AI and Procurement

25 Pages Posted: 5 May 2020 Last revised: 22 May 2020

See all articles by Ruomeng Cui

Ruomeng Cui

Goizueta Business School, Emory University

Meng Li

Rutgers, The State University of New Jersey - Management

Shichen Zhang

Tianjin University

Date Written: April 7, 2020

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

Suggested Citation

Cui, Ruomeng and Li, Meng and Zhang, Shichen, AI and Procurement (April 7, 2020). Available at SSRN: https://ssrn.com/abstract=3570967 or http://dx.doi.org/10.2139/ssrn.3570967

Ruomeng Cui (Contact Author)

Goizueta Business School, Emory University ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

HOME PAGE: http://www.ruomengcui.com

Meng Li

Rutgers, The State University of New Jersey - Management ( email )

United States

Shichen Zhang

Tianjin University ( email )

92, Weijin Road
Nankai District
Tianjin, Tianjin 300072
China

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