Human-AI Balance in Procurement — Striking A Balance

Human-AI balance has been the subject of many discussions in the world of procurement due to its perceived potential to generate essential documents and information that could save time and make processes more efficient.

Whether AI will replace humans in procurement has become a controversial topic in many spaces. Goldman Sachs predicted in a 2023 report that as many as 300 million jobs could be affected by generative AI, increasing global GDP by 7% in 10 years. 

In this article, we cover the importance of striking a balance between using AI to improve processes and maintaining human creativity to enhance procurement.

I have created a free-to-download, Productive Procurement with ChatGPT Toolkit template. It includes a PDF file that contains prompts that can help you leverage AI efficiently in your operations. I even created a video explaining how to use the templates.

AI in Procurement

The use of AI in procurement operations has transformed the way businesses source, negotiate, and manage their supply chains. AI helps procurement professionals reduce their time spent on routine tasks, with the emergence of automated invoice processing and data entry.

 As a key tool in modern technology, AI contributes many capabilities that transform efficiency in procurement. Because AI is data-centric by nature, it amplifies robust data analysis and predictive analytics. AI systems can assist procurement teams in analyzing market trends, evaluating supplier performance, and addressing potential risks. 

The analytical capabilities of AI better equip procurement teams with a strategic approach that enables smarter decision-making and risk management. In a 2023 survey conducted by PWC, 73% percent of US companies have already adopted AI in at least some areas of their business.

The 5 Key Limitations of AI in Procurement

While AI does boost procurement teams’s efficiency, it’s equally important to recognize its limitations. Procurement involves nuanced language and partnerships, making it crucial for procurement teams to maintain critical thinking. 

Below are the five challenges associated with AI in procurement, including tips and insights into the importance of human creativity.

1. Lack of Contextual Interpretation

AI doesn’t view situations with the level of depth human professionals do, making it prone to misinterpretation when dealing with the nuances of specific procurement contexts. This involves the multifaceted nature of cultural differences and market dynamics — both of which are highly nuanced aspects within procurement that require strategic thinking.

Tip: When using AI systems in procurement, professionals can provide actionable context and clear communication or prompt engineering. This ensures that each stage within the procurement process is met with a precise understanding of AI models.

2. Dependency on Past Data

Artificial intelligence cannot access real-time updates, making its dependency on historical data inevitable and also inefficient. Market conditions, trends, and patterns are constantly changing, and these evolving conditions might make it challenging for the AI model to provide accurate answers to procurement queries.

Moreover, because trends move at a fast pace and consumer behavior shifts with them, this can make historical data less applicable or relevant to procurement teams.

Tip: When deriving insights from AI systems, procurement teams should also incorporate real-time data and research for a proactive approach that lets them leverage market dynamics to make effective decisions.

3. Ethical and Bias Concerns

AI doesn’t grasp the existence of ethical issues and biases the way humans do, and can retain those biases in historical procurement data, which can lead to discrimination and inequitable outputs. This poses a challenge in using AI in negotiations, stakeholder communications, and other interactions, putting your business partnerships at risk.

Tip: Exercise human oversight and conduct routine audits for AI systems to include diverse perspectives and address potential biases. This ensures that the model is regularly updated for accuracy and equity, maintaining fair and ethical procurement practices using AI.

4. Limited Understanding of Supplier Relationships

Human relationships require a level of emotional intelligence that AI simply cannot replicate, making it less ideal to use AI to directly manage supplier relationships. AI can assist communications between buyers and suppliers but lacks the empathy needed for strategic partnerships. Using AI to directly manage supplier relationships can lead to miscommunications, risking positive business partnerships.

Tip: Use AI to assist in creating a supplier relationship management strategy based on an understanding of your partnerships. Building relationships will always require humans, involving their empathy, kindness, and intuition — AI should exist within your procurement functions to boost relationships without replacing humans.

5. Regulatory Compliance Complexity

Imposing regulatory compliance requires emotional intelligence and sound judgment; these are strictly human qualities that no machine could replicate. AI systems might not understand standards, laws, and regulations at the same level of depth that procurement teams do.

Using AI to follow regulations without human judgment can lead to lapses in compliance. Consequently, this can negatively impact brand reputation and even result in legal penalties.

Tip: Dedicated compliance must always include human experts and organizations can build teams to ensure compliance within procurement. AI should always be complemented by human oversight to navigate changing regulations that could affect procurement functions.

Human Creativity in the Procurement Process

In recent years, technological advancements like generative AI have become resourceful tools in procurement processes. However, the unique skills of procurement professionals remain irreplaceable. AI can always augment processes, but it cannot take the place of human qualities present in supplier relationships, negotiation processes, stakeholder communications, and more.

For instance, procurement will always require the presence of emotional intelligence, which is key for procurement professionals in adapting to different negotiation styles. Emotional intelligence allows us to understand the needs and concerns of stakeholders, and the subtle nuances of interpersonal relationships make this quality a key factor in the success of procurement processes.

Supplier relationships are built and nurtured by people, and this aspect of procurement is where human creativity shines. In procurement, these relationships are built on trust and mutual understanding that goes beyond the strengths of AI. Moreover, only procurement professionals can adapt to different communication styles and cultural differences on a level of depth and contextual understanding.

While AI can analyze large sets of data, human creativity remains paramount in understanding and processing information to brainstorm creative solutions aligned with their overall goals. To achieve this, organizations cannot rely completely on AI. AI can be combined with strategic thinking, a uniquely human quality that involves the skill to see the bigger picture and navigate future challenges. 

In the procurement process, striking a balance between unique human qualities and AI capabilities is crucial in creating an effective approach that better positions procurement teams to manage supplier relationships and supply chains on a broader scale.

Conclusion

To sum up, AI contributes significantly to procurement by cutting the time spent on routine tasks. In supplier relationships and negotiations, communications are improved and made more efficient with the adoption of AI and the unique human qualities that allow us to build trust.

Artificial intelligence can never replace humans in procurement, and understanding how to strike a balance between AI capabilities and human expertise is key to unlocking long-term success and innovation. AI streamlines procurement processes by automating routine tasks and boosting market analysis, while humans possess qualities that are irreplaceable — emotional intelligence, creativity, and strategic thinking.

Understanding the boundaries of AI within procurement can not only empower organizations to responsibly integrate AI but will also positively impact how we source, negotiate, and manage business relationships.