Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
NLP in Procurement — Everything You Should Know
As taught in the Artificial Intelligence in Procurement Course / ★★★★★ 4.9 rating
- Organizations that adopt AI experience a significant increase in spend management.
- NLP in procurement is the use of AI-powered linguistic models to study, process, and extract insights from data about procurement processes.
- NLP allows for automated document analysis, enhanced supplier communication, better contract management, and more.
NLP in procurement, or natural language processing, is emerging as a game-changer in the world of AI. With capabilities in document analysis, supplier communication, and more, natural language processing is set to upscale traditional methods in procurement into smarter processes.
In this write-ups, I will uncover the topic of natural language processing (NLP). After reading this article, you’ll have a clear grasp of how NLP can benefit procurement as a complement to human expertise.
Natural Language Processing (NLP) in Procurement
NLP in procurement, or natural language processing in procurement, covers the use of AI-powered linguistic models to study, process, and extract insights from data about procurement processes.
NLP capabilities, when leveraged to assist procurement, can automate document analysis, supplier communication, contract management, and more. By processing data, NLP finds patterns and anomalies that can be used to make data-driven decisions and manage risks.
More companies globally are adopting some form of artificial intelligence into their procurement processes to boost efficiency and savings opportunities. According to a KPMG report, adopting AI shows an increase in spend management by 5-8%.
Benefits of NLP in Procurement
We’ve covered the basics of NLP in procurement, but how can it benefit procurement? Just like any AI-powered platform, a firm grasp of the particulars of natural language processing is important in applying it to procurement.
1. Faster Document Analysis
One of the main benefits of NLP is its ability to analyze and extract information from documents. In procurement, NLP can interpret and extract information from RFPs (Request for Proposals), contracts, purchase orders, and even market reports.
NLP enables faster analysis, which is essential in minimizing manual errors and streamlining procurement workloads. With this, procurement professionals can enjoy faster and more accurate document analysis while focusing on core activities.
2. Enhanced Supplier Communication
Using NLP in procurement boosts clear and efficient communication with suppliers. Translating languages, assessing different perspectives, and generating negotiation scenarios are just some of its capabilities in this scope.
Suppliers come from different cultures and speak different languages, and NLP assists this by minimizing the challenges of a language barrier by translating documents and messages into your preferred language. This enhances the collaboration between global suppliers and organizations.
Moreover, because NLP streamlines these routine tasks in supplier communications, procurement teams can shift the focus onto building supplier relationships and informing core decisions.
3. Robust Risk Management
NLP algorithms assist risk management in the procurement process. It can analyze contracts, vendor interactions, market reports, and other factors to find potential risks buried in data.
With capabilities in perspective analysis, implementing NLP is ideal for studying market changes, allowing teams to anticipate fluctuations to adjust sourcing strategies effectively.
This makes NLP a crucial resource in proactively identifying risks, allowing procurement professionals to tackle risks head-on before they escalate. Consequently, robust risk management enabled by NLP ensures that long-term company goals and procurement workflows stay consistent.
4. Deeper Analysis of Spend Data
Procurement professionals can use NLP to get accurate and detailed insights from spend data. By studying free-form data from spend reports, purchase orders, and invoices, NLP can find patterns and any anomalies in procurement expenditure.
Because of this, NLP helps organizations achieve savings, negotiate the best terms, and improve their procurement strategies overall. It also enables spend analytics, a valued resource in giving actionable insights that will help teams make strategic decisions to maximize value.
5. Better Contract Management
AI can automate several procurement functions, contract management included. With natural language processing, teams can access the benefits of automation in contract management. NLP can help by retrieving data, pinpointing clauses, and tracking compliance in contracts.
NLP’s capabilities in processing data make it ideal for scanning contracts for crucial terms, deadlines, and obligations. By ensuring legal and regulatory transparency, NLP ensures compliance with contract clauses, reducing risks and negative outcomes.
Additionally, procurement professionals can also leverage NLP for making standardized contract templates. For AI-driven contract management, this is crucial in ensuring accuracy and consistency across contracts.
