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AI in Supply & Procurement

Conference Paper · February 2019

DOI: 10.1109/AICAI.2019.8701357

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 AI in Supply & Procurement
Ashok Chopra1
1Business and Commerce, Amity University
Dubai International Academic City. Dubai.
United Arab Emirates
[email protected]

Abstract— supply chain look into AI and Big Data to fully exploit its
For procurement organizations challenge is always to identify potential.
suppliers they should be evaluating, who are the leading suppliers
PREVALENT TODAY AND SCOPE FOR FUTURE:
in the region, and what may ensue that could impact future buying
decisions such as potential market consolidation, and mergers and The IT definitely contributes to all the factors as mentioned in
acquisitions. AI can search and extract relevant information across introduction section but extent depends upon organization to
thousands of digital sources and utilize any contextual training on organization and also objective and strategy of organization
procurement market intelligence to quickly understand and sort in including its IT strategy. “Following are important IT tools used
various categories and subjects across procurement”. In the domain by organizations used consistently over past few years, Materials
of procurement, the benefits of Big Data and AI can be significant..
management module (ERP-System), Reporting & controlling
AI and Big data can serve impact able contribution in respect of raw
material prices, lead time, environmental and business risks
tool, Electronic data interchange (EDI), Tool for supplier
supplier might face in particular geography. With right decision evaluation, Catalogue management tool for indirect goods,
making and experienced leadership organizations can achieve Desktop purchasing of indirect goods, Contract management
noticeable improvement in procurement and supply chain. tool, Online invitations to tender, Online purchasing auctions,
Web platform for scheduling and planning with suppliers, Web
Keywords—AI in Procurement and Supply. The Future of
platform for product development with suppliers. ERP system
Procurement, Scope of AI in Procurement and Supply, enables n organization to oversee the utility of resources such as
Procurement too would synthesis AI and Big Data. materials, HR and financial resources by providing a total
optimized and integrated solution for the organizations
I. INTRODUCTION information processing needs (Wang and Nah, 2001)”.
“Supply Chain Management involves the planning and “Enterprise Resource Planning: Various established (SAP,
managing of all areas of an organization dealing in sourcing and Oracle, JD Edward, People Soft) and local grown ERPs are in
procurement, transformation, and all Logistics Management use with particular focus on material management module in
activities. Importantly, it also includes synchronization and SAP it is mainly known as Enterprise Buyer Professional (EBP)
cooperation with channel partners, which can be suppliers, and its preceding version (BBP). ERP systems such as tally and
intermediaries, third-party service providers, and customers. In pastel to integrate activates such as finance, manufacturing,
essence, Supply Chain Management incorporates supply and inventory control and purchasing”. “They also use electronic data
demand management within and across companies”. In this interchange to exchange electronic documents such as invoices,
procurement in terms of percentage is least (approximately 5.5% RFQs, purchase orders and waybills. There is also use of
depending upon industry) but plays the most vital role. “The extranets and internets that allow sharing of information between
main goal of procurement is reduction in buying prices, however employees, management, suppliers and customers (Ackerman’s,
other priority include are Optimization of total costs of et al, 2003)”
procurement, Internal process optimization, securing supplies,
Visibility in cost transparency, Meeting quality guidelines, EDI: Today Organizations use IT in design of processes
minimizing warehouse costs, Reduction of the number of beyond the company’s borders in interchange of structured,
suppliers (Having Strategic Suppliers), Product development electronic business documents with suppliers. The documents
with suppliers, Outsourcing of operative procurement processes, exchanged include Purchase orders, Invoices, Order
if possible, Outsourcing of strategic procurement processes”. As confirmation, Request for quote/bid, Dispatch advice,
“Graham et.al, (2013) states. For procurement organizations transportation documents, delivery advices, advance manifest
challenge is always to identify suppliers they should be etc. “As of today, organization’s B2B documents which are
evaluating, who are the leading suppliers in the region, and what exchanged electronically when compared with the total number
may ensue that could impact future buying decisions such as of documents, including those in paper form, orders and invoices
potential market consolidation, and mergers and acquisitions. AI achieve the highest values especially B2B market place and B2B
can search and extract relevant information across thousands of transaction platform. Organizations also offer their suppliers a
digital sources and utilize any contextual training on web portal (Web EDI) for the reception or provision of electronic
procurement market intelligence to quickly understand and sort data by means of web browser via such a service provider”. “In
in various categories and subjects across procurement”. future B2B marketplaces could accelerate the integration of
materials, and operational risk of their suppliers and the suppliers with the procurement system”. “Lot of studies reveal
geographies they operate in. With the right leadership and that despite of a growing share of purchased services, the
decision-making skills, this information can boost AI has the management of these costs and processes is not yet very
