Generative AI in Procurement | Deloitte US has been saved
Generative AI in procurement allows organizations to not only "do things differently," but also to "do different things." Imagine a world where procurement transcends routine transactions, driven by intelligent technology-enabling strategic decisions. With just a few prompts, RFX documents and contract summaries are created. A conversational interface automates requisition creation. Companies can steer innovation with the transformative potential of Generative AI—reimagining operations, making sourcing and procurement smarter and more proactive, and setting new efficiency standards.
To understand the current adoption of Generative AI in procurement, Deloitte surveyed over 100 chief procurement officers (CPOs) from Europe, North America and Asia-Pacific in early 2024. The respondents represented a cross-section of industries and organizations. Deloitte’s survey found that organizations believe GenAI will unlock value through enhanced insights and decision-making, productivity gains and cost optimization. Most have seen promising early returns on GenAI investments despite implementation challenges. Procurement executives are taking a very serious look at Generative AI.
Making investments and planning to invest more
According to the survey, 92% of CPO respondents are planning and assessing Generative AI capabilities in 2024. Only 8% indicated they have no plans to assess Generative AI capabilities in 2024. The positions are reflected in the organizations' investment commitments, which are expected to grow over the next few years. Close to 11% of the organizations are currently spending more than $1 million of their annual budgets on Generative AI capabilities for sourcing and procurement in the year 2024. By the year 2025, this number would be more than 2 times, where 22% of the CPOs are planning to invest $1 million+ in GenAI capabilities.
Early headway is being recognized by some in sourcing and procurement to "do things differently" like automating the generation of the RFX documents, streamlining the contracts review process, automating PR generation through conversational UI, and also to “do different things” like setting up an intelligent category workbench that provides actionable recommendations based on market data and the organization’s spend pattern.
Recognizing value in artificial intelligence and procurement
While 92% of CPOs are beginning to envision the possibilities of this new technology and plan to invest in it, only 37% were piloting or deploying Generative AI in procurement at the time of the survey. Based on the investment plans, this number is expected to grow rapidly in the next few years. For the early adopters, data and analytics, contracting, and sourcing are the top areas for exploration, with 38% piloting or deploying Generative AI in the spend dashboard. Another 19% focus on automating RFI/RFP/RFQ generation.
Generative AI can revolutionize spend analytics, forming the foundation for future-proof procurement organizations. By automating categorization, gathering supply market insights, analyzing spend patterns and identifying cost-saving opportunities, Generative AI has the potential to create category strategies, minimize value leakages, improve spend visibility and eliminate data redundancies. Generative AI's advanced algorithms supplement the current AI/ML capabilities to provide deeper insights, uncover hidden spending trends and deliver predictive analytics, enabling more informed decision-making. The effectiveness of Generative AI in procurement generally hinges on high-quality spend data, as actionable outcomes depend on data quality. The spend analytics market is advancing as existing end-to-end suite solutions are enhancing their AI capabilities in spend analytics and niche next-generation solutions are emerging.
Among those who have piloted or deployed artificial intelligence in procurement, about 50% noted a doubling of return on investment (ROI) compared to traditional methods, with some advanced implementations seeing ROI of more than 5 times.
Survey respondents ranked the top three procurement values unlocked by Generative AI as:
- Enhanced analytics and decision-making
- Productivity gains
- Cost optimization
Interestingly, the value derived from enhanced analytics and decision-making surpasses that of productivity gains and cost optimization combined. In addition, many CPOs recognize that Generative AI will enable greater integration with other functions, such as supply chain planning and finance.
Click image to enlarge
Navigating challenges
Despite its potential, Generative AI comes with a learning curve. More than 20% of respondents have a good to extensive understanding of the technology, while nearly 71% have limited to moderate knowledge and 9% have very little understanding, showing a need for upskilling talent. CPOs are still assessing the risk-reward tradeoffs as they begin deploying Generative AI. Here’s where they noted obstacles:
Internal IT and AI capabilities
The state of internal IT and AI capabilities was identified as the No. 1 concern. Procurement leaders should integrate Generative AI with existing tools to enhance processes and avoid disruptions. CPOs are also faced with the dilemma of building their own Generative AI capabilities, buying an external solution, or adopting and waiting for existing procurement solutions to release Generative AI capabilities. Procurement solutions like Coupa, Ariba and Ivalua are evolving and plan to add more Generative AI capabilities.
Data quality
Data quality emerged as the second major internal barrier to AI in procurement, with concerns about poor data leading to inaccurate outcomes and misinformed decisions. In addition, organizations reported they found it challenging to connect their Generative AI initiative investments to value or business-case levers.
Deployment and security
CPOs ranked data privacy and security as the biggest external threat associated with implementing Generative AI in procurement. With the vast amount of data Generative AI requires, the risk of data breaches can increase. It’s important to have the proper safeguards in place to mitigate such breaches. The second external barrier to Generative AI deployment according to CPO respondents is the current state of solution provider capabilities and maturity.
A skills crunch
Survey respondents also ranked the limited availability of Generative AI talent and skills in the industry as a significant barrier to deploying AI in procurement. Lacking skilled employees who understand Generative AI can result in improper implementation and management, and lead to poor performance or system failures. The key characteristics CPO respondents found to be crucial for employees and teams to be successful in enabling Generative AI are curiosity, adaptability and technology proficiency.
Click image to enlarge
The time to incorporate Generative AI in procurement is now
As one survey respondent noted, "The potential for the use of Generative AI is a game changer for procurement. The opportunity to finally move away from transactional, low-value activity and apply real strategic business partnering has huge potential to deliver additional value and change the perception of procurement forever."
Generative AI has the potential to further widen the gap between the Orchestrators of Value and other procurement organizations. Hence, it is important for CPOs to start acting on it now and deploy it in the right way. Deloitte understands the transformative value of Generative AI and has built AIOPS.D, a tailored, AI-driven, plug-and-play modular platform focused on core business processes to provide a connected experience. The platform is a launchpad with prebuilt use cases that are configurable to the specific needs of each organization.
For organizations ready to embark on their Generative AI journey, here are some key steps to help steer innovation and future-proof a Generative AI-enabled procurement function:
- Explore the art of the possible: reimagine sourcing and procurement
- Formulate your vision: identify your goals and aspirations
- Prioritize use cases: specify where you will (plan to) capture value
- Build the foundation: technology, data and people
- Activate your vision: identify and set up the technology, prepare data and pilot use cases
Want to learn more? Let’s connect.
 | Ryan Flynn Principal Deloitte Consulting LLP rpflynn@deloitte.com |  | Vinay Rajani Managing Director Deloitte Consulting LLP vrajani@deloitte.com | |||||
| Mike Deng Principal Deloitte Consulting LLP mikdeng@deloitte.com |
| Ayushman Kaul Senior Manager Deloitte Consulting LLP aykaul@deloitte.com |
A special thanks to our contributors Anantharam B, Noaman Peerzada, Justine McMullen, and our Global CPO survey team (Clay Moran, Abhishek Singhal, Michael Vu and Jesselyn Toufar).
