Investors are going crazy investing in major markets for major AI stocks, but how is AI really being used in industry? I discussed this challenge with Tim Cummins, CEO of World Commerce and Contracting, and an interesting discussion ensued.

Tim’s noted that many procurement groups are primarily focused on applications of AI that can speed up procurement transactions, and are lost in a drive to achieve greater efficiency and control. This is a lost opportunity to instead focus on how to drive collaborative cost management with a highly knowledgeable supplier network. This i traditional “old school” view of procurement believes that supply managers know what is best in terms of technology, price, and quality- and while AI applications certainly have the potential to make procurement transactions more efficient, there is so much more that can be done with AI that is being overlooked.

The major point being overlooked is that suppliers have more information about your organization than you do! Instead of finding ways to drive down prices, supply managers need to start by asking a different question: is the market, (which comprises our organization, our competitors, and our suppliers), using AI in a way that will shift the power dynamic, and can we employ AI to move to a more dynamic discipline, bringing business intelligence to decisions and buyer-seller relationships and network structures?

One ripe opportunity for this is to explore our contract related data using smart machine learning platforms. Contracts are the one concrete representation of a supplier relationship, as they reflect outcomes of the full supply chain life cycle, from requirements to contract close out or renewal. In many companies, contract data may be found in dozens of different systems – and these data are often accompanied by internal politics over who owns what data… and who has access? This is a lost opportunity..  AI has the potential create improved data coordination between disparate systems in a systematic manner, without have to invest millions of dollars to try to integrate multiple silos of data networks.  To accomplish this, it requires new ways of thinking.  It requires that we think in terms of business systems not functional systems. We need to ask whether our applications of AI models will simply replicate that siloed thinking that fails to optimize the potential of network innovation.

Unfortunately, many procurement groups are still in a narrow place when thinking of how to exploit AI. One example is the pursuit of what is often called Supplier Relationship Management (SRM), which offers the promise of true collaboration, but is really one more control vehicle used by procurement to monitor suppliers.  SRM is about performance management and monitoring, and AI indeed has the potential to provide supplier scorecards from multiple sources. However, if we can begin to link performance measurement to contractual agreements for continuous improvement using AI, we can create incentives in the form of automating service level credits for performance improvement. But relationship management is not only just about performance monitoring and is missing the point.  This may work for highly commoditized buys which is only about a quarter of your managed spend. But for strategic critical suppliers, we need need smart people interfacing with them.  This will require the reimagining of AI for a higher order application. A few companies are stepping forward and starting to view AI as a truly strategic capability in a model procurement function.

Moving in this direction requires that procurement stop thinking about one to one relationships, but instead thinks more broadly about the management of supply networks and supply ecosystems – and how to improve the performance of the entire network, not individual suppliers. AI is a platform that we can use for enabling new ways of doing business, to influence product development and customers, to plan more efficient supplier networks, to build more resilient long-term planning for growth.  To truly exploit the capabilities of AI, we should also be including our supplier network in this discussion, and envision what the future will look like.

Recent discussions with executives reveal that the current tariff environment is creating massive uncertainties, especially for long-term planning and SIOP activities. We are observing a cataclysmic shift in markets, and the gap between sales and procurement planning is growing ever wider. Companies tend to invest a lot more on the sales activity, putting procurement at a disadvantage. I am not seeing that procurement is getting an upgrade, and many organizations do not have the leadership or influence to justify the investment in procurement.  Procurement is not attracting the right people with the right vision that they can communicate to the C-suite, and hence they don’t attract investment. I am hopeful this will change, given the renewed interest in supply chains as a source of competitive advantage.