potential to rapidly transform business processes and disrupt advanced compared with cost management of direct and indirect
industries? Sooner the better organizations in Procurement and goods”. The support of services procurement by means of
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information technology is, in comparison, not very developed. connected objects, drones and 3D printing would replace current
The process efficiency in the procurement of service is high as way doing business”.
compared to products. IT support is integral to success of E The way organization would capitalize would be New Cost
Procurement”. The challenges as of today are high introduction Performance way meaning challenging traditional supplier to
costs for new solutions, poor master data. pure digital way. Accelerating adaption of digital way. “The
SRM today is not as widespread as Customer Relationship evolution to digital way is going stay and advance. Procurement
Management. Functional Chain of optimization in Procurement and Supply Chain organizations can benefit because technology
is as follows: to maximize procurement controls Using of big data to test
demand and suppliers more effectively. Utilize Blockchain to
protect dealings and transactions”. “Leveraging of benefits with
new economic models. How to evolve a strong digital vision and
culture within the procurement community? How to ensure that
procurement effectively manages resulting limits and
implications? The next level of challenge would be executing
initiative around, Chief Product Officer, Chief Data Officer,
Chief Information Officer. Procurement and supply need to
ensure how to ensure agile resource allocation and engage
prescribers and suppliers?” The challenges and next steps for
Procurement and Supply would be as follows:
“Capitalize on New Cost Performance metrics: Digital
revolutions driven by technological innovations are paving way
to new performance perspectives for company business lines and
external suppliers”. To have advantages the most of these
distractions, purchasing faces three main challenges:
And these are business integrate new opportunities and
challenges to their operations. Challenge traditional suppliers on
their digitalization levels and integrate pure digital suppliers to
. organizations updated digital platforms.
But scenarios are changing fast. “Today the non - Next Frontier of Procurement Performance due to
homogeneity of procurement systems and processes due to Digitalization would be as follows:
distributed procurement structures which is prevailing over a
period of time makes not only transparency more difficult but
also the identification of weak links and the accumulation of
demand. The gain of control of central procurement should
enacted, which is to say that procurement as a whole should be
decentralized. Investment in IT should direct to procurement
proficiency. IT investment pays for itself more quickly when
used in a broader way, where ever possible with organization
wide application. It further increases transparency because
performance indicators are uniformly raised and benchmarks
should be set”.
In Next decade, more than seventy percent of the world’s
population will access the internet exclusively via portable Commented [AC1]:
devices (PDAs), with the number of such devices projected to
cross over five per individual on an average. “Over ninety five “In achieving above what steps Procurement and Supply take
percent of all data available today was created in the past three in digitalization of businesses to maximize advantage, the
years, and this figure is expected to increase by twice every two procurement heads have already tackled easy saving through
years. “With Big Data being future Artificial Intelligence is initiatives by ERP, SRM, Vendor evaluation, supplier integration
going to play major role and procurement is shifting gears to etc. however their next focus should be on digital supplier
ways. Data is becoming key for large organizations. So much so relationship (DSR) there are endless opportunities through E-
it is believed that the kind of data being generated over last commerce, online banking, digital marketing, connected objects,
decade is going to be generated every two years. Mobile would robotics, artificial intelligence, 3D printing, and drones: The
the way to success. Examples of Uber and such services digital world and its host of innovative technologies offer
worldwide have changed business norms. Traditional way of businesses unprecedented opportunities to rethink their practices
doing business soon would be game of past”. “Organizations and operate with completely new cost structures that are more
would deploy AI even in Procurement and supply. IoT would be attractive than previous models”. That is the reason banks
the way to speed the supply chain and customer demand worldwide are shrinking their physical branch numbers and
satisfaction would be key. As we move into every new era things paving way for Online and digital banking. “Walmart the
like digital client relationship, blockchain technology, robotics, American giant retail chain shut more than 265 branches in 2016
data management, new economic models, robotics, AI and Amazon the Online Retail expert moving to Amazon Go
Concept store leaving Cash Registers and cashiers to impressive
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combination of technologies that leverage mobility, the digital
and social consumer ecosystem, connected objects, captors,
radio frequency identification (RFID), and big data with
machine learning algorithms”.
“AIDR Artificial Intelligence, Robots and Drones: Robots are
paving way for human labor, performing tasks once considered
beyond their capabilities,. These trends are particularly prevalent
in industry (collaborative robots) and logistics (AGV – auto-
guided vehicles, such as autonomous handling equipment), as
well as shipping (self-driving trucks). Following are few of
news flash in support of AIDR’

