The spring and summer months mark a time of high alert around the world. In the U.S., East coast states have just entered the dreaded hurricane season, while the West Coast is deep into fire season (currently, there are over 70 active wildfires across the U.S.). Not even Europe can escape the weather; with record high temperatures wreaking havoc, experts estimate the economic impact to be upwards of $10 billion.
Weather-related events have lasting impacts on all aspects of our day-to-day lives, whether it be school closures, power outages, insurance claims, or even supply chain disruptions. In fact, early predictions expect supply chain disruptions to cost companies as much as $100 billion globally this year alone.
Each year, these events serve as a stark reminder of the critical role supply chains play in modern business and how far-reaching these disruptions can be on a global level.
Despite best efforts, supply chain disruptions happen all the time; whether through natural disasters, geopolitics, shifting regulations, or economic instability, the supply chain is sensitive to change. Therefore, businesses must have a modernised contracting solution in place to help mitigate risk.
Managing supply chain disruption begins with contracts
Every supplier relationship is governed by a contract, making contracts one of the most powerful data sources to gain visibility and insights into potential supply chain weaknesses.
When disruptions occur, the impact can vary across industries. Airlines may experience grounded flights; retail might face disruptions at the point of sale; and manufacturing could see production lines come to a halt due to delayed delivery of critical components, resulting in costly downtime and potential revenue loss.
So, who actually bears the cost of lost revenue when a disruption occurs? Well, the answer should be found in the contract.
Contracts are the foundation of commerce, governing every dollar flowing in and out of an enterprise and acting as the single source of truth for business relationships. No matter what side of the transaction, sellers need to know what they’re entitled to, and buyers need to know what to expect. That’s why ensuring contract language, such as required terms and clauses that respond to supply chain disruption, is critical.
The complexity of modern supply chains
Modern supply chains consist of hundreds of suppliers across a range of geographies. This complexity results in the management of hundreds of thousands of contracts, likely written in different languages, adhering to local regulations, and stored in clunky and disjointed systems as PDFs.
The sheer volume of these contracts makes it increasingly challenging for businesses to map the full ecosystem of relationships and ensure that the intent of their commercial agreements is fully realised.
Poor contract management can cost companies nearly 9% of their bottom line. This is a significant loss that AI-powered contract management solutions can help prevent. In a recent survey, 44% of CPOs reported leading AI adoption efforts, recognizing the increasing importance of AI in the procurement function.
The power of contract intelligence
Contract Lifecycle Management (CLM) is one key area where CPOs see the value of AI. Traditionally, procurement teams managed contracts manually in disparate, disconnected systems, hindering agility and quick responses to disruption. However, by digitising these data goldmines and applying AI, automation, and machine learning, organisations can enhance visibility, standardise processes, and unlock insights across their hundreds of suppliers.
Contract intelligence, a modern approach to CLM, not only helps businesses respond to crises but can also enable proactive measures within contracts to help maintain continuity. For example, if a particular supply chain route is at risk due to a natural disaster, AI can help quickly detect potential supply chain failures and identify tertiary suppliers as alternatives, ultimately mitigating potential delays.
For example, the semiconductor shortage attributed to the pandemic and exacerbated by extreme weather and the Russian invasion of Ukraine highlights the vulnerabilities within complex global supply chains. Although the chip supply chain has largely stabilised, the lingering effects underscore the challenges inherent in relying on specialised suppliers.
This situation emphasises the need for businesses to diversify their suppliers and turn to contracts as critical sources to manage risks effectively. Implementing AI-powered contract intelligence can provide better visibility into their supply chain dependencies, proactively secure alternative sources, and help maintain business continuity.
The future of CLM
As recently as a decade ago, CLM was nothing more than a repository of scanned documents. Today, AI has completely revolutionised the CLM space, transforming contracts into dynamic resources that guide how businesses operate with their suppliers. Gone are the days of signing a contract and just forgetting about it. Now, contracts serve as a living data source to mitigate risk and manage compliance.
By connecting millions of contracts and infusing their data into core operations, businesses can create rich pools of AI-powered insights to inform better decision-making, increasing the pace of business, and positioning the company to thrive despite supply chain challenges.
