Early Results Show AI is Delivering for Procurement

The topic of artificial intelligence (AI) inspires a blend of trepidation and fascination. Procurement professionals, though, have proven themselves willing to give it a chance, and the early returns are largely positive. This is especially true in larger organizations, but it also points to a path for technology adoption in smaller firms. We are looking to a future where AI is a critical and strategic element of the supply chain in general, and procurement activities in particular.

Explosive growth

AI in procurement is in a relatively nascent stage, accounting for about $3 billion worldwide for software and services combined (Figure 1), according to Market.us.¹ Over the next eight years, the firm predicts strong and steady growth. By employing advanced technologies such as machine learning (ML), natural language processing (NLP), and robotic process automation (RPA), AI enables procurement teams to enhance efficiency and accuracy across an expanding range of operational tasks, making them smarter and more agile. AI will allow organizations to hit key objectives, including cost management, supply chain resilience, and supplier relationship optimization.

Figure 1 : The global adoption of AI in procurement is predicted to enjoy explosive growth from $1.9 billion in 2023 to $22.6 billion in 2033, reflecting an annual growth rate of over 28%. (Image source: Market.us)

North America led the market overall in terms of sales in 2023, securing over 38% of the global share. The region generated approximately $0.7 billion in revenue, driven by rapid adoption and technological advancements.

AI popularity growing

Procurement organizations have been dabbling in the ways AI can support their efforts for some time. The early returns are in, and, in short, organizations have tried AI and they like it. In fact, a survey of procurement organizations with budgets ranging from $250 million to $1 billion found that 92% of respondents expressed satisfaction with their current AI solutions in procurement, according to a recent report from ProcureAbility.² Of those surveyed, 16% reported being very satisfied with their current AI solutions, while 76% are somewhat satisfied.

Meanwhile, only 8% reported being somewhat unsatisfied. Interestingly, no one indicated complete dissatisfaction. Digging deeper, three out of four who reported dissatisfaction pointed to limitations around functionality or capabilities, a challenge that the industry is quickly addressing. Half pointed to security concerns and a lack of transparency around AI decision-making.

Clearly, AI has evolved beyond initial implementation efforts focused on efficiency to a more strategic approach that will transform how procurement organizations operate, delivering measurable value. The ProcureAbility study asked respondents how far down they are on the adoption path, and 43% indicated that they are using AI in advanced ways. A few are even reaching toward innovation (Figure 2).

Figure 2 : Large organizations are generally moderately or greatly engaged in implementing AI in their procurement organizations. (Image source: ProcureAbility)

Chasing capabilities

The list of activities within procurement that AI can potentially supplement or support is lengthy (Figure 3). The areas where Gen AI is making the most immediate impact in procurement include purchase order processing, spend analytics, and e-procurement.³ Pilot programs are exploring applications in contract lifecycle management, category management, and advanced analytics, while customer support and e-sourcing applications are likely next in line. About half of the organizations are leveraging AI capabilities within the solutions they are already using (such as those in procurement applications from Coupa and SAP). Another 30% rely on custom-built or general-purpose tools, such as Microsoft Copilot. This latter finding is not surprising, and I suspect the tide will continue to turn increasingly toward the offerings of procurement applications as vendors update their solutions to include more sophisticated AI capabilities.

Figure 3 : Procurement processes are evolving across the board as organizations implement, pilot, or at least investigate how to modernize the workload to leverage AI. (Image source: The Hackett Group)

Getting out the crystal ball

As the pace of AI adoption accelerates, we can anticipate that the face of AI in procurement activities will evolve and deepen. Some areas are particularly ripe for AI adoption:⁴

• Advanced analytics: AI can handle vast volumes of data effortlessly, which will likely lead to sophisticated analytics capabilities that enable procurement professionals to mine a combination of publicly available and organizational data to achieve both predictive (what will happen) and prescriptive (what should we do about it) insights. The overarching goal will be to capture actionable intelligence.
• Intelligent automation: Mundane, time-consuming, and error-prone activities will increasingly be done through RPA and AI-powered bots. Rather than performing functions such as data entry, purchase order processing, or contract management, purchasing agents can focus on strategic roles that drive value.
• NLP and conversational AI: NLP will power virtual assistants that can interact with systems across the supply chain when prompted by natural language queries from procurement staff. Increasingly, these virtual assistants will allow people to get the information they want using conversational prompts.
• Blockchain technology: By combining AI and blockchain, procurement can enhance transparency and traceability across all activities. AI can automate contract execution and enforcement, while blockchain offers secure data sharing.

AI is rapidly transforming how procurement works, and that trend is likely to continue for years to come. In a world where efficiency, cost optimization, and strategic decision-making are critical, AI’s coupling with procurement will be highly advantageous.

References:

1: https://market.us/report/ai-in-procurement-market/

2: https://procureability.com/news/benchmarking-report-ai-development/

3: https://www.thehackettgroup.com/insights/embracing-the-future-how-generative-ai-is-revolutionizing-procurement-in-2025/

4: https://tipalti.com/blog/artificial-intelligence-in-procurement/