The Role of AI and Automation in Modern Procurement

An efficient procurement process is one of the key factors for business success. However, as companies grow it becomes more difficult to handle all the documentation and stakeholders involved in the process. That is when AI and process automation tools come into play. 

In this article, we will explore the role of artificial intelligence and automation in modern-day procurement, from what these are to their benefits. So, if you are ready, let’s start! 

What is Artificial Intelligence? 

Artificial Intelligence, essentially, is the simulation of human intelligence processes by machines (computer systems). This might sound a bit scary, but actually, it is not. In fact, AI is based on machine learning processes that analyze and evolve based on data inputs. AI helps to perform a variety of complex tasks, speeding up business processes and reducing errors.

However, when it comes to AI tools, there are narrow AI tools and general AI tools. Narrow AI tools and platforms are designed to perform specific tasks. For instance, AI incorporated within self-driving cars belongs to the narrow AI category. 

On the other hand, tools that can complete a variety of tasks belong to the general AI category. General AI is able to learn, think, and evolve. However, currently, it exists only in theory. The closest practical tool that can belong to the general AI category as it can learn is generative AI - ChatGPT. 

AI is widely applied across different industries to speed up business processes, save time, and reduce human errors. 

What is Automation? 

Automation in procurement is essentially the automation of processes using technology to reduce human intervention and speed up procurement. Businesses use various types of automation to improve processes. The main types of automation are robotic, software, process, BPA, home, and industrial automation. 

In procurement, the primary automation type used is process automation. It involves streamlining workflows to reach maximum efficiency by optimizing steps involved in the procurement process. For instance, you can automate approval workflows, PO to invoice matching, and more. 

What is Procurement? 

Procurement is the process of acquisition of goods and services the company needs. The procurement process has three main stages: 

• Sourcing. During this stage of the process, the business identifies its needs and analyzes potential vendors and their offerings. Afterward, the business shortlists the most compatible ones and sources suppliers. 
• Purchasing. The next stage of the procurement process is the purchasing stage. In this stage, the business negotiates deals and signs contracts before placing POs.  
• Payments. The final stage of the procurement process involves 3-way matching for invoice approval and payment. 

All of these stages are quite complex and deal with lots of documentation. These documents are vital to keep and assess to mitigate risks associated with fraud and data loss.

Common Manual Procurement Challenges 

A manual procurement process without automation tools has a variety of drawbacks. The main challenges faced by the procurement team include inaccurate data, difficulty in managing contracts and ensuring compliance, and lack of transparency. 

Well, let’s take a look at these challenges in a bit more detail. 

Inaccurate Data  

When data entry is managed manually, the risk of errors increases. This reduces accuracy and contributes to a higher risk of damaged supplier relationships.

For instance, errors when filling in the PO data will change the invoice data suppliers submit, which will cause confusion for the team members responsible for managing invoices and payments. This can have multiple consequences, such as late payments or unexpected business costs that increase spending or even negatively affect supplier relationships. 

Contract Management 

To maintain good supplier relationships, it is vital to manage contracts and supplier performance. However, contract management is yet another challenge that procurement teams face when the processes are manual. Lack of communication, high turnaround time, and lost contracts are among the most common issues faced. 

Compliance and Transparency Regulations 

Many businesses face difficulties in regulating compliance with an established set of rules and regulations in the procurement process. 

Manual processes decrease transparency and make data access and management inefficient. This results in the inability to accurately ensure procurement process compliance in different stages with the set policies.

The Role of AI and Automation in Procurement 

AI and process automation will greatly improve procurement management within your organization. First of all, it will result in increased efficiency and improved transparency. Automation will also contribute to cost and time savings, as well as improve supplier relationships. 

Increased Efficiency 

Process automation and AI will help you to increase the efficiency of procurement processes in multiple ways. First of all, it reduces the chances of errors, which saves time when revising and editing documents. Also, process automation saves time on data entry, as you can easily use auto-filling technology to fill in the data for invoices and purchase orders based on contracts and 3-way matching. 

This allows employees to focus on other important tasks within the research process and improves their productivity levels. 

Improved Supplier Relationships 

Process automation with the right tool will allow you to always submit payments on time or even earlier. This will help you improve supplier relationships in the long run and avoid overdue payments that can potentially damage it. 

For instance, you can set up invoice approval workflows. These will automate the invoice-matching process and send notifications to users responsible for invoice approval at different stages to speed up the process. 

Besides, process automation requires you to use procurement automation software, some of which also have different collaboration tools. For instance, Tradogram offers instant messaging and real-time collaboration tools to always stay in touch with the suppliers. This contributes to improved trust and communication. 

Enhances Contract Management 

With a good software solution, you can easily access contracts at any given time and ensure supplier compliance with the set terms and conditions. The centralized database for storing documents and contracts enhances your team’s contract management capabilities. 

Quick Approval Process 

With approval workflow automation, you can speed up the approval process for POs and invoices. All of it will result in efficient procurement process management and smooth supply chain operations. 

Improved Organization 

The procurement automation solution offers a centralized database where you can store all the data and documentation regarding procurement. This enhances data organization and contributes to higher transiency levels within the organization. 

Cost Savings 

One of the key benefits of procurement automation is cost savings. Essentially, procurement automation cuts the costs associated with labor. 

According to current research, manual invoice processing costs anywhere from $12 to $40 per invoice. However, if you automate the process, you will spend around $3 to $5 per invoice. 

Think about it: employees can spend hours performing the simplest tasks that won’t result in much operational efficiency but are still important for the procurement process (e.g., filling in PO/invoice data and other day-to-day tasks). 

But instead of letting employees manually take care of tasks that can be automated, you can incorporate procurement automation software to automate these, reducing human error. By doing so, you will allow employees to focus on high-level tasks that require more mental capacity. This will also increase employee motivation and improve productivity within procurement teams as the “boring” tasks are handled by automation tools.

How to Choose a Procurement Automation Software? 

Automation plays a huge role in enhancing the procurement process. To ensure that you invest in good quality procurement automation software, pay attention to several criteria, from the user interface to the customization options available. Let’s take a look at the main criteria in a bit more detail.  

User Interface

The software solution you choose must have a good UI to ensure smooth navigation and process automation. 

Loading Speed and Scalability

When choosing procurement software, navigate toward cloud-based solutions. Cloud-based tools have high-quality performance and high scalability. 

Customizable Workflow Automation

Every business is unique, so the procurement process stages and steps may vary slightly. That is why choosing a tool that offers highly customizable workflow automation solutions to customize your procurement workflows according to your business needs efficiently is important. 

Supplier Collaboration Tools

A large portion of procurement success depends on your relationships with the suppliers. So, when you are looking for procurement process automation software, make sure it also offers the necessary tools for supplier relationship management. We recommend navigating toward tools that have instant messaging and other real-time collaboration features. 

Automate Your Procurement Processes Today 

Managing procurement processes manually is daunting and inefficient. So, instead of constantly facing the same challenges with manual procurement, it is time to switch to a more modern approach. 

If you are looking for an all-in-one procurement software to automate and optimize procurement processes efficiently, then you are in the right place. Tradogram comes in handy with a variety of useful features for workflow automation, process optimization, and informed decision-making. 

Check out Tradogram and find out how we can help you automate your procurement to meet your business’s goals.