Published on January 4, 2024, 9:27 am

Over the past few months, I have been exploring the use of generative AI (GenAI) in various procurement functions. It is clear that there are many opportunities to leverage this technology in areas such as supplier selection, RFP generation, risk mitigation, and contract development. However, I encountered resistance from companies when I presented my findings at a recent conference. Many participants expressed concern about the use of tools like ChatGPT and similar applications. While there are valid risks associated with protecting proprietary information and adhering to confidentiality agreements, the potential benefits of GenAI are too significant to ignore. As a result, I have compiled a set of foundational tips for Chief Procurement Officers (CPOs) who want to lead their teams in embracing these new tools.

1. Organize:
CPOs need to develop a GenAI plan that goes beyond just creating a policy. This plan should outline where GenAI will be deployed within the procurement process. With countless potential use cases, it’s essential to identify pain points in the current procurement process and target specific areas for improvement. For example, companies with offshore processes could benefit from using GenAI to identify suppliers in different geographic regions. Another organization may require assistance with developing or assessing supplier contracts, while others might struggle to find suppliers for innovative new products. To ensure success, it’s crucial to focus GenAI experiments on specific business problems rather than adopting a scattered approach.

2. Create a Policy:
To safely navigate the world of GenAI, every business needs a well-defined policy that outlines which applications are allowed, their intended uses, and how work and results should be documented. It’s important to note that many corporate policies remain static for years; however, due to the rapid advancements in GenAI technology, these policies need frequent review and updates to stay relevant.

3. Understand Your Platform(s) of Choice:
Different GenAI platforms may have varying terms and conditions; therefore, CPOs should not assume that what they know about one platform applies universally. GenAI applications often have the right to reuse or publish users’ information to improve their machine learning models. Consequently, users must be intentional and clear about the data they provide, as there is no way to protect specific data from being shared with other users of the tool.

4. Practice:
Utilizing GenAI in procurement requires some adjustments to existing processes. For example, sharing detailed proprietary information with suppliers during the supplier discovery process could pose a risk if done directly through the AI tool. Instead, it may be necessary to use non-proprietary information for initial searches and share confidential details separately after shortlisting potential suppliers who have signed a non-disclosure agreement (NDA). Similarly, when using GenAI to develop new contract terms, it’s essential not to disclose sensitive information covered by confidentiality agreements with existing vendors. Building partnerships with internal cybersecurity teams, legal departments, or subject matter experts can help procurement teams optimize the use of GenAI while safeguarding sensitive data and maintaining confidentiality commitments.

5. Ask Yourself, “Does that Make Sense?”:
GenAI applications sometimes generate false or inaccurate information due to a phenomenon known as “hallucination.” It’s crucial for procurement professionals to critically evaluate the output produced by these tools. Asking for sources and independently verifying information can help ensure its accuracy and prevent reliance on potentially misleading or fabricated data.

In conclusion, while adopting GenAI in procurement poses challenges and requires careful consideration of privacy and confidentiality concerns, it also presents significant opportunities for improvement. Although this technology is still in its early stages of development, increased usage and analysis of data will enhance its capabilities over time. As CPOs continue their pioneering work in integrating GenAI into procurement strategies and practices, they will contribute to advancements in complex decision-making processes within their organizations.

For additional insights on AI-related topics and further exploration of generative AI in procurement, visit the AI Index channel on the Acceleration Economy website. With continuous learning and adaptation, CPOs can establish a solid foundation to fully capitalize on the potential of generative AI in their procurement practices.

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