Supply chain and procurement leaders have begun using AI tools to lessen the strain of supply chain disruptions, a constricted economy, and more. Matthias Gutzmann, CEO of DPW, outlines the opportunities and challenges that lie ahead for professionals leveraging the tech.
Across industries, AI has emerged as a powerful tool, redefining how businesses operate and opening up new possibilities for efficiency and growth. Supply chain and procurement are no exception. As a recession looms on the horizon and supply chain disruptions continue to mount, businesses will soon find it imperative to leverage this technology to keep pace with the market.
DPW’s DEMO, a procure tech and supply chain pitch competition, surveyed 86 leading industry startups to discover how they leverage generative AI. Of those surveyed, a staggering 84% are already using generative AI tools like ChatGPT in their everyday work and/or as key features of their business model.
Let’s delve into the four major ways these innovative startups leverage generative AI, how professionals across the industry may use the tools to their advantage, and what common pitfalls should be avoided.
Spend Data Insights
One of the most common ways innovation leaders from the survey used generative AI was to generate and interpret spend data insights. Users can ask questions to the chatbot about critical supplier dependencies, supplier financial stability, supplier diversity, regional reliance, and more. This allows quick, data-driven procurement decision-making and eliminates often inevitable human error.
Sample questions respondents asked the chatbot included:
- Is there a single supplier we depend on significantly within critical categories?
- Have any suppliers recently experienced financial instability?
- Is our supplier base overly reliant on a specific region?
With all this said, beware of algorithmic bias when relying solely on AI for supplier selection. Understand that this technology is informed by historical data, which could include bias against diverse suppliers. Generative AI learns from everything every user feeds it, and it’s entirely possible that more diverse suppliers haven’t been introduced to the AI, so it may not surface as a result of your search. If not mitigated properly, this can undermine company-wide Diversity, Equity, and Inclusion (DEI) efforts and even land organizations in legal trouble.
Supplier Contract Summarization
Reviewing contracts is an incredibly time-consuming task, and sometimes, finding the key information buried in all the jargon adds hours to what could otherwise be a simple query. Leading procurement organizations now use generative AI programs to summarize key contract terms quickly and easily, allowing them to review, analyze, and manage supplier contracts more efficiently and effectively.
Users can also ask these AI programs questions about the payment terms, termination conditions, deliverables, and other milestones as written in the contract. What used to take hours to scan a complicated document for the answer can now be found in moments. While generative AI is no substitute for a lawyer, it’s an excellent tool to help provide a “second pair of eyes” for anything that busy procurement and supply chain professionals – who often have to move quickly – might miss.
Sample questions respondents asked the chatbot included:
- What are the payment terms outlined in Contract X?
- Can you summarize the termination conditions for Contract Y?
- What are the key milestones and deliverables specified in Contract Z?
Notably, those using this technology should take care when inputting a contract – or any document containing sensitive supplier data – into a chatbot. While the conversations may seem “private,” AI is constantly learning from the information put into prompts, so there’s a potential to leak sensitive information. To avoid putting your suppliers at risk, take the time to anonymize or encrypt any uploaded non-public data.
ESG Compliance and Reporting
Environmental, social, and governance (ESG) compliance involves reporting on the elements of a company’s sustainability-related goals. AI’s natural language processing (NLP) capabilities can process reporting on elements like environmental practices, corporate governance, and social impact initiatives in simple, straightforward ways. As a result, stakeholders can get a clear picture of the company’s sustainability efforts.
In addition, companies typically collect an immense amount of data around their ESG efforts. AI’s data classification tools can organize that data so that companies can analyze their progress and identify areas of improvement. Put simply, AI makes it easier than ever for companies to commit to and make meaningful strides toward their ESG goals and report on those goals effectively.
Keep in mind that AI can generate false information that is convincing. Don’t solely rely on it to research market trends, verify data, or summarize ESG compliance requirements. Always double-check sources.
See More: 5 Keys to Unlock Healthy ESG and Business Transformation
Forecasting and Predictive Analysis
According to the DPW DEMO survey, forecasting and predictive analyses are the most well-known use cases for AI supply chain and procurement tools. AI can analyze historical data and market trends to predict potential supply chain disruptions. This can help procurement professionals make important purchasing decisions and maintain accurate inventory levels. While generative AI should always be able to make purchasing decisions independently, the valuable insights this technology adds to understanding demand fluctuations, inventory levels, and more is not to be overstated.
Be mindful, though, that AI’s capabilities are still limited regarding forecasting. As mentioned, AI is trained on outdated data, so it won’t be up-to-date on the latest geopolitical disruptions and events that could impact the supply chain.
See More: 5 Ways Predictive Analytics Will Transform HR
Embrace AI, With Caution
Undoubtedly, AI is unlocking a new frontier of possibilities in supply chain and procurement. The technology can empower leaders in these industries to anticipate and solve complex problems efficiently and effectively, speed up research and data analysis by hours (or days!), and can quickly distill complex information into sentences simple enough for anyone to understand. As challenges ranging from talent shortages to supply chain disruptions and economic strains continue to loom, AI will prove an indispensable tool.
That said, it can be difficult not to get wrapped up in the “hype” of AI. This is not a technology to be blindly embraced; it’s a dynamic force that requires continuous vigilance and thoughtful adaptation. By marrying the power of AI with human expertise, procurement and supply chain professionals can better navigate uncertainty and remain agile in an industry that’s evolving more quickly than ever.
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