Use of Artificial Intelligence and Big Data to Maximize

. Procurement Initiative: The most important aspect of AI is why
type of data procurement and supply should focus on. Obviously
Connected objects: For procurement directors, the game is on:
first should be on procurement and finance related data which
Performance improvement can
can be captured through ERP in use. The next important would
be supported through a variety of novel means, and these must be department wise cost data like HR, “Finance,
be harnessed. “IoT offer countless yet still unexplored Procurement/Supply Chain. The next focus is on in depth Data
opportunities. growing capabilities of Holon based mechanical visa - Vis external sources, from suppliers (such as integration of
equipment to self-detect defects and send out relevant supplier inventory), customers (identification of cost-generating
notifications allows maintenance resources to be mobilized on customer profiles), or third parties (raw material prices and
an as-needed basis. These resources can then be reallocated to supplier certifications)”. The reason for doing so would be to
higher yield initiatives. Notably, BP, the oil and gas giant, has understand consumption pattern, to challenge and track demand,
engaged with such technologies”. maximize negotiation initiative,
“3D Printing: In the areas of construction, maintenance and
engineering 3D printing drastically reduces the cost of designing
and production allows specific customer demands to be met by
ability of manufacture near to customer sites radically
challenging the logistics, transportation and storage cost”.
“Procurement may also find adoption of new emerging
technologies difficult, especially where their cost-effectiveness
and overall positive influence has not been well established.
Finally, new suppliers and providers may have scant track
records and thus pose significant risks in partnerships”.
“For Procurement and supply to be more efficient need to
support organization at many fronts like engaging in getting
regular market intelligence and collaborating with all concerned Using Block chain to secure Supply Chain:
stakeholders. “Today one can find Block Chain in many areas including
Qualify and quantify performance objectives, provide financial sector, however IT organizations are continually
efficient and agile support to business lines by POC (Proof of developing and working in Supply Chain and Procurement
Concepts), conforming to business lines projects, supporting and sector”. In fact Wall Mart and IBM are jointly working on Block
finding new comers who can offer valuable innovations. chain system to trace meat/pork from producer to customer. For
Streamlining relations with pure players, Rejuvenate exiting retailer to have such information from producer to customer
suppliers”. including storage and shipping temperature conditions gets them
competitive Advantage “In Terms Of Customer Confidence,
Product Quality and Food Safety. The Mining Giant, BHP is
testing to track the movements of rock-drilled shafts and fluid
samples. Block chain technology allows all involved parties to
share sample location data in real time, taken from suppliers at
every continent”.
“Block Chain is available in privately owned servers as well
clouds IBM block chain-certified Linux ONE servers which
make organization/developers to use extensively. The security
impacts on data are also high, because block chain-type databases
can contain much more information than retail distributors

