In recent years generative AI has made its way into many areas of business, helping to transform and streamline processes. However, its potential in the procurement space remains relatively unexplored.
We talked to Kevin Frechette, CEO of Fairmarkit, to find out how enterprises can exploit GenAI to gain agility, efficiency, and smarter decision-making in their sourcing decisions.
BN: Why has the use of GenAI in procurement lagged behind other areas?
KF: Procurement in general has been late to adopt technology overall. Sadly, this has fallen in line with procurement being historically viewed as a ‘back office’ function, and viewing themselves in the same way.
When you look at other teams at these companies, like marketing and sales, who have historically been pushed and recognized the need to innovate quickly, you’re seeing much quicker adoption for technology. Those teams have built up that muscle to change quickly and consistently over time. When GenAI debuted, these forward-thinking teams went through the same rhythm they’ve been training themselves on to embrace GenAI. They’re seeing some pretty remarkable results, operating with incredible efficiency and delivering measurable returns.
Procurement is now in a place where it can move from a back office function into a more strategic seat at the table. The procurement teams driving digital transformation, now through GenAI, are making an absolutely massive impact on their companies’ bottom lines, and are being recognized for driving those changes. They just need to build up that muscle for change that they haven’t exercised before. Thankfully, GenAI makes it easier than ever to build that muscle quickly.
BN: How can GenAI help procurement teams become more effective?
KF: All areas of procurement can improve with GenAI, period. Where and how to start are the more important questions. The key is not going for the home run up front, but rather driving small, frequent and incremental wins. Driving measurable impact up front on your first small initiative will set you up for another one, and then another and another.
We’ve designed our AI with this kind of framework in mind, enabling procurement teams to create a series of consistent wins at just about every touchpoint from intake to award. GenAI is automating SOW generation, requirements gathering, RFX creation, contracts and negotiations, to name a few. Having a virtual assistant do the heavy lifting for these repetitive and time-consuming tasks allows team members to focus on more heavy-hitting priorities, ultimately enabling them to take on more spend under management.
GenAI is completely reshaping the procurement team operating model, where they’re now able to scale their efforts and perform at a level they’ve never been able to reach before. This change shines the spotlight on procurement teams in a way it’s never shined before, in turn getting more people from the company to work with procurement who haven’t done so before.
BN: Are changes on the supply side necessary as well?
KF: Absolutely. The supply side is perhaps even more ripe for change than the buyer side. AI and machine learning (ML) is so essential here but remains vastly underutilized. Suppliers who adopt GenAI will uplevel their processes in an absolutely massive way. At this point, it goes back to training that innovation muscle and becomes a matter of how fast they will accelerate.
Similar to how there’s autonomous sourcing on the buy side, there can be autonomous selling in the case of tail spend and AI-augmented selling for more tactical spend. GenAI really comes into play at that tactical level, where AI-powered virtual agents can suggest what the sales or account team should be proposing to make sure it’s a competitive offer. AI agents can recognize where it’s a more complex opportunity, and inform the physical sales team about all elements of the process so their decisions are educated and informed.
Ultimately, the procurement process will be driven by AI agents on both the buyer and supplier side. Those agents will communicate with each other and loop in physical team members when they need to get involved. The end result will be matching buyers to the best-fit supplier, and awarding more business to a broader range of suppliers.
BN: What should businesses look for when choosing an AI solution?
KF: Speed of iteration is a top priority. You need to work with a partner that updates their technology about as fast as AI itself evolves, which is ridiculously quick. We’re coming out with new iterations every two weeks. Others may move in six-month cycles. If you think about how much AI has changed in the last six months, it would be the equivalent of getting your first DVD player when the rest of the world has already moved onto streaming.
You want a partner that makes operations simple. Just because they’re rapidly iterating doesn’t mean you have to make any changes on your end; it’s just that they harness that technology so you’re always getting the newest stuff. A good partner will create a seamless, relatively low-lift and high-communication environment where it’s easy to get quick wins, see immediate value and ramp up from there.
We joke a little bit about ‘people, process, platforms’ being an overused term in procurement, but people underweigh the people side of a true partnership. A true partnership is a healthy balance between trusting each other and challenging each other, as well as being transparent about your goals. With one of our customers, the CPO flat out said, “Let me know the one thing that matters most to you and I’ll let you know the one thing that matters most to me,” so we always know each other’s top priorities and hold each other accountable. You need that trust. That allows you to work through different obstacles and reach new heights that weren’t previously possible to achieve.
And of course, security is essential. Procurement leaders should understand what an AI provider is doing from a data and third-party perspective, and how those practices align with their standards.
BN: How will GenAI fit into the wider digital transformation of procurement?
KF: In the same way the internet transformed business (and most of society) 30 years ago, GenAI will be a given in every procurement transformation project in the next two years. Procurement teams using GenAI today are driving clear, measurable value in terms of not just savings, but elevated compliance, reduced risk and massive spend under management.
GenAI has transformed procurement into a ubiquitous entity that can collaborate with the entire organization in a personalized, scalable manner. Anyone requesting a purchase can now use AI to place that request, which is then autonomously sourced according to a centralized procurement strategy. The classic barrier of having another hoop to jump through no longer exists. The process is quicker for requesters and the sourcing process takes less time. It’s a major win-win, and others are recognizing this to follow suit as quickly as possible.
We’re still basically at the starting line with GenAI. This technology is in its infancy, and the value ceiling hasn’t even been identified. Getting started with GenAI now will be a make or break for organizations.
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