Beyond the playing field – How Generative AI is changing the Procurement Endgame

Beyond the playing field – How Generative AI is changing the Procurement Endgame

June 28, 2024

Why the Use of GenAI is becoming a strategic imperative for Procurement

GenAI, or generative artificial intelligence, is a field that deserves a lot of praise for its potential to change our society, our businesses, and especially, our operations. The Procurement function, which is crucial for the success of any company, is undergoing a radical change that we named the "Procurement-Endgame" a few years ago. This change is driven by various factors, such as the growing business complexity, the demand for new skills, the rising compliance and ESG standards, the inflationary surge in the costs of raw materials and energy, the high instability in the raw material market, and the unpredictable geopolitical and ecological events. In this context, the interaction between Procurement and GenAI will have a significant impact on how this change happens and what shape it takes.

GenAI in procurement automates, speeds up, and enhances data gathering and processing.
GenAI in procurement automates, speeds up, and enhances data gathering and processing.
"The use of GenAI is inevitable. Those who do not adopt it will fall behind in competition and will be replaced - not by GenAI, but by those who embrace it."
Portrait of Pieter Niehues
Dusseldorf Office, Central Europe

Resembling human procurement expertise – the case of GenAI

GenAI and Large Language Models (LLM), which form the basis of its technology, are the first to produce creative output that resembles human work. This technology can help with various tasks, such as providing information for better business decisions, developing strategies, creating communication content, or interpreting and summarizing legal texts, contracts or any other document. This not only means a huge improvement in machine autonomy, but also challenges us to fundamentally change how we interact and collaborate with systems. However, this does not imply the end of the world as we know it; rather, it gives us a unique chance to make key processes, business functions and structures resilient, future-ready and efficient in a holistic way and to create incredible economic value with the human at its center.

The ultimate lever – the impact of GenAI on procurement

In the realm of Procurement, many optimization approaches and technologies have largely exhausted their potential when it comes to supporting CPO's digitalization and automation initiatives regarding plan-to-strategy, source-to-contract, and purchase-to-pay process activities. Against this background, using established data analysis technologies becomes a must, as does deploying chatbots and negotiation bots to allow users to interact with data using natural language. These strategies are highly relevant levers as we attempt to ensure the future viability of procurement; using GenAI is now truly a strategic imperative.

Procurement transformation vectors – the core GenAI use cases

One of the main similarities among GenAI's successful applications in procurement is the ability to automate, speed up and enhance the quality of data gathering and data processing activities. This is where LLMs can demonstrate their worth most effectively and extensively. They can assist us in creating knowledge and insights rapidly, while also improving the visibility of internal company expertise and data. GenAI can leverage these factors to achieve major advancements in procurement in six core areas:

"In the face of unprecedented market volatility and changing demands in the automotive sector, GenAI emerges as a transformative force in procurement, taking sourcing efficiency and supplier innovation to new levels."
Portrait of Felix Mogge
Senior Partner, Supervisory Board Member
Munich Office, Central Europe

Increased Efficiency
Generate category strategies, tender documents, or supplier contracts more quickly, and speed up supplier research or offer analysis, leading to substantial efficiency gains. In addition, GenAI agents can act as "guided buying" co-pilots to steer procurement activities and support cross-functional process participants throughout the entire process.

Improved Productivity
Boost productivity in relation to supplier-related processes, such as choosing and integrating suppliers, creating data-driven negotiation strategies automatically, or applying supplier risk management and ongoing performance monitoring from start to finish.

Accelerated Innovation
Assess prototypes and re-specification ideas effectively and understand how innovation affects material costs and the potential supplier portfolio. GenAI can enhance ideation and fast prototyping by automating manual tasks or speeding up the search for alternative materials and suppliers.

Risk Mitigation
Collect and condense information on possible supply risks as well as market and industry trends across different regions. Increase clarity and awareness so that proactive warning and alert systems and risk reduction plans regarding the whole supply chain can be created.

Spend Reduction
Enhance the quality of procurement choices by using better knowledge management and procurement processes. GenAI can also help you identify the most promising spend reduction levers or multiply your negotiation outcomes to access procurement productivity benefits.

Sustainability and Compliance
Facilitate the integration of fragmented and indirectly accessible information, the examination of complex and unstructured data sets related to greenhouse gas emission

Leveraging GenAI – procurement’s path into the future

Our report demonstrates that the use of GenAI in procurement will have a significant and lasting effect. GenAI will become embedded in the core of the most critical procurement processes, affect strategy, organization, and skill profiles. One thing is clear, though: there is no future of procurement without GenAI; no scenario in which what can be automated and augmented is not automated and augmented. The question is therefore not if, but only how procurement leaders will have to leverage GenAI and what needs to be done to participate in this transformation in the most effective and focused way possible and to map out the domain that procurement will oversee in the future.

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Further readings
Portrait of Felix Mogge
Senior Partner, Supervisory Board Member
Munich Office, Central Europe
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