With AI in the mix, good procurement starts with good data

Procurement practices have had to make big leaps in recent years. If yours is simply checking the boxes, signing contracts, and negotiating pricing, then it may be time to rethink your approach.

Like the rest of your financial services organization, procurement must become more sophisticated and more strategic in managing an environment fraught with rapidly rising prices, complex supplier networks, and diminishing labor pools. To gain competitive advantage, procurement must help you manage the risks of uncertain resources, interpret information buried in contracts, and supply you with the insights required to make better decisions. 

Eliminate outdated processes and turn to automation to get valuable details

Your data about suppliers and purchases may be in multiple places today—and they are probably not all connected. You have order histories in multiple functional systems, supplier data in a structured procurement system, and unstructured data sitting in contracts and invoices that are unique to every supplier. The larger your organization, the more complex this maze of data and documents can become. 

Despite having negotiated competitive pricing, discounts, and rebates, when it comes to paying invoices, nobody has all the details at their fingertips. Enforcing all those great cost-saving measures becomes very difficult. You may be able to manage a handful of vendors or invoices well, but your entire procurement operation probably isn’t.

This is where artificial intelligence (AI) and machine learning come into play.

Three ways automation can help you save time and money

1. Get your hands on the data: It’s at the foundation of strong procurement practices and will relieve some of the complexity. AI can help you look at both structured and unstructured data and organize and interpret all the seen and unseen facts buried in contracts, invoices, and agreements. It can help you categorize and access indemnification clauses—mutual, supplier, or purchaser—and manage auto renewals and written notifications.
   
   Even though documents from different vendors don’t all look the same or contain the same information, AI is able to scan and standardize the data, and that is the first piece of the puzzle.
   
   
2. Run intelligence on your data: With automation, you can uncover basic truths, like comparing negotiated terms to invoice actuals and identify discrepancies. But you can also take it to the next level. For example, use AI to ensure you are covering data privacy clauses in contracts, or apply rules and business logic to identify unacceptable risk profiles in older contracts. Or even look for agreements that have significantly different terms from all similar suppliers. Find the outliers and focus attention on renegotiating or updating agreements where you could be saving money.
   
   Automation doesn’t solve all these issues by itself, but it can bring valuable insights to your subject matter experts, legal team, and procurement specialists so they can focus on the cases that really need the most attention—and not get bogged down in boiling the ocean.
   
   
3. Find and make recommendations for what can improve: By looking across all your data, you’ll be able to set benchmarks on what a good vendor relationship looks like and the factors that make it successful. You’ll have forewarning on when things are about to expire so you can take action and apply new insights as you renegotiate.
   
   You can also use AI to establish risk ratings across your supplier pool. Contracts continuously update and fluctuate, so it’s not a one-time event to negotiate and apply risk parameters. AI can help you focus on the right terms and proactively manage risk as it monitors ongoing activity and flags issues. And as contracts terminate, you can monitor potential refunds and prepaid fees that could impact how you report revenue.
   
   Another benefit could be successful data migration when you switch to a new procurement system. As you gain new capabilities and workflows to manage procurement, they will only be as good as the data that flows in. 

Benefit from transparency, insight, relationships, and cost savings

At KPMG, we’ve worked with many clients to change the game on how they use AI to improve their procurement approach. In addition to the data transparency and insights I’ve cited here, they are able to make better buying decisions and build better relationships with vendors. When everyone across your procurement ecosystem can see information, your relationships become stronger and more focused on bringing value.

Another important benefit to you is cost savings. By comparing contracts with invoices, some of our clients have achieved hard cost benefits of 2 percent to 5 percent. And the more you spend, the greater that benefit can become. Machine learning has helped eliminate backlogs in contract processing and greatly enhanced efficiency within the organization.

We’ve worked with new technologies, including AI, machine learning, and unstructured data analysis tools, for many years. As a result, we’ve made the move to accelerated procurement management easier for our clients by creating accelerators to put these tools in place and bring value faster. But we don’t just bring technology. It comes with a lot of lessons learned, and strong business and industry experience to help avoid pitfalls.

The good news: AI and machine learning keep improving. But without domain expertise and your knowledge of your business, it can’t do much. If you’d like to learn more about how we can help your procurement team work smarter, please contact me.