Sep 06, 2023
Guest Blog: How important are human skills in successful AI supply chains?
The rise of ChatGPT saw AI talked about more than ever in 2023, but what actually is it?
The Oxford Dictionary defines Artificial Intelligence as
the theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.
How can AI be used for Procurement?
Artificial intelligence (AI) can be applied in various ways to enhance and streamline the procurement function within organisations, resulting in successful AI supply chains. By leveraging AI technologies, procurement professionals can improve efficiency, reduce costs, enhance decision-making, and gain valuable insights.
Here are 8 ways AI can be used in different forms both now and in the future, for procurement:
1. Spend Analysis: AI-powered tools can quickly analyze large datasets of procurement spending to identify patterns, anomalies, and cost-saving opportunities. This helps organisations optimise their supplier relationships and negotiate better deals.
2. Supplier Selection and Evaluation: AI can assess supplier performance based on historical data, quality metrics, delivery times, and other factors. This aids in selecting the most suitable suppliers and predicting potential supplier risks.
3. Predictive Analytics: AI can use historical procurement data to predict future demand, price fluctuations, and potential disruptions in the supply chain. This enables more accurate inventory management and procurement planning.
4. Chatbots and Virtual Assistants: Chatbots and virtual assistants can handle routine procurement inquiries, freeing up procurement professionals to focus on more strategic tasks. These AI-driven tools can provide quick responses to common questions, process purchase orders, and even assist with supplier communication.
5. Demand Forecasting: AI algorithms can analyse various data sources, including historical purchasing data, market trends, and external factors (e.g., economic indicators), to improve demand forecasting accuracy. This helps organisations maintain optimal inventory levels and reduce excess or insufficient stock.
6. Ethical Sourcing and Sustainability: AI will aid in ethical sourcing and sustainability efforts by tracking and verifying suppliers' adherence to social and environmental standards. This is particularly important as sustainability becomes a more significant focus for consumers and regulators.
7. Blockchain Integration: Combining AI with blockchain technology can enhance transparency and traceability in the procurement process, particularly for verifying the authenticity of products and ensuring the integrity of transactions.
8. Globalisation and Multilingual Support: AI will play a role in facilitating international procurement by providing multilingual support, currency conversion, and compliance with local regulations and customs.
But what does this mean for future procurement skills?
The future of AI procurement is about enabling organisations to make more informed, data-driven decisions, optimising processes, reducing costs, and enhancing supplier relationships. However, successful implementation requires a change of direction for procurement departments, to a more strategic approach, robust data management, and ongoing investment in AI technologies and talent.
This could lead to Procurement professionals becoming data analysts rather than commodity or category managers. Larger procurement teams may have specific procurement data analyst roles. The procurement team of the future will need to be more technologically savvy and analytically minded, so training will be an ongoing need as AI continues to leap forward in its abilities. This will be essential to avoid what Bernard Marr mentions in his book ‘Big Data’ i.e. that organisations will become data rich, insight poor, with an overload of information but very little skills to critically analyse the data they have.
While AI can automate many aspects of procurement, it cannot replace the human touch and nuanced decision-making that soft skills provide. The saying ‘we do business with those we know and like’, is well known for a reason. Although powerful, AI+ struggles with complex processes that often involve understanding human elements such as negotiation, including emotions, motivations, and cultural nuances.
There is a need for emotional intelligence, what the CIPS Supply Century paper refers to as ‘social intelligence’. Behavioural procurement is an approach that takes into account the behavioural aspects, biases, and psychology of both buyers and suppliers in the procurement process, recognising that human decision-making is not always rational and that psychological factors can influence procurement outcomes, and this should become the focus of procurement training, as these are the skills that cannot (as yet) be replaced by AI.
Future proofing: What soft skills should businesses be focusing on?
Procurement departments should be future proofing their function and investing in soft skills training, as well as technical training in AI in order to stay competitive. While there are many soft skills that are important, in my opinion these are the areas that organisations should focus on as a priority.
1. Rapport & trust building due to the need for more cross-functional working.
AI in procurement relies on data from various sources, including finance, inventory, operations, and supplier data. To harness AI effectively, different departments within an organisation must work together to ensure data integration, quality, and accessibility. Procurement will need to collaborate with other professions to embed good practices and act as the guardians of standards. (CIPS Supply Century)
2. Influencing & persuasion skills are essential
As with the rise in cross-functional working, procurement can no longer just rely on legitimate power that they hold over suppliers to achieve their outcomes. Pedler et al mention the need for connection power. Using persuasion and liking to achieve outcomes where there is no direct hierarchical power to exert. As the CIPS Supply Century document argues, Professionals need to be more polished, creative, influential, persuasive, visionary and strategic to achieve their goals.
3. Emotional intelligence (EI) and the ability to accurately read others.
Procurement professionals often interact with various stakeholders, both internally (e.g., colleagues, management, end-users) and externally (e.g., suppliers). EI helps them understand the emotional and practical needs of these stakeholders. While AI can provide data-driven insights, it may not fully grasp the nuances of human emotions and preferences. Emotional Intelligence will enable procurement professionals to correctly identify the emotions their stakeholders are experiencing and address these in the correct way. Let’s not forget that implementing AI-driven procurement solutions often involves changes in processes and workflows. EI is essential for change management, and for understanding how these changes affect people on a personal and emotional level. Procurement professionals with high EI can empathise with colleagues facing these changes and provide the support needed for a smooth transition.
While AI will continually impact supply chains, soft skills are essential for building relationships, adapting to change, making ethical & sustainable decisions, and effectively communicating with stakeholders. Successful AI supply chains will require a combination of AI-driven insights and strong soft skills to produce the most effective approach to procurement in the future.
About our Guest Author – Laura Scarfe is the founder and owner of Business Academy Online - specialising in CIPS procurement training, leadership, negotiation, and emotional intelligence.
Litsa helps Supply Chain and Operations teams (supplier or retail side), to be more motivated, autonomous, and effective, so they succeed and be recognized for doing so. She also consults to ultimately help Supply Chain managers make the often-tricky transition to leaders.