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Separating AI Hype from Digital Procurement Value

By October 29, 2023No Comments

“It’s important for providers to understand it’s not just about providing technology, but a solution that actually drives value. They have a responsibility to ensure that the implementation and adoption go well because it has a long-term effect.”  – Chris Sawchuk, Principal and Global Procurement Advisory Practice Leader at The Hackett Group

Procurement has seen an explosion of providers offering AI-powered solutions, reshaping the procurement technology landscape for organizations and teams around the world. While this is an exciting time, it also presents new challenges for procurement teams looking to choose the best solution providers in a crowded, digital ecosystem. 

I recently had the opportunity to speak with Andy Warzecha, Principal and Chief Market Intelligence Officer, Christopher Sawchuk, Principal and Global Procurement Advisory Practice Leader, and Rick Gardner, Director, from The Hackett Group. They discussed how procurement can implement The Hackett Value Matrix to create new opportunities for innovation and improvement. 

One of the solution types they say is getting the most attention now is AI-driven technology. 

“There’s a lot of noise happening … and a lot of innovation and change as far as vendors displacing one another,” said Andy. “So it remains a high interest area with a high return.”

Understanding the AI hype

It is important for procurement to discern between hype and marketing messaging from providers and the real-world impact of these technologies and how they are being used to create value. “It’s still early days,” said Andy, and procurement should evaluate AI solutions thoroughly, but there is an element of the “hype” around AI becoming an actual reality. 

“The rate of change that’s happening around AI and how it’s making its way into products across the board for all of the vendors that we have looked at is staggering,” he added. 

How AI is making its way into procurement

As Andy pointed out, most vendors seem to offer AI-oriented solutions, with numerous capabilities evolving from product labs to actual customer use at a high rate of speed. There are a few areas where The Hackett Group is seeing the biggest impact of AI in procurement:

  • Virtual Assistants: Providing valuable support to procurement professionals.
  • Guided Buying: AI-driven assistance in making informed purchasing decisions
  • Supplier Risk Rating: Automating supplier risk assessment and mitigation 
  • Accounts Payable Automation: Streamlining and increasing accuracy
  • Smart Coding: Transitioning from traditional business rules to AI-based coding
  • Fraud Prevention: Game-changing abilities to detect and prevent fraudulent activities 

The expansion of AI in these areas will lead to increased efficiency and performance for procurement, but with transformation often comes risk and a greater need for due diligence when choosing a solution provider. 

Navigating the AI provider landscape

While AI has the potential to be transformative, it is essential not to get distracted by the latest bells and whistles. Core objectives, such as speed, visibility, and cost savings, remain paramount, and buyers should evaluate the impact of AI on these fundamental areas.

The rate at which organizations are implementing AI is growing, but it is crucial to stay focused on tangible benefits. AI should enhance an organization’s existing objectives rather than distract from them or create a new set of problems to solve. The impact on performance, goals, and returns should be the ultimate measuring stick when evaluating AI-based solutions.

Adopting any solution should be about more than “hype,” Chris said. “Don’t lose sight of why you’re implementing or investing in a particular area. Everyone has to answer the question of how you’re integrating AI into your product, but the question is, how is it impacting the things that you were doing before and how is it making that even better in this new environment?”

The role of digital literacy

Implementing AI solutions requires a skill set that many procurement organizations may have to develop further. Organizations will need to adapt not only to the positive impacts of AI but also to the potential staffing or development needs that AI introduces. Recent research from The Hackett Group suggests that AI could impact staffing levels in procurement significantly within the next 5 years, further emphasizing the need for ongoing skill development and adaptability. “There are certainly going to be positive impacts” from AI, said Chris, but procurement also has to ask itself “how are we going to deal with this on a go-forward basis?”

The takeaway? Prioritize value, even with AI

The success of a solution isn’t determined by the solution itself or its capabilities and features. Rather, the way it is adopted, implemented, and integrated into the existing environment plays a pivotal role in determining the value it offers to the business. In order to navigate the growing number of AI-focused providers and adopt solutions that will bring the most value, procurement should balance the lure of the latest AI capabilities with a real-world sense of how successfully the solution can become a part of the organization’s DNA. 

“Don’t get distracted by the bells and whistles,” said Andy. “Focus on the core competencies and the returns.”

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