5 Ways AI-Powered Contract Management Helps Build Supply Chain Resilience

As part of Solutions Review’s Contributed Content Series—a collection of contributed articles written by our enterprise tech thought leader community—Ceschino Brooks de Vita at Sirion outlines how AI-powered contract management can help companies build supply chain resilience and reduce third-party supplier risks.

Today’s business leaders understand the importance of prioritizing supply chain resilience. However, that can be difficult because of the increasing complexity and scale of global supply chains. One major challenge is finding backup suppliers for unexpected disruptions. To enhance business resilience, it’s also critical to have visibility into the sources of an organization’s third-party suppliers to assess their overall risk exposure. 

Analyzing supplier contracts is an effective way to gain greater visibility into the supply chain. However, if done manually, contract analysis consumes massive amounts of time, and data complexity, contract variations, and resource constraints make the task even more challenging. A typical Fortune 1000 company may need to manage between 20,000 and 40,000 active contracts at any time. 

Studies show that 99 percent of organizations lack the necessary data and technology to improve their contracting processes. To complicate matters even further, there is a shortage of skilled staff to oversee contracts, monitor for third-party risk, and manage supplier relationships. For all these reasons, companies need to adopt a digital approach, and this is where AI-based contract management practices can be a game-changer. 

Use Cases for Managing Risk With AI-Powered CLM 

AI-driven contract lifecycle management (CLM), which entails integrating AI technology throughout an organization’s contract management processes, isn’t just about tracking business terms and payment schedules. It has become a pivotal aspect of building a robust, successful third-party risk management program. CLM with built-in AI leverages advanced algorithms and machine learning capabilities to streamline and automate aspects of contract creation, negotiation, execution, and analysis, enabling tech-savvy business teams to build safeguards and best practices directly into their CLM workflows, templates, and review processes. 

AI-based CLM offers several benefits related to business risk, including: 

Risk Mitigation

Specialized, AI-powered CLM software can analyze contracts to identify risk areas, such as non-compliant clauses or incomplete contract language. By reducing risk in supplier relationships, enterprises can protect themselves from costly legal disputes and reputational damage.

Improved Compliance

Non-compliance is another significant risk in third-party relationships, especially with regulations such as the GDPR and CCPA, which hold companies responsible for the data privacy practices of their business partners. The best CLM software can automate compliance checks and enable businesses to monitor supplier performance, ensuring they meet regulatory requirements. Additionally, automated CLM systems can standardize contract language and templates, reducing the risk of non-compliance by aligning the parties up front on each side’s obligations.

Procurement Efficiency

AI-driven CLM is vital in optimizing the procurement process while allowing procurement teams to work more efficiently. AI-enhanced drafting and review help teams ensure that every procurement contract’s terms provide value for the organization’s money, even as they reduce contract cycle times.

Supplier Performance Evaluation

By parsing supplier contracts and performance data, AI-enabled CLM software can provide valuable insights regarding an organization’s vendor relationships. This information helps enterprises identify areas for improvement and negotiate better contracts in the future, optimizing pricing and terms to extract more value from supplier relationships.

Enhanced Data Security

AI-powered CLM systems can enhance data security by ensuring that sensitive information in contracts is appropriately protected and monitored. This reduces the risk of data breaches and unauthorized access to confidential information, contributing to a more secure business environment.

Onboarding Third-Party Suppliers Without Increasing Risk 

According to 80 percent of legal and compliance leaders, many third-party risks arise only after due diligence and initial onboarding of a vendor. AI-led CLM helps teams mitigate risk when onboarding suppliers into an organization’s corporate ecosystem. For instance: 

• Streamlined Supplier Integration: With CLM, businesses can easily integrate new suppliers into their existing systems and processes, from setting up accounts to managing supplier information and aligning them with the company’s goals. 
• Business Expansion: Inviting suppliers into the corporate ecosystem can help organizations expand their reach and take advantage of new business opportunities.  
• Efficient Contract Management: With CLM, enterprises can easily manage contracts with multiple suppliers and monitor contract compliance across their supplier network. This saves time, reduces the risk of errors, and ensures that all suppliers align with the business’s overall goals and objectives. 
• Real-Time Performance Tracking: AI-enabled CLM built for procurement teams can provide real-time performance tracking capabilities. This allows organizations to continuously monitor supplier performance and make data-driven decisions to optimize supplier relationships. 
• Proactive Risk Assessment: CLM can leverage historical data and analytics to help teams assess the potential risks of onboarding specific suppliers. This proactive approach enables organizations to make informed decisions about supplier partnerships and implement risk mitigation strategies. 

Moving Forward With AI-CLM 

In today’s interconnected business world, it’s crucial for procurement, legal, IT, and data functions to work together within a more extensive corporate network, including partners, suppliers, customers, and other stakeholders. Embracing AI-powered CLM practices strengthens risk management, streamlines operations, enhances contract compliance and fosters a culture of resilience in the face of supply chain challenges.