How GenAI is Powering Competitive Sourcing Events for Retail Procurement Teams

GenAI empowers retail procurement teams and their organizations to make business decisions based on objective data that lead to the best possible outcomes.

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Finding suppliers is hard. There are literally millions of options to choose from, and the data alone can be overwhelming when weighing one supplier against another. Retailers are faced with a never-ending puzzle of finding the correct suppliers to fit ever-changing consumer demand, capitalize on trends, and constantly innovate while balancing lean operations and just-in-time delivery.  Innovation, particularly in the retail space, requires the ability to discover and engage new suppliers while balancing operations and speed, which can create momentum that prevents agility.

Most retail organizations with established procurement and buying functions have a database of preferred suppliers, which, on the surface, is a fantastic way to find suppliers that meet most needs and requirements. For robust datasets to be useful, they need to be cleaned and maintained with some regularity. This alone can be a time-consuming task. Contact information, product offerings and company information might be outdated or not accurately reflect the supplier's capabilities.

These factors, combined with risk and compliance requirements, often result in sourcing events being awarded to the same small supplier pool repeatedly. When examining this process from a purely risk assessment lens, awarding to a preferred supplier can seem sensible. Working with a third party poses a significant amount of risk for an organization, and using a preferred supplier is straightforward and simple. As a result, retailer organizations have leaned to contracts and single sourcing as a standard form of purchasing.

Competitive Sourcing Leads to Better Business Results

Focusing on sourcing events purely from a risk perspective may sometimes make sense but purchasing from the same supplier again and again exposes retailers to a different type of risk. This risk looks like supply chain disruptions. These disruptions can have a profound impact on retailers, affecting everything from inventory costs to customer satisfaction and overall profitability.

Globally, as the economy continues to recover post-pandemic, supply chains continue to face volatile and disruptive shifts. This is due to the rising costs of raw materials, energy, transportation and labor—all of which impact suppliers and, thus, retailers. Inflation and disruptions can create inventory shortages or delays, which lead to lost sales and operational inefficiencies. Unpredictable lead times complicate inventory management and planning, which can affect store layouts, warehousing, and result in out-of-stock items. If retailers cannot meet customer needs promptly, it can be reputation-damaging and ultimately push them toward competitors.

In order to meet or exceed business and customer expectations, it is no longer best practice for retail procurement teams to rely on a small supplier pool for the sake of making easy sourcing decisions. By introducing diversity into the supplier pool or investing in supply chain technology, retailers are mitigating risk. By creating competitive sourcing events beyond high-value or high-risk spend, retail organizations can make themselves more risk-averse to sudden market changes and even realize significant cost savings.

Democratizing Sourcing in Retail

Generative AI (GenAI) has technically existed since the 1960s, but thanks to recent technological advancements, such as language models and machine learning, it has become a powerful catalyst for change—particularly in the retail procurement space. As previously mentioned, the alignment or lack thereof between procurement teams and business lines within a retail organization can make it challenging to find appropriate suppliers. Historically, procurement professionals and supported departments communicate via email, phone calls, or shared documents to convey purchasing needs and project scope. This leaves room for missed information, unasked questions, and delays. This is where the magic of GenAI enters the picture.

From the beginning of the procurement process, GenAI can bridge the knowledge gap between teams. Procurement professionals are the knowledge keepers of the “right questions” to ask when gathering sourcing requirements. Still, it is not sustainable or realistic to have them sit down with every team across every retail business line to gather this information. At its core, GenAI is a self-service tool that leverages natural language inputs to generate relevant responses based on the context of prompt inputs by the user. On the back end, it can be trained by procurement teams to ask the appropriate questions to determine sourcing scope and requirements. On the front end, it functions like a chatbot—it will ask a question, and the end user will input their response. In other words, it can help retail business lines articulate their needs. This can save critical time when defining needs and establishing sourcing requirements.

Enabling Supplier Diversity

Once the sourcing demand request and appropriate requirements are captured, GenAI can, within minutes, suggest a list of potential suppliers that meet the specified needs. The tool can be trained to mine not only the organization’s supplier database but also external datasets to surface the most appropriate suppliers. This will take into account pricing, availability, reputation and any other criteria designated by the organization. This functionality is paramount when it comes to establishing a more diverse supplier pool.

Preferred suppliers can be recommended if they meet the defined requirements, but more importantly, suitable alternatives will be identified and made easily accessible. This is particularly useful when rising costs or supply chain disruptions may impact a preferred supplier's ability to meet the sourcing needs at hand. While it is wise to have a roster of preferred suppliers to use when appropriate, it shouldn’t be the default, and with GenAI, there is no excuse not to explore more options. Supplier responses to RFQs or RFPs are summarized and analyzed to help determine the best possible option to meet the retailer's needs.

The Future of Procurement in the Retail Sector

Each sourcing event generates hundreds of tasks and data points to be sorted through and evaluated. This is cumbersome for not only the procurement teams but also the retail business lines and stakeholders they support. Using GenAI, tasks can be automatically assigned to the appropriate party to answer questions or provide context. When fed the correct information, GenAI can quickly understand and adapt to an organization's procurement processes to guide users, loop in stakeholders, and ensure the appropriate compliance steps are followed. All while maintaining the dreaded supplier database and reporting on key success metrics.

Intelligent tools are changing the way retail organizations meet their procurement needs. Automation allows procurement teams to be strategic about where they are spending critical funds. In the days of rampant inflation and risk, all spend is strategic. GenAI empowers retail procurement teams and their organizations to make business decisions based on objective data that lead to the best possible outcomes.  

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