“Procurement has to become an ecosystem builder for the enterprise, because no enterprise can do everything by itself in today’s world.” - Saurabh Gupta
AI may be dominating procurement conversations, but according to HFS President Saurabh Gupta, most organizations are still far from ready to realize its full potential.
In this episode of the ProcureTech Insider podcast, I speak with Saurabh about the current reality of AI adoption in procurement, the rise of “services as software,” and why procurement leaders need to rethink both their operating models and their role inside the enterprise.
Below is a recap of some of the key themes and insights from our conversation:
You’ve described AI as both a boon and a bane for procurement. What do you mean by that?
“Well, it’s a very disruptive force for procurement. And whenever there is a disruptive force, you can look at it as a glass half full or a glass half empty.
AI, I believe, has the power to fundamentally change how procurement does its business, from sourcing to payments. But at the same time, AI threatens to change some of the practices that procurement has been undergoing for ages.
Right now, everybody wants to use AI, but nobody wants to. We are all obsessed by AI technology, but everything around it is broken.
We have a huge amount of technical debt within procurement organizations. We have a huge amount of process debt in procurement. We’ve not really changed the way that we do things in procurement for so long. We’ve got a huge amount of data debt in procurement. We don’t even know where all the data is. And then there is a people debt as well, a cultural debt.
The technology is ready, but I don’t think procurement is.”
Where are procurement organizations actually using AI today versus just talking about it?
“There’s a lot of what I’d call ‘AI watching’ going around in the world today. Everybody wants to be AI first, and everybody claims to be AI first. And that’s just statistically not possible.
AI is not just one technology. There’s machine learning. That’s something that most procurement organizations are using in some form or fashion. Then there is generative AI, which is your ChatGPT or Claude or Gemini. I think we would say two out of 10 organizations have some good use cases of that.
And then there is agentic AI, which actually starts to look at doing things versus just sharing things. I think we are far away from adoption. In fact, we did some research, and I think 5% of procurement organizations have agentic AI scaled up in production.
Honestly, I feel we’ve not even scratched the surface yet.”
You mentioned procurement’s obsession with efficiency. What risks come with focusing only on productivity gains?
“With our clients, we’ve started to use what I call a 4P framework to understand the impact of AI.
One of those P’s is productivity or efficiency. You should have some productivity or efficiency. Otherwise, why are you doing it? But it can’t be the only thing.
The other three P’s are personalization, prediction, and performance.
Can AI make it more procurement friendly? Can it help employees improve their lives? Can it make you make better decisions, faster decisions? Imagine if another COVID comes into play. We did not have AI then. Now we have AI. Are we simulating our procurement and supply chains enough to figure out what happens if something goes wrong?
And then last is performance, business outcomes. How are we changing the fundamental business outcomes of procurement?
If you create a balanced scorecard across those four P’s, you’ll find that AI is making a meaningful difference.”
How should CPOs rethink category strategy and ownership for this new blended model?
“Procurement needs to understand the business in so much more detail today.
These commoditized pricings will go away. You will need to come up with a different way of pricing services as software because you can neither buy licenses nor rate cards.
The only way is to measure it against business outcomes. What is that new purchase trying to do? Align the pricing with the value of what it’s trying to drive. Which means procurement needs to be so much closer to business than it has been.”
What does an effective cross-functional AI deal team look like?
“The teams will be the same, but what you do within that team will start to become more blended."
If you’re an IT person, you need to understand business. If you’re a business person, you need to understand IT. And if you’re a procurement person, you need to understand both business and IT.
We can’t just say, ‘I will live in my silo and I will be successful at my job.’ That’s not going to happen.”
What practical steps should CPOs take over the next 12 months?
“First, let’s not be scared of AI. Let’s embrace AI.
Second, don’t obsess on the technology and the features and functionality, but start to actually address your debts in the procurement organization. Whether it’s data debt, technology debt, people debt, or process debt.
And third, go sell yourself better.
You have a chance to become an ecosystem builder for the enterprise, not just somebody who buys things cheaper and faster.”