6. Enabled Predictive Analytics
Natural language processing can enable predictive analysis of procurement data, including data on market trends, supplier performance, and others. Using this data, NLP can forecast demand, potential risks, and even future procurement needs.
By getting insights from unprocessed data, NLP algorithms find anomalies that inform predictive analytics models, which then forecast fluctuations, trends, and disruptions. This helps teams proactively address any changes.
Additionally, this can enhance procurement planning, which is essential for organizations in managing inventory, closing business deals, and tackling risks before they escalate.
Examples of Natural Language Processing (NLP) Platforms
There’s no doubt that NLP can significantly boost procurement’s various stages. Below are five NLP-enabled platforms that reshape the way we do business.
1. ChatGPT
Powered by OpenAI, ChatGPT uses language models to enable natural language understanding, crucial for understanding supplier interactions and analyzing documents.
ChatGPT can summarize files and documents about procurement with its advanced data processing capabilities. This lets procurement professionals quickly access large sets of data to improve their decision-making and overall efficiency.
2. Amazon Comprehend
Amazon Comprehend boasts a selection of NLP tools designed to derive valuable insights from raw data. In procurement, it can analyze supplier communications to gauge satisfaction or even find issues or discrepancies.
The platform harnesses topic modeling features, which are seen in AI algorithms to find themes or patterns in data. Amazon Comprehend’s features can assist in analyzing spend data to help teams access supplier insights and spending trends.
3. Microsoft Azure
Microsoft Azure offers a set of NLP capabilities that help organizations unlock insights from procurement data. In procurement, Azure can categorize contracts, purchase orders, invoices, and more.
Azure boasts language translation capabilities, which is essential in global supplier communication through documents and supplier inquiries.
4. Google Cloud Natural Language
Google Cloud Natural Language is best known for its capabilities in extracting data from contracts, and pinpointing clauses and other relevant information. Its features can also gauge consumer preferences and supplier feedback.
Google’s platform boasts entity recognition features that allow for a more accurate categorization of spend data, such as patterns and trends. These features enhance procurement professionals’ handling of risks while driving smarter procurement strategies.
5. IBM Watson
IBM Watson, a data analytics processing model, is a leading platform that offers NLP capabilities. In the procurement process, it automatically pinpoints contract terms and clauses, aiding better contract review.
It can analyze and monitor supplier performance as well as market patterns, creating more proactive risk management and decision-making. With the IBM Watson platform, procurement teams can derive detailed insights into supplier relationships and feedback.
My Advice on AI and NLP in Procurement
For this article, I will share my insight on AI and NLP in Procurement.
1. Why is it important to combine human expertise with AI and NLP capabilities?
“Artificial intelligence can’t imitate empathy, an irreplaceable human quality. Why is empathy important for procurement professionals? For one, human professionals regularly close deals, and one of the most important skills to have is in negotiations.
Part of negotiation skills is linking the human perspective and leveraging the potential of technology like AI. If you don’t make the link, you lose people.”
2. What is your perspective on AI in procurement?
“There’s always a group of people who are hesitant about AI applications. There is also a group of individuals and companies who have embraced AI early on.
Having doubts about data sensitivity and security risks is right, but I truly believe that we should talk about these risks to better overcome them.
From my perspective, AI has many uses in procurement, but it is only truly effective if you make the link between AI and human creativity.”
Conclusion
To sum up, NLP can bring great value to a procurement process by automating routine tasks, such as document analysis, supplier communications, and more. Organizations and procurement teams that embrace NLP-powered models in procurement are likely to experience significant changes in their processes.
From supplier selection and document analysis to contract management and other key functions, NLP brings efficiency and faster task execution to procurement. When applied effectively, NLP boosts teams in their long-term procurement goals.
Frequentlyasked questions
How does NLP improve supplier discovery and evaluation?
In what way does NLP enhance risk management?
Can NLP analyze documents in procurement?
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
