Procurement leaders are under increasing pressure to deliver more savings. Accelerating sourcing cycles and executing more events would do the trick, but traditional procurement processes are often slowed down by manual data entry, fragmented systems, and time-consuming workflows, resulting in inefficiencies and missed opportunities.
More events could be supported if engagement thresholds were lowered or stakeholders could self-serve their requests, but many organizations lack the resources and tools to support tactical or operational tenders below defined spend thresholds. Tactical spend can range from €10,000 to €250,000, depending on the organization, geographic location, or spend category, and typically makes up over 90% of all transactions. While tactical spend offers a massive opportunity for new savings, for most organizations, it remains unaddressable.
Autonomous Sourcing offers a digital solution to this problem. By introducing intelligent automation and decision support, autonomous sourcing enables procurement teams to operate with greater speed, accuracy, and focus, especially in tactical and operational tenders where procurement involvement is optional. This allows organizations to generate average savings of 4.7% from previously untouched spend. In this blog, we explore how autonomous sourcing works and the tangible benefits it offers.
What is Autonomous Sourcing?
Autonomous sourcing is an advanced e-sourcing solution that integrates AI and generative AI to automate the sourcing process, reduce manual intervention, and provide built-in decision support, allowing procurement teams to increase their spend under management. According to Gartner’s Innovation Insight: Autonomous Sourcing, by 2027, 25% of all sourcing events will be fully autonomous, and by 2028, AI will assist in creating and executing 70% of sourcing events.
The sourcing process encompasses multiple steps, from developing specifications to identifying relevant suppliers, obtaining quotes, negotiating prices, and awarding the business. Some or all of these steps can be automated.
Levels of Automation in the Sourcing Process
Autonomous sourcing addresses several steps and actions within the sourcing process. According to Gartner, there are three levels of automation:
- Low Automation: Supplier identification, price estimation, and negotiation automation.
- Medium Automation: Automated requirement gathering and event awards.
- High Automation: Full automation of source identification, event creation, execution, and purchase order creation.
How Does Autonomous Sourcing Work?
Autonomous sourcing leverages AI and generative AI (GenAI) to automate tasks, optimize supplier engagement, and support better decision-making. Here’s a breakdown of the key capabilities of autonomous sourcing systems:
- Integration with procurement systems: Autonomous sourcing tools seamlessly integrate with procurement and ERP systems, automating the flow from purchase request to sourcing event and writing it back to create the final purchase order. This enables both the execution of tactical sourcing events and the negotiation of quotes obtained from stakeholders in an existing Purchase Requisition.
- Intelligent requirements collection: Autonomous sourcing systems often begin by gathering procurement requirements through a chat-based interface or an Intake Management solution. GenAI can generate a comprehensive set of requirements, which the user then validates to ensure precision.
- Automated supplier identification: The system identifies and recommends suppliers based on the commodity and specific requirements. This can be based on the current supply base, limited to preferred suppliers, or include the complete identification of new vendors in the market. Solutions can also incorporate elements like the likelihood of each supplier’s participation or historical win rates in selecting relevant suppliers. Either way, procurement teams can tailor their approach in a granular way.
- Cost estimate generation: Autonomous sourcing platforms can generate "should cost" estimates by analyzing historical pricing, market trends, and other factors, helping procurement teams assess the value of running a sourcing event versus placing a direct order.
- Event execution: The system can automatically reach out to suppliers to request quotes, provide competitive feedback, and prepare a proposal comparison for the award decision.
- Negotiation strategy optimization: The system can suggest the best negotiation strategy based on supplier activity patterns or market insights, ensuring an optimal response from suppliers and alignment with business goals. And then execute against it.
- Continuous monitoring and feedback: Autonomous Sourcing systems can constantly monitor supplier performance, market shifts, and compliance requirements, allowing procurement to adjust sourcing strategies in real-time to maintain efficiency and alignment with business needs.
- Enhanced insights: GenAI not only supports the creation of detailed requirements but also provides actionable insights, forecasts trends, and identifies risks or opportunities, enabling procurement teams to make faster and more strategic decisions.
Benefits of Autonomous Sourcing
AI-driven automation can yield measurable improvements across various stages of the sourcing process. Key benefits include:
- Enabling self-service sourcing: End users can run AI-assisted tactical sourcing events with minimal intervention, improving efficiency and expanding sourcing reach, even into categories with limited internal expertise.
- Reduced cycle times: Automation accelerates sourcing workflows, enabling faster event processing, especially for time-sensitive purchases.
- Cost savings: AI-powered analytics help achieve cost savings in tail spend purchases that procurement is not resourced to support.
- Compliance assurance: Autonomous platforms embed compliance checks into sourcing and purchasing workflows, ensuring adherence to regulatory and organizational standards and category strategies.
- Expanded sourcing reach: Autonomous sourcing adds artificial resources to procurement, enabling teams to perform competitive bids and touch more spend on an annual basis.
Future Trends in Autonomous Sourcing
As AI technology continues to evolve, autonomous sourcing platforms will become even more sophisticated. Two trends to watch:
- Increased autonomy: AI will increasingly enable end-to-end automation of sourcing processes, minimizing human intervention while improving consistency and speed. As this requires trust in the systems, organizations need to create experience around the nature, opportunities, and limitations of fully automated sourcing events.
- Holistic decisions: Autonomous sourcing tools will be able to incorporate additional factors, such as risk, sustainability, and ESG (Environmental, Social, and Governance), into supplier evaluations, aligning procurement decisions with broader organizational goals. This will allow Procurement to automate holistic decisions and tie strategy and execution together across tactical spend.
Autonomous Sourcing with Procure Ai
Autonomous Sourcing is still a relatively new capability, but has evolved from simple workflow-based automations. Today, it is a smart extension of category teams that want to gain more control over the execution of their strategies and unlock fresh savings. Procure AI’s Procurement Automation Platform enables organizations to run sourcing events on autopilot, allowing them to maximize savings from their previously untapped tactical and operational spend, which often accounts for over 90% of transactions.
The Procure Ai platform supports various autonomous sourcing use cases and degrees of automation, including managing tactical sourcing events with single or multiple suppliers and resourcing contracted items. Our unique platform approach enables procurement to link various related AI use cases, such as negotiations, supplier scouting, ESG, and risk consideration, to drive deeper process automation.
Based on our customers’ experiences, automated sourcing and negotiations result in an average saving of 4.7%. This means that, for every €100 million of tail spend you touch, you can generate around €5 million in savings.
Contact us to learn how you can automate your sourcing process with Procure Ai.
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