourselves on AI knowledge?

Alex: I do believe this applies for the most part to GenAI as well. Unless humans change how they work, technology rarely delivers much value. In the case of GenAI, first we need people that understand how to use the tech. You should make sure employees are trained on basic prompt engineering (how to ask questions to initiate GenAI action). More strategically, you'll need to upskill your team to more people focused on and good at building relationships and strategy rather than operational procurement.

Peter: David defeated Goliath with a stone, not a sword. Danger of GenAI is analysis paralysis and information overload leading to inability to make decisions. It's a double-edged sword.

What are some potential risks in GenAI and how to manage them e.g. Incorrect content

Alex: The biggest risks I see for procurement are security (exposing sensitive information) and in quality (hallucinations that provide incorrect responses). Some others, such as introducing bias, are more of an issue for other departments such as HR. You can take measures in the tech you choose and employee training to mitigate these greatly. I suggest you read the guide I recently wrote on how to build a roadmap for GenAI in procurement, which covers this as it is too much for a brief answer. It is currently highlighted on the top of ivalua.com

If you were to be able to customise a generative AI module to assist you, what are the functions/features that should be in this module?

Alex: Personally, I would look for a tool to collate, filter and present to me relevant, accurate information related to assist in decision making.

How can leaders in procurement avoid jumping on the bandwagon to adopt AI technology and yet not able to harness/generate the true or valuable outcome?

Alex: The key is to take a thoughtful approach to rolling out GenAI. I suggest you read the guide I recently wrote on how to build a roadmap for GenAI in procurement, which covers this as it is too much for a brief answer. It is currently highlighted on the top of ivalua.com. 

Peter: Procurement should embrace rather than avoid adopting AI. The key is to recognize that AI is a good tool but a bad master. However, we should go in with eyes wide open being clear of the intended outcomes (there are myriad use cases) instead of just jumping on the bandwagon because everyone else is doing it. Investments in technology do not deliver the ROI promised because of mismatch in expectations of actual outcomes desired and being sold on promises by solution vendors. Industry peer pressure to jump on the AI bandwagon does not help.

How do we align sustainability with AI in relation to the resources consumed by AI when providing response/insights?

Alex: GenAI is indeed directly causing an increase in emissions due to the massive energy required to train models. But within procurement it can have a net positive effect because it can help optimize sustainable sourcing decisions. The issue is that the overwhelming share of GenAI usage is not for such purposes but things like deepfakes, entertainment, etc. So no point avoiding its use where it has a positive net effect. We should do more of that. If we successfully transition energy systems to green energy sources, we can address or at least mitigate the overall negative effect.

Digital transformations will make many procurement staff uncomfortable, especially those who prefer routine and structured work. Any advice on how to navigate this?

Peter: Irrespective of the external environmental factor, a learning attitude and willingness to change is key to a successful, fulfilling career. It is inevitable that the procurement profession (as well as many other professions) is/will be impacted by GenAI. As with any change, it is crucial to adopt a growth mindset in adapting to the technology. It is the mindset to see this as a tool to embrace rather than a threat to be feared.

AI is just another tool, and a bit of a hype. Humans are better for procurement. What are your views?

Alex: Agree that a tool, not an end all. But with Generative AI there is much more substance than earlier AI versions. It is already having a positive, though still minimal benefit for procurement teams using it. As more advanced use cases become available and adoption grows, the impact will be significant. Humans are certainly better at building relationships and strategy, and I don't see that changing. But the reality is that most of procurement time today is still spent on transactional / operational activity and GenAI can do that better.

We all know that the ongoing hype around Generative AI will not fade away -- so how can we capitalise on these trends and deliver promises that will outstrip reality?

Our report uncovers the strategic and measured approach in building an AI-led transformation, as many firms are piloting the use of Gen AI to experiment and discover how it carefully aligns with business objectives and needs!

In collaboration with Ivalua: Charting the Next Leap Ahead

Our Contributors:

Peter Chen, Senior Director, Group Enterprise/Indirect Procurement & SCM, Singtel

Alex Saric, Chief Marketing Officer, Ivalua