AI and Procurement

Abstract

In a world advancing toward Artificial Intelligence (AI), we explore how AI creates and delivers value in procurement. AI has two unique abilities: automation and smartness, which are associated with physical machines or software that enable us to operate more efficiently and effectively. In this research, we study how buyers' usage of AI affects suppliers' price quoting strategies. Specifically, we study the impact of automation — i.e., the buyer uses a chat-bot to automatically inquire prices instead of asking in person — and the impact of smartness — i.e., the buyer signals the usage of a smart AI algorithm in selecting the supplier. We collaborate with a trading company to run a field experiment on an online platform in which we compare suppliers' wholesale price quotes across female, male, and chat-bot buyer types under AI and no recommendation conditions. We find that, when not equipped with a smart control, there is price discrimination against chat-bot buyers who receive a higher wholesale price quote than human buyers. However, signaling the use of a smart recommendation system can effectively reduce suppliers' price quote for chat-bot buyers. We also show that AI delivers the most value when buyers adopt automation and smartness simultaneously in procurement.

Keywords: Artificial Intelligence, Procurement, Wholesale Pricing, Automation, Smartness