Five Steps to Unlock the Power of Gen AI in Procurement

May 21, 2024

Generative artificial intelligence (Gen AI) and AI technologies are disrupting how procurement organizations operate while reinventing what’s possible. According to our recent analysis, Gen AI can yield a 47% reduction in procurement function costs and a 54% human productivity increase over five to seven years for a typical $10 billion company. That return on investment, however, depends on you knowing how best to deploy the technology.

While there is tremendous excitement about Gen AI, there is also a lot of uncertainty about how to unlock its potential. Choosing the right approach is critical. Moving directly to use cases without first determining your enterprise AI opportunity and readiness will produce, at best, incremental improvement. To capture maximum value and deliver on the groundbreaking potential, procurement professionals must approach Gen AI both strategically and practically – separating hype from proven success.

Three types of Gen AI – and their use in procurement today

As you consider Gen AI for your procurement and strategic sourcing processes, it is important to understand the three primary types and possible use cases to determine where and how to deploy AI technologies within your own organization.

TYPES:1. Embedded Gen AI solutions2. Native Gen AI solutions3. Domain-specialized Gen AI solutions
Uses Gen AI functionality embedded in third-party platforms – typically offered by enterprise software providers such as Oracle, SAP, Microsoft or procurement-specific solutions. Users can turn on embedded Gen AI capabilities and begin employing them for specific business needs.Built by the organization to fulfill a particular purpose or use case. Requires an enterprise Gen AI platform on which the solution is built. Often functions as a digital assistant or integrated with an intelligent process automation solution to increase productivity, improve worker effectiveness, elevate employee/consumer experience, and/or enhance decision-making capabilities.Foundation models offered by solution/service providers that specialize in a particular industry/domain and have access to domain expertise and a large knowledge base. Users subscribe to the model and use the service – either through an application programming interface integration or direct access into solution/service provider portals. We believe this is where a procurement strategy will see the biggest impact from Gen AI.
EXAMPLES IN ACTION:Summarizing RFP responsesIncreasing visibility into suppliersStrengthening third-party risk management
A procurement team issues a request for proposal (RFP) and receives detailed responses from 15 vendors. The team uses Microsoft Copilot to summarize all of the responses in a consistent way – including a table with key information such as starting and ending dates, and terms and conditions – to facilitate comparisons. Buyers can spend their limited time reviewing the summary rather than reading all of the responses, extracting data and typing it into tables.A company with $12 billion in procurement spend built a “Procurement Cockpit” enabled by Gen AI capabilities to provide instant visibility into sourcing activities across 17 operating companies. The solution brings together data from 10+ enterprise resource planning, e-sourcing and spend analysis systems, and external sources. The solution produces new insight that has significantly improved the company’s negotiation capabilities and enhanced supplier intelligence.Some solutions providers now have offerings with Gen AI capabilities that enable high-volume contract review and analysis. Other offerings scan and summarize published news and information about current or potential suppliers or categories – including areas such as growth, competition, leadership issues, geopolitical risks and others – to enable stronger third-party risk management.

Act decisively and move swiftly

Those who take bold action can unlock breakthrough levels of operational excellence and business value – if they choose the right path. Architecting the future of procurement begins with a critical, strategic view of Gen AI readiness and opportunities. The good news is the steps for doing so are straightforward – and you can be on the journey to a successful AI strategy in just a few weeks.

Determining your AI opportunity, best-return use cases, and readiness will deliver tangible benefits and grow institutional knowledge, improving your organization’s execution and assessing what’s truly feasible. That’s how your procurement organization can build momentum and accelerate the value potential of Gen AI.

Steps every procurement executive should take now

  1. Educate and inform your executive team, and level-set expectations around Gen AI.
  2. Understand where the greatest opportunities exist for leveraging Gen AI across the function.
  3. Examine specific use cases – based on the opportunities identified – to understand how Gen AI could impact work.
  4. Determine your organization’s readiness to realize the benefits of Gen AI – assessing data quality and availability, skills, governance, and infrastructure.
  5. Develop a prioritized Gen AI road map and corresponding workplan for deployment.

Architect – and accelerate – your Gen AI future

The Hackett Group can help you explore and understand the potential for Gen AI as part of a comprehensive, intelligent digital operations strategy. Visit our website to learn more about our:

  • Transformation services: Our consultants use our proprietary AI XPLR™ platform to architect your Gen AI journey – from strategy and business case to impact assessment, readiness, and road map.
  • Executive Advisory membership programs: We guide and advise you to explore Gen AI opportunities, select providers, and pilot Gen AI solutions.