What is the role of procurement in the new reality of AI-enabled services like ChatGPT?

*** Note that this article was as well published on Jan 15th, 2023. A lot has happened since, but the insights offered here, as still relevant, so we kept the blog post up. ****

Dear site visitor,

Great that you are as well interested in this fascinating topic.

Have you had the opportunity to use this technology? 

Initially, I utilized ChatGPT for quick translations and text editing. The results were great. As I continued, I realized that I just had tapped the surface. More complex business questions (about business plans, best marketing strategies etc.) yielded excellent results. Now I got excited about what else it could do: For example, ChatGPT was able to help find the most beautiful motorcycle route from Switzerland to the Shetland Islands - in one (!) minute. I had spent two hours the evening before on my computer to do the same. It even suggested new music artists I might like based on my taste. I checked them out, and boy, the music was brilliant. 

Now, what is ChatGPT? It is an extensive language model (LLM) developed by OpenAI that is trained on a massive dataset of human texts and conversations, which enables it to generate human-like text in response to prompts. It is designed for various natural language processing tasks such as text completion, question answering and translation.

So, we have something quite special and new here. I will not elaborate on the numerous other capabilities of this ground-braking tool, as news articles detailing these are readily available.

As with technological advancement, some articles are overly enthusiastic, and others voice deep concerns. Technology can be used for beneficial and detrimental purposes; it is ultimately up to human beings to decide how to use it.

In my opinion, ChatGPT represents a long-awaited opportunity and has the potential to bring about revolutionary changes similar to those seen in the aftermath of the first industrial revolution. There has never been a point in human history where more people have been employed and earning a living. Farming, the primary occupation for people in the past, would never have been able to achieve this level of prosperity that we currently have.

In light of this, let’s consider the potential supply chain and procurement opportunities should ChatGPT, and similar technologies, become the next industrial step change.

Let’s go back to the basics: why do we need suppliers? 

So far, we have outsourced various tasks to suppliers as they can perform them more efficiently, quickly, and at a lower cost. This happened not only on the direct material side but even more drastically on the service side: Tasks such as marketing, contracting, copywriting, editing, software development, and customer service were often deemed labour-intensive and delegated to suppliers.

Very soon, progressive procurement leaders, seeing the writing on the wall, will form projects with their IT counterparts to re-evaluate their service supply base and identify which tasks can now be insourced since AI-enabled employees internally can do the same job again more efficiently, quickly and at a lower cost. Armed with this knowledge, they will engage in dialogues with their internal customers to explore the potential for massive efficiency and budget gains by eliminating the need to hire suppliers in the first place. 

For example, why hire a marketing firm if ChatGPT and other AI models can generate twenty or a hundred new slogans for your next campaign? Why retain a law firm for contract review when ChatGPT can accomplish the task in a fraction of the time we are used to? Why maintain large customer service centres if ChatGPT can answer customer inquiries more efficiently, effectively and at least as friendly as any customer care representative?

It is important to note that a) there will still be a need for highly educated and experienced employees within the company to make final decisions on the AI output - just as there has been in the past for assessing work products from suppliers. And b) there will continue to be complex tasks, such as litigation, requiring suppliers with expertise. 

The advent of technologies such as ChatGPT may lead to a tectonic shift in industries in the next decade, just as the emergence of low-cost country sourcing led to the decline of unprepared companies in the past. Will this change happen now? Probably not, since there are still issues to be worked out. But, every version of GPT brought step-change improvements…and currently, we are just at GPT-3.

Industries must always acknowledge and adapt to change or risk being left behind again, yesterday, today, and tomorrow. The same advice applies to our companies and their procurement departments: 

So, who will take the initiative on AI-enabled service insourcing first?

Stay safe. Be bold.

Daniel

Did you enjoy this blog post? Sign-up for the “Close the Gap” blog and “ The Supply Chain Dialogues” podcast on the helmigadvisory.com webpage, or listen in on Apple Podcasts).

Are you interested in having a dialogue about the above, receiving some advisory support on how to tackle the topic best in your firm, receiving a structured talk on the topic with your team (s), or just like an exploratory call with Daniel, contact us via the web form or give us a call.