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currently possess, the door is open to the next generation of data SOFTWARE AIDS AS EMHANCERS OF SMART LOGISTICS
analytics”. OBJECTS

How Block Chain works is: “Software agents constitute a suitable standard both for
conceptual design and technical comprehension of the digital
counterpart of intelligent entities. This is primarily due to the far-
ranging o consistency, the prerequisites for decision systems, and
well-accepted notions of agency. (Wooldridge 1999) defines that
“an agent is a computer system that is situated in some
environment, and that is capable of autonomous action in this
environment in order to meet its design objectives.” (Wooldridge
& Jennings 1995) propose the weak notion of agency which
stipulates the following minimum criteria for intelligent agents
which immediately fit smart logistics entities as particular class
of agents as well (Woolridge & Jennings 1995). These are:
autonomy, reactivity, pro-activeness and social ability. Some
researchers in the field of artificial intelligence adhere to a more
precise conceptualization. According to this strong notion of
agency (ibid), an intelligent agent is conceptualized or
implemented using concepts drawn from a human context. For
instance, agents are characterized using mentalis tic notions such
as beliefs, desires, and intentions (Bratman 1987)”..

THE IOT AS AN ENABLER FOR INDEPENDENT CONTROL IN

LOGISTICS
The extension of physical objects with decision systems,
sensors, and actuators, as well as the permeation of the
environment with IT is central to several multi-disciplinary,
increasingly convergent fields such as Ambient Intelligence,
Universal and Prevalent Computing. “The autonomous control of
logistics objects can be made possible by recent developments in
these fields which culminate in the Internet of Things
“Block chain arranges data in a mode that makes it possible (Floerkemeier et al. 2008).”
to create and share a digital journal in which all forms of
transactions are recorded. Data in Block Chain technology can’t
be altered thus makes it one of the safest options”. ANEW SOURCES CAPITALIZATION:
“The development of intermediation platforms, the sharing
economy, and programmatic media procurement are three major
IAPPLICATIONS OF BLOCK CHAIN TECHNOLOGY IN SUPPLY
examples of these new models and the new sourcing options they
CHAIN:
generate.” Uber is classic example of same.. “Uber and Airbnb
are now also offering competitive alternatives to taxis and hotels
“Overall approach of Block chain Technology is data for business trips and travel through their dedicated “for
authenticity and integrity. In Supply chain and Procurement, it business” offerings. In the field of logistics, retailers and delivery
used to introduce previously not attainable transparency in puts retail distributors in contact direct with shipping operators
sourcing and distribution channels. Currently, such information to ensure last-mile transportation, thus simplifying subcontractor
will be partial, not verified, not authenticated, and most relations that were yet complex in a fragmented, non-transparent
importantly, held Block chain structures data in a way that market of variable quality.”
makes it possible to create and share a digital paper in which all America’s Leading On-Demand Roadside Assistance Service
forms of transactions are recorded by each of the numerous
players in the supply chain. Data quality thus degrades with
every transaction, and the end user has but a fragmented pixel of
the full picture on the purchased product. Block Chain can be
used to trace not only manufacturer but also parties involved in
value adding, handling, shipping, storage, and product
enhancement.” IBM along with Food Safety Collaboration
Centre in Beijing in association with Tsinghua University is
improving the tracking of food products meant for Chinese
consumers. The security impacts on data are also huge, because
block chain-type databases can contain much more information
The sharing economy or Performance economy: The
than retail distributors currently possess, the door is open to the
emergence of intermediate on one hand has brought transparency
next generation of data analytics.
and simplicity on other hand assets are offered by non -
professionals at extremely low marginal profit. “For

