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Almost as quickly as businesses got used to hearing the acronym “AI” in every corner of their operations, a newer, better and smarter type of artificial intelligence was introduced. Known as generative AI, or simply “GenAI,” it’s a type of AI that goes beyond just analyzing existing data and actually creates text, images, audio and video content all on its own.
According to Channel Insider, GenAI relies on deep learning models like language models (LLMs) and generative adversarial networks (GANs), both of which use neural networks to identify patterns in large datasets. “These models allow GenAI to produce highly realistic, human-like content that enables innovation across creative, professional, educational, scientific and other settings,” the publication adds.
Building a Strong Foundation Now
GenAI is already making its way into the procurement world, where Gartner, Inc. says the technology is poised to impact the function on three different fronts: agentic reasoning, multimodality and AI agents. Here’s a description of each and how they apply in procurement settings:
Agentic reasoning. Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality. Multimodality refers to GenAI’s ability to process and integrate multiple forms of data, such as text, images and audio. Gartner says this will make GenAI more intuitively consumable to users and enhance procurement’s ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents. Autonomous systems that can perform tasks and make decisions on behalf of human operators, agents can automate procurement tasks and activities, freeing up human resources to focus on more strategic initiatives and complex problem-solving. As AI agents become more integrated into procurement technology, Gartner adds, they will shift the role of procurement professionals toward strategic decision-making, stakeholder relationship management and innovation.
“These advancements will usher procurement into an era where the distance between ideas, insights and actions will shorten rapidly,” said Ryan Polk, a Gartner senior director analyst, in a recent report. “Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology.”
Gimme Three Steps…
According to a 2024 Gartner survey, 72% of procurement leaders are prioritizing the integration of GenAI into their strategies. “This highlights the recognition of its potential to drive significant improvements in efficiency and effectiveness, as well as multiple viable use cases, including by enhancing the contract management process,” it adds.
CPOs that want to maximize the value of GenAI in procurement can start by taking three steps:
- Double down on data governance. AI models require extensive training data, including data on procurement processes beyond basic performance metrics, to be effective. “Ensure that real-world procurement data from internal and external sources is collected, scrutinized and maintained in a structured format to ensure data quality,” Gartner recommends. “Standardize and document decision making models for procurement value streams and invest in process mining to uncover and utilize procurement ‘dark data’ for more comprehensive AI training.”
- Develop and incorporate privacy standards into contracts. Work with legal and compliance leaders to understand the AI data privacy risks and draft organizational protections. “Develop and cascade policies governing AI data rights to key suppliers,” the company recommends. “Incorporate data privacy standards as key criteria in supplier evaluations.”
- Increase procurement thresholds. Gartner envisions a time in the near future when machine buyers are commonplace and where they absorb a significant portion of traditional sourcing and procurement activities. “Procurement teams will become smaller and be deployed to manage only the most strategic sourcing activities, manage exceptions and edge cases, or advise business stakeholders (or AI bots) on how to do their own buying,” it adds.
