The Impact of AI on Strategic Sourcing Tools

With artificial intelligence being one of the most discussed topics recently, it is vital to overview its impact and use on procurement processes. 

AI can be integrated into procurement in multiple ways, improving overall efficiency. Throughout this guide, we will review everything regarding AI, from what it is to types of AI and examples of its use in procurement, as well as its use of strategic sourcing. Let’s dive into it. 

What is AI? 

Before diving deeper into the impact of AI on strategic sourcing tools, first, let’s understand what AI is. 

Essentially, AI is a simulation of human intelligence. AI tools can mimic human intelligence, learning, and improving; they are specifically developed to do so. A few differentiating factors about AI include the fact that these tools can analyze vast amounts of data in a matter of seconds, unlike humans. It also can forecast trends and give predictions based on inputted data by identifying patterns. 

AI's main goals include identifying patterns, making decisions, and judging like humans. However, these goals vary from tool to tool depending on what the tool’s algorithms are designed to perform. 

Types of AI in Procurement 

If we look at AI from the procurement perspective, then any software solution with smart algorithms, automation, and learning capabilities can be considered AI. 

There are a few main types of AI in procurement: artificial intelligence (AI), machine learning (ML), natural language processing (NLP), and robotic process automation (RPA). 

Well, we are clear on what artificial intelligence (AI) is, so let’s review the other ones in more detail. 

Machine Learning (ML) refers to algorithms that can detect patterns and use these patterns for forecasts, predictions, and efficient decision-making. 

Natural Language Processing (NLP) is an algorithm capable of interpreting, transforming, and generating texts in human language. For instance, famous tools such as ChatGPT and Gemini AI fall into this category. 

Robotic Process Automation (RPA) algorithms mimic human actions and help reduce repetitive tasks. Generally, this type is not considered a general form of AI, yet it helps procurement departments to efficiently optimize tasks and is a vital part of the procurement team. 

Impact of AI on Procurement 

To understand the impact of AI on procurement, it is vital to consider the impact of different types of AI on procurement. 

AI tools help solve complex problems and ease procurement processes by providing faster processing and automation capabilities. The main areas in which AI elevates procurement include: 

• Informed decision-making. AI tools provide timely analytics and data-driven insights to the users, allowing them to make informed decisions regarding further actions, sourcing, and others. 
• Higher operational efficiency. AI tools also contribute to higher operational efficiency within the organization. These tools allow for streamlined business operations to lead to faster cycle times. 
• Automation of manual tasks. Also, AI tools allow businesses to automate manual tasks, improving employee productivity rates and reducing human errors. 

Finally, it is worth mentioning that AI procurement tools also help optimize supplier relationships by allowing for informed decision-making and supplier performance tracking. For instance, you can analyze vast amounts of data with AI solutions. 

Benefits of Artificial Intelligence on Strategic Sourcing 

So far, we are clear on what AI is and what types of AI are used in procurement. Well, it is time to delve into the benefits of AI in strategic sourcing to understand how this modern-day technology affects one of the most important processes in procurement. 

Supplier Sourcing 

Let's start with the benefits of AI on supplier sourcing directly. 

First, AI tools or ML algorithms help identify and discover suppliers with greater ease and less time spent on research. Also, these tools assess and rank suppliers based on predefined criteria by your procurement team, such as financial stability, performance history, and pricing. 

Also, AI/ML tools conduct quality risk assessments, monitoring and gathering data regarding preferred suppliers across the internet to assess the potential degree of risk. 

Supplier Performance Tracking 

AI tools or automated solutions are also beneficial in tracking supplier performance and ensuring compliance with the set contract terms and conditions. 

For instance, you can use reports from previous deliveries and other historical data to identify patterns and improve supplier performance. These insights can also help predict potential issues before they escalate, allowing for proactive adjustments. By continuously monitoring key performance indicators (KPIs), AI ensures that suppliers consistently meet quality, delivery, and cost expectations, ultimately strengthening the reliability and efficiency of the supply chain.

Supplier Risk Mitigation and Management 

One of the prominent benefits of using AI when it comes to supplier sourcing or collaboration is that AI tools allow the mitigation of risks associated with suppliers. For instance, you can analyze a vast database of suppliers in a matter of minutes with AI and choose the most reliable ones for further contact and possible collaboration. 

You can also use AI/ML tools to identify patterns that current suppliers display and come up with efficient risk mitigation strategies. For instance, one or a few suppliers might display a pattern of late deliveries or other problems that disrupt supply chain operations. You can track these patterns and identify and address them with the right solution. 

Enhanced Supplier Relationships Management 

Another benefit of AI in procurement, especially in regard to supplier aspects, is that it allows for enhanced supplier relationship management. The actionable insights AI tools provide allow you to promptly address any misunderstanding and find resolutions while collaborating. These tools streamline communication and collaboration, allowing you to manage supplier relationships more easily and strategically. 

Improved Demand Forecasting 

One of the key goals of organizations is to meet the demand efficiently. To do so, suppliers must be sourced strategically to avoid risks such as stockouts, late deliveries, and others. 

AI and ML algorithms in procurement help with demand forecasts based on historical data and market trends. These tools provide effective predictions, allowing businesses to stock up on the right products to meet the demand. 

Data-driven Decision-Making 

Because AI can process and analyze vast amounts of data in a short period, organizations can make informed decisions regarding the supply chain. For instance, sourcing teams can identify the best suppliers on the market with ease, and they gain better opportunities to respond to market changes in a more efficient way.

Procurement Software with AI 

E-procurement solutions provide a variety of automation solutions, and some even offer built-in AI functionality to improve process optimization within an organization. 

Procurement software solutions can be used for a variety of purposes, including contract and supplier management, accounts payable automation, spending analysis, and more. Let’s review some use cases in more detail. 

AI in Strategic Sourcing 

The number one aspect where AI can be used in procurement is strategic sourcing, as we have already discussed in the benefits section. Built-in AI or ML algorithms allow the management to automate the sourcing process easily and precisely. Strategic sourcing is critical for further business success. 

AI in Purchase Automation 

AI tools and e-procurement software can be used to automate purchases and invoice management within the organization, reducing errors and speeding up the cycle time. 

AI in Spend Analysis 

Procurement solutions with robust analytics features and ML/AI algorithms are also of great help when it comes to business spend analysis. These algorithms are used to improve a number of processes, such as identifying spending patterns, forecasting trends, and providing useful insights for informed decision-making. 

Contract Management 

Automation and AI software will also enhance the contract management process within the organization. For instance, a software solution, Docusign Insights, scans and interprets lengthy legal documents to save time. 

On the other hand, e-procurement tools with built-in automation functionality can help to manage supplier compliance with the set contract terms and conditions, allowing organizations to take advantage of three-way matching and develop a reliable supply chain. 

E-procurement software will also help you take care of aspects such as inventory management and supplier collaboration. 

Automate Your Procurement Processes with Tradogram 

If you are looking for the best automation solutions to optimize your business processes, then you are in the right place. Tradogram is an all-in-one software solution that comes in handy with all the necessary features for efficient process optimization. 

Tradogram offers tools ranging from supplier and inventory management to spend management and robust automation (POs, invoices, etc.). 

To learn more about how Tradogram can help you automate business processes and reach higher ROI rates, schedule a free demo, and our team will gladly assist you.