Traditionally, sourcing professionals have managed sourcing with some help from technology and spreadsheet-driven calculations, often ending up doing tactical, repetitive work instead of strategic tasks. Supply chain disruptions caused by pandemics and Environmental, Social, and Governance (ESG) requirements have forced sourcing professionals to create strategies that prioritize on-time supplies over cost. Sourcing professionals now seek solutions that simplify the sourcing process by embedding cutting-edge technologies and smart algorithms using Artificial Intelligence (AI), machine automation, and 360-degree transactional insights.

AI-Driven Transformation in Strategic Sourcing

AI is fundamentally changing the face of sourcing practices within organizations. AI provides enterprise-wide visibility into procurement aspects that humans simply cannot replicate at scale. It helps deliver powerful optimization capabilities required for more accurate sourcing, improved productivity, and lower costs. Multiple AI models can be embedded into the sourcing cycle to deliver operational efficiency, add greater strategic value, and gain competitive advantage. For example, smart supplier discovery tools have transformed the traditionally tedious and time-consuming process of identifying suppliers. By describing products or services with specific requirements such as location, capacity, and geography, sourcing professionals can now access millions of suppliers' data in a fraction of a second from various sources, including proprietary databases, public domain, and commercial databases.

Innovative Approaches in AI for Sourcing

The development of AI-based supplier discovery tools has fundamentally changed the speed and efficiency of finding the right suppliers and optimizing a company’s supply base. Leveraging AI and Natural Language Processing (NLP) algorithms, these tools match the sourcing professionals' defined criteria, significantly narrowing down the supplier database. This approach is not only useful during crises like the pandemic but also beneficial when companies develop new products, enter new markets, and continually rationalize and optimize their supply bases.

AI-recommended sourcing events and suppliers also offer significant advantages. Historically, sourcing managers spent considerable time creating sourcing events, including tasks such as creating lots, setting up collaboration teams, selecting suppliers, designing category-based questionnaires, and creating rules for supplier evaluation. Sourcing applications embedded with AI models can auto-prompt suggested event templates with pre-embedded questionnaires, suppliers, and evaluation rules, increasing productivity significantly.

Autonomous Negotiation and AI Forecasting

Autonomous negotiations are another innovative method enabled by AI, This capability allows sourcing professionals to focus on strategic work while machines handle the implementation. A notable example is the hagglebot used by Flipkart during their Big Billion Days sales event in 2021, which allowed customers to set offer prices and bargain over catalog prices with virtual assistance bots.

AI forecasting in commodities is another area that automatically breaks down structured and unstructured data to create should-cost models predicting commodity prices with minimal human intervention. This capability helps sourcing professionals devise sourcing strategies based on accurate commodity forecasts, ensuring better cost management and strategic planning.

Data-Driven E-Auctions

Data-driven e-auctions represent a significant leap forward in sourcing practices. Traditionally, sourcing managers provided information about line items based on which suppliers bid in reverse or forward auctions. Due to incomplete information, suppliers often submitted high or low bids, resulting in event cancellations, and wasted efforts. Modern sourcing applications with AI-driven models and intuitive user interfaces provide a comprehensive 360-degree view of each auction item, enabling suppliers to submit accurate bids the first time. For instance, the sourcing tool used in the 2022 IPL auction included an AI model that offered a detailed view of players, aiding franchises in making informed bidding decisions.

Leveraging AI Models

As a final vantage point, it is imperative that AI models enhance an organization’s strategic sourcing capabilities. These models will help manage sourcing in ways that save significant amounts of money and open new and unique procurement avenues to deliver business value. By embracing AI and building the necessary infrastructure and knowledge bases, procurement teams can revolutionize the S2C process, driving innovation and delivering greater value. The journey may be gradual, but the destination promises a new era of procurement excellence. Let’s come together in the journey of embracing the future of sourcing the AI way.

Author: Akaash R, Analyst at Quadrant knowledge solutions