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procurement, these new economic models offer the emergence “Effectiveness: Improvise the impact of data analysis tasks by
of new sources, new types of partners, and new ways to obtain improving their accuracy and comprehensiveness; maximize the
services. Conversely, such platforms, which represent the impact of collaboration by multiplying points of contact within
potential suppliers of tomorrow, could also enable companies to and outside the organization, in order to work on descriptive
monetize underutilized or idle assets, generating complementary optimization levers and maximize the level of control over
revenue”. It’s up to procurement to shed light on all of these consumption (volume driver) by ensuring the reliability of
potential applications e.g. transactional systems. And when it comes to IT resources provide
them to Procurement as we provide to IT, Supply Chain,
Warehousing, marketing and manufacturing”. Today P2P
(Procurement to Payment software is being adapted at very rate.
Gathering the AI Toolbox
There are a number of technologies encapsulated by the term
artificial intelligence. These include machine learning (ML) and
deep learning (DL)—also called deep neural networks—natural
language processing and natural language understanding (NLP
“Programmatic buying: When it comes to procurement media and NGU) and computer vision. AI technology systems—the
space, digital transformations have driven the beginning of combination of various AI technologies and the essential raw
programmatic buying. There are veritable online exchanges that material of data—include robotics, autonomous vehicles, and
have transformed a previously long, unresponsive, and complex virtual agents
procurement process into an almost instant transaction based on
the analysis of a complex combination of data, machine-learning
systems, and practically instantaneous contacts between buyers
and sellers”.

COLLABORATION AND DIGITIZATION OF PROCUREMENT

PROCESS:
“The objective behind digitization is making procurement
free from physical interferences with all concerned stakeholders
in order to liberate resources for higher value tasks. The
digitization process also creates new data which can be used for
evaluating supplier transactions, consumptions model and
analyses of procurement practices”. How Source to Pay Process
Activities Work is diagrammatically working is shown as
follows:

The following Chart shows adaption is USA:

Source-To-Pay Process and Activities

ACTIVITIES AND OBJECTIVES CONCERNED WITH

PROCUREMENT DIGITATION ARE:
Efficiency: Enhance resources spent on all activities,
specifically in regard to growing pressure on procurement costs
and personnel, to achieve the attainment of the best possible
output at the lowest possible cost, and to focus the efforts of
buyers, whose time is an expensive resource, on higher-value
tasks.

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 ROBOTIZE SOURCING TASK THROUGH (RPA) ROBOTICS
PROCESS AUTOMATION:
“The advent of AI and Robotics presents huge opportunities
for repetitive and complicated transactions. We are just 4 to 5
years away from next generation of robots who are going provide
innumerable solutions to process automation. In area of
procurement RPA would enable industrialized data analysis,
understanding consumption prescription patterns; producing
“Ariba, Emptoris, Zycus, and Bravo to name just a few who analyses; classifying expenditures and benchmarks; and helping
have developed various suites and modules focusing only on us in preparing vendor negotiations; taking care of Decision
procurement... Generally IT investment is limited percentage of support systems, providing cognition to repetitive and automated
acceptance is low and utilization remains difficult and highly tasks”.
expensive”.
“The Benefits of RPA (Robotics process automation) And
“In order to improve procurement digitization all need to Robotics Process Automation Types and Applications are as
address issues like improving analytics, introducing next follows: RPA is useful for older generation systems and new
generation E Procurement solutions, target paperless office digitized addition to older systems by automation. RPA would
special procurement and supply, Virtual Collaboration through also be useful for small scale processes consuming large
Video conferencing by PC/mobile/tablet, screen sharing, and resources. Repetitive, rules-based tasks that rely on structured
synchronized online collaboration with unique documents are data (Taskbots) used to retrofit legacy processes would require
practices that can be institutionalize at affordable cost with substantial configuration, adaptation, and maintenance, given
trying achieve tangible gains. Technological advances, coupled that they operate on the front-end. They are extremely sensitive
with the outburst of mobility, data, and cloud computing, make to changes in front-end layouts and in interactions with other
these approaches more relevant than ever. There are many applications”. This is particularly true in the context of the wide
approached to achieve this and few of them are using of reverse number of small processes that might be equipped with RPA.
CRM, develop best of the category solutions, join hands with
The Challenges and Advantages of RPA in Procurement:
innovative startups”.
Here is Landscape of Leading Procurement Solutions
Providers and of Most Influential Procurement Startups

