AI Takes on Procurement Contracts

Procurement contracts contain a wealth of data that is critical for driving efficiencies in the supply chain.

However, extracting insights from these dense legal documents was previously a manual and painstaking process.

Now, the rise of artificial intelligence (AI) is rapidly automating contracting while unlocking savings.

Here are three ways AI is transforming procurement contracts:

1. Contract Lifecycle Management

In the past, businesses lacked visibility into their existing contract database. Expiration dates were missed, renewals were unoptimized, and retrievals were tedious when disputes arose.

AI is powering contract lifecycle management platforms that provide total visibility. Machine learning classifies contracts into categories while identifying key terms, obligations, and risks. Dashboards track milestones across the entire contract portfolio, so that procurement teams are alerted to renewals and expirations. And the entire database becomes rapidly searchable.

Procurement leaders harness these insights to proactively renegotiate more competitive agreements while avoiding costly risks. The result is bottom line savings coupled with massive efficiency improvements in managing the contract lifecycle.

2. Contract Analytics for Spend & Savings

At any moment, procurement leaders need insights into exactly how much they are spending with each supplier. But gleaning this insight requires mining all the rate cards, pricing schedules, consumption logs, and contract amendments. An impossible manual task.

AI-powered analytics tools ingest these convoluted contract data points. Natural language processing identifies relevant pricing information and consumption algorithms analyze associated purchase records. The tools then surface real-time insights into contracted spend and savings opportunities across the entire supplier landscape, down to the SKU-level.

This intelligence allows procurement to track ROI on agreements while proactively optimizing terms for high-value categories. Negotiations shift from guesses to being data driven.

3. Risk Identification

Corporate liability from procurement agreements poses major financial threats. But assessing exposure requires evaluating endless risk scenarios buried in legal terminology across an overwhelming document load.

Now AI analyzes contract databases to assess risks levels for issues like unlimited liability, missed deadlines, contract breach, and force majeure. It highlights the highest priority exposure areas needing mitigation based on probability and potential impact.

Procurement leaders leverage this insight to proactively negotiate limits to liability in high-risk agreements. For existing contracts, they can pinpoint priority areas needing legal review for risk remediation or contract amendments. Procurement is getter smarter about managing risk through AI.

Emerging Procurement AI Capabilities

As AI continues to evolve, a multitude of emerging capabilities will further transform procurement contracts:

Total Contract Visualization 

Next-generation natural language processing will allow AI platforms to analyze entire contracts while visualizing obligations, risks, and opportunities in easily consumable graphics. Procurement will grasp contract dynamics at a glance.

Predictive Amendments 

By benchmarking across contract portfolios by industry, AI will predict when amendments are likely to be needed based on changes to business volumes, economic shifts, or legal dynamics. This allows proactive optimization.

Automated Metadata Tagging 

Machine learning will continually read contracts and auto-tag them with metadata on key attributes like products covered, liability caps, regions served, service levels, termination options, and more. This makes searching and benchmarking simple.

Real-Time Negotiation Recommendations 

AI will start to make real-time recommendations to negotiators on optimal terms and concessions during contract talks, based on internal business needs and external market dynamics. This drives the most favorable outcomes.

The Bottom Line

Leading enterprises are using AI to drive negotiations, optimize value, mitigate risk, and track supplier performance through every stage of the contract lifecycle. Businesses that fail to leverage AI for contract intelligence will be left behind as leaders transform procurement through contract analytics.