Know supplier contracts, know your supply chain

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As supply chains become increasingly complex, AI is growing into an indispensable asset for managing supplier contracts

In the globalised and interconnected economy, the layers within supply chains are more complex and critical than ever before. “Supply chains underline not only people’s standard of living by ensuring the availability of medicines and everyday items, but they are crucial to responding to modern challenges such as resilience and sustainability,” says Yossi Sheffi^[1], Professor of Engineering Systems and Director of the Center for Transportation and Logistics at the Massachusetts Institute of Technology (MIT).

As contracts form the foundation of supply chain relationships, the obligations and agreements contained within them play a critical role in ensuring the efficient flow of goods and services, as well as protecting enterprises from supplier risk. Supply disruption caused by a global pandemic highlighted the importance of having a deep understanding of the business’s contracts, including obligations, supplier assessments, and supplier options in times of crisis. Today, there is a growing need for compliance insights to mitigate risk to deliver more effective contract management.

Artificial intelligence (AI) is playing an increasingly important role in contract management, as AI-powered tools are helping companies with efficiencies in automating contract analysis, review, negotiation and management. These contracting efficiencies free up time and expedite business-critical activities, such as insights into corporate sustainability, avenues for supplier innovation and bringing new products and services to market. AI also helps companies audit, identify and mitigate risks in their contracts.

In 2016, MIT graduate Amine Anoun founded the AI-based contract management company Evisort to solve exactly this problem. Now Evisort’s Chief Technology Officer, Anoun has seen a dramatic rise in the focus of supplier contracts over the past six years. “We have experienced rapid growth in interest in contract AI, first from legal teams and now from procurement, supply chain, and even IT professionals as AI has become a mainstream solution for efficiency. Five years ago, we were pushing to educate people on the possibilities and efficiencies of AI. Now, AI is a mainstream conversation as it is about ‘how fast can our organisation implement this technology?’”

Leading businesses are increasingly relying on AI such as Evisort’s technology to analyse contracts for potential risk and legal problems, or to identify clauses that could expose companies to unforeseen security and financial obligations. Well-crafted contracts help to mitigate risk, protect intellectual property and establish clear expectations between trading partners; having 24/7 searchable access to the data inside the contracts helps to resolve disputes quickly and amicably. Conversely, limited visibility and poorly managed contracts can have the opposite effect, leading to delays, disruptions and even financial losses. Teams that have easy access to understand the terms and conditions of their contracts allow the business to respond quickly and effectively to changing circumstances, renegotiate terms if necessary and protect themselves from risk and potential legal disputes.

“Contract management dependencies will arise across multiple processes, such as purchase requisition, GRC compliance checklists, approval, and workflow rules. It is inefficient to manually manage, hence the need to analyse, extract and mobilise contract data with AI,” reports Steve Tucker, Chief Sales Officer at Evisort. “Evisort calls this connected contract data, and it means that all contract information is appropriately available, shared securely across teams and integrates into existing systems to enhance the actionable insights about an organisation’s suppliers, supply chain, risks, financial or ESG obligations and more.”

Sustainability is an increasingly important factor in supply chain management. In a recent survey conducted by the Chartered Institute of Procurement and Supply (CIPS), 97 per cent of respondents reported their organisation had a clear policy on sustainability, and confidence in those strategies remains high. However, as CIPS Chief Operating Officer David Taylor notes^[2], "No organisation can meet its sustainability goals alone. There must be shared responsibility across supply chains to ensure that action is being taken – and there is the level of transparency and visibility required to drive meaningful change.”

These contracting efficiencies free up time and expedite business-critical activities, such as insights into corporate sustainability, avenues for supplier innovation and bringing new products and services to market. AI also helps companies audit, identify and mitigate risks in their contracts.

Shared supplier responsibility often starts with joint commitments formalised in contracts. By having complete 24/7 visibility into contract obligations and their supplier’s footprint, the business can hold suppliers accountable to environmental and social contractual obligations. Sainsbury’s, for example, recently announced a scheme to streamline its logistics contracts, in part to reduce its overall carbon footprint, accompanied by a £90 million investment into automation at one of its key warehouses.

“In the end, supply chains are human networks,” says MIT’s Sheffi^[1]. “Ultimately, supply chains are made of people who make, store, move, contract, communicate — all augmented by increasingly powerful technologies. And technology is an augmenting force for many of the uniquely human qualities, not a replacement force.”

As business leaders address increasingly complex decisions, they would do well to keep in mind how AI-supported technologies have proven to increase efficiency, reduce risk, improve transparency and strengthen margins throughout the supply chain. Introducing AI to assist with supplier contract management and analysis is a strategic place to start that provides quick wins and early returns on investment in supply chain innovation. As AI technology continues to evolve, it is certain procurement will see expanded applications for AI in contract and supplier management over the years to come.

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To learn more about AI for supplier contract management and test it across on your supply chain contracts, visit evisort.com/tryevisort.

[1] Sheffi, Y. (2023, April 23). 3 Questions: Yossi Sheffi on AI and the future of the supply chain. News.mit.edu.

[2] Taylor, D. (2023, April 20). Rising energy costs, Covid and trade barriers force UK businesses to compromise on sustainability. Www.Cips.org.