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 “To sum up on RPA in the medium term (five years) from
now, when AI solutions and machine-learning processes reach
significant development, the talent management and
organizational implications will be more visible”.
DESIGNING A DIGITAL PROCUREMENT TRANSFORMATION
PLAN:
“To take comprehensive advantage of AI and digital
revolution complete procurement plan need to be revamped. This
includes developing digital vision and philosophy in supply and
procurement, articulate the actions of the Chief Data Office,
Chief Information Office and Chief Procurement Officer
triangle, Focus on New Capabilities, Rework and Rethink on
SRM, focus on AI and Big Data Analytics, Develop and
Implement a systems and data integration roadmap”.
It’s all about the Data Artificial intelligence systems are only
as good as the data they process and offer output. A significance
for procurement executives is to gain access to number of sources
of relevant data as possible to feed into their AI engines/apps.
Gartner has identified four categories of data and provides insight
into how to maximize the value. “Supplier data: Procurement
applications and networks can be used to gather supplier data
efficiently by enabling suppliers to submit this information on a
self-service basis”. Ideally, supplier information is shared across
multiple buyers on a permissions-basis to avoid repetitive data
entry and enable scalability for suppliers. Internal data: For spend
analytics and supplier performance management, data from
internal systems—such as ERP, supply chain management,
quality management and even CRM systems—can be leveraged
to provide data for insights and classification. Subscription data:
As reliable data becomes more valuable, credible data
aggregators becomes more relevant. Vendors such as Dun &
Bradstreet and Bureau van Dijk already provide financial
information that can be used in supplier evaluations and
scorecards. There are other types of external data sources that
should be explored, such as weather services or commodity price
indexes. Public data: External public data is without doubt the
largest and most complex source of data. Different sites have
different levels of reliability. Even within sites, reliability can
vary and the data can be unstructured. This is the area that puts
the greatest requirements on the smart procurement solutions and
on the procurement analysts using them. Understanding the
technology is important to understand the reliability of its alerts
and recommendations
RPA Adoption in Procurement to Pay:
CONCLUSION
AI, Robotics, SRM, New Supplier Resources, Block Chain
Technology going to change the face of Procurement. Next four
to five years Procurement would see new IT start ups offering
suite of IT services to Make Procurement not only robust but also
cost effective and productive. The members of procurement
organizations would be contributing to other priority tasks as
automation and robotics would make procurement automated to
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extent.” To be ahead in procurement organizations need to get
into strategic collaboration with procurement organizations.
Procurement organization is consultation with their IT
department negotiate for better IT services, procurement related
software, cloud and hybrid infrastructure, this would reduce risk
and achieve desired outputs”. Collaborate among procurement,
sourcing, asset management, finance, vendor relationship and
management, transform procurement to remain digitally relevant
and efficient. Bottom line, procurement leaders must become
AI-conversant so they can onboard and direct the professionals
who possess the skills to leverage the tools. Without competent
staff, it’s widely believed it will be nearly impossible for
companies to build next-generation strategic sourcing and
procurement organizations. Perhaps the most important skillset
for new hires will be data scientists and engineers who are
experienced in applying AI and have domain experience.

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[5] Economist (2005): The new face of purchasing, Economist Intelligence

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