While analyzing supply chain uses for GenAI, I kept thinking about the benefits for procurement. As Chief Procurement Officers (CPOs) are bombarded from startups offering GenAI-based products to improve many different processes, it can be hard to know how to get started and move things forward quickly but prudently. From my CPO experience and latest research, here are three areas where CPOs can focus GenAI initiatives for near-term impact:
Supplier Discovery
There are a myriad of applications that have replaced traditional methods — ask a friend, search a database, pay for a service — of finding potential new suppliers. You don’t need any of those any longer, because GenAI can do the job for you. GenAI tools are available for free or at very low cost. The world has changed and it’s worth evaluating these tools to see if there is a cost you can eliminate or substantially reduce.
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GenAI can look across the globe and identify potential suppliers — as well as supplier combinations — based on the criteria you provide. That’s important because a poor output is likely not the result of a poor tool, it’s more likely the result of a poorly framed question. Provide delivery location, volume, product description, and more; the more details provided, the more accurate the result.
Busy procurement teams tend to take suppliers’ word for it regarding financial stability, certifications, pending litigation, and other factors. GenAI can analyze multiple sources and validate, or invalidate, input from suppliers. That’s a great way to mitigate risk.
One bio-pharma company I worked with encouraged the development of relationships with startup suppliers, believing that it was a good path to capitalizing on technology innovation. At the same time, they would never rely exclusively on those suppliers because of the risk.
A GenAI application for supplier discovery could flag the supplier combinations – established and startup, offshore and onshore – that meet an organization’s objectives. With so many possible permutations, it’s a hard thing for an individual procurement professional to analyze on their own. Applying GenAI is a great option.
Optimizing Contracts
Procurement teams expend considerable effort working with legal professionals and suppliers to develop contracts. Many companies have contract management systems in place, and there may even be internally developed templates to use. But every purchase is different. There is always tweaking required and new clauses to insert based on the specific requirements and spend category.
How does anyone know that the internal template is optimized to begin with? We don’t. But since the most tested use of GenAI is in generating content, contracts are a perfect application for this technology. Imagine taking a database of all your contracts and using a GenAI tool to create the optimal agreement, pulling the best from each one. Ideally, a private GenAI instance could evaluate all the contracts in your contract system and develop new templates based on the best terms across the array of contracts.
Most companies buy across three categories: goods, services, and data. But they often have only one or two types of templates, with expectations that all agreements will use one or the other. That presents considerable challenges; for example, trying to fit a data spend into a services template is clearly not optimal. GenAI is the perfect tool to help “do it right the first time” and tailor the contract to the category.
Staff Development
Your people need to learn, grow, and acquire new skills. When you don’t stay current with technology, you risk losing your best team members to other companies that do a better job of attracting, developing, and retaining talent, including through the use of technology.
Pieter Niehues, a partner in the Dusseldorf office of Roland Berger, has been quoted as saying “The use of GenAI in procurement is inevitable. Sooner or later, those who use GenAI will be replaced – not by GenAI, but by those who use it.”
He’s right, and prioritizing your people’s growth, retention, and development is a great reason to move ahead with GenAI. In fact, you owe it to your people.
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