Procurement leaders are navigating an increasingly volatile world where supply chain disruptions have become a constant threat. From geopolitical conflicts like the war in Ukraine and labour strikes on the US East Coast to extreme weather events driven by climate change, global trade is under immense pressure. These challenges cause delays, increased transportation costs, and inflationary impacts that threaten organisational performance. Consequently, the key question is no longer whether disruptions will happen, but how prepared procurement professionals are to handle them.
At the heart of these challenges are contracts. Once static documents, contracts have now become critical tools for mitigating risk and ensuring supply chain resilience. They are one of the most powerful resources at the procurement team’s fingertips. Yet, antiquated practices in contract management often undermine this potential, exposing businesses to unnecessary vulnerabilities. To remain competitive, procurement leaders must adopt a modernised, technology-driven approach to contracting. This approach must align commercial agreements with the complexities of today’s supply chains.
The Cost of Disruption
Supply chain disruptions impact industries differently, but their financial toll is widespread. For instance, UK exporters face slower, more expensive transportation, while US businesses grapple with material shortages and rising costs. According to World Commerce & Contracting, such inefficiencies lead to an average 9% revenue loss in every contract. This is a substantial financial impact for enterprises with thousands of agreements.
Contracts serve as the foundation of commerce, governing every transaction and acting as the single source of truth for business relationships with customers and suppliers. Sellers need clarity on their rights, and buyers need certainty about deliverables. Therefore, ensuring contract language addresses potential supply chain disruptions is critical to help enterprises navigate today’s complexities with greater agility.
Traditional approaches to managing contracts fail to account for the unpredictability of modern supply chains. Procurement teams must develop contracts that anticipate and respond to disruptions. Mechanisms like inflation-adjusted pricing, force majeure clauses, and renegotiation terms to maintain flexibility are all critical in this endeavour. Additionally, teams must automate the monitoring of such clauses to ensure they are properly enforced during turbulent times.
Leveraging AI for Smarter Contracting
Many organisations fail to fully leverage the true potential of contracts. Now, however, artificial intelligence (AI) is revolutionising contracting to help enterprises control costs, recapture revenue, and reinforce compliance across their organisations. Research from Icertis reveals that 90% of CEOs and 80% of CFOs struggle with effective contract negotiations, leading to significant revenue leakage.
AI transforms contracts into data-rich resources, delivering real-time insights into bottom-line risks like cost escalations and upcoming renewal deadlines. These insights empower procurement leaders to make proactive decisions, such as renegotiating unfavourable terms or identifying alternative vendors if there are gaps in supply chains.
By digitising contracts and applying AI, organisations can enhance visibility, streamline processes, and position their procurement teams to make a notable impact on business outcomes. For example, AI can detect risks in supply chain routes and recommend backup suppliers to prevent delays from escalating into costly disruptions. When contract data is integrated with core procurement systems like SAP Ariba, AI can also flag unpaid supplier invoices or discount opportunities that enable enterprises to recapture lost revenue.
Nearly half of Chief Procurement Officers have led AI adoption initiatives. However, AI’s full potential in contracting – also known as contract intelligence – still has substantial room for growth. AI has the power to free procurement teams from routine tasks, enabling them to focus on strategic initiatives and become effective change makers within their organisations.
Negotiating for Resilience
To succeed, procurement leaders must take a proactive, technology-first approach to contract management.
This requires treating contracts as living resources that address supply chain vulnerabilities and advance commercial goals. By centralising and analysing contract data through AI-driven platforms, companies can diversify their supplier base. Doing so reduces reliance on single sources, allowing them to better manage costs, and negotiate more favourable outcomes.
In today’s geopolitical environment, AI in contracting also supports compliance by helping to align agreements with changing regulations, reducing the risk of legal and financial penalties. With the right elements built into every contract, procurement teams can better anticipate risks and enhance their organisations’ longevity.
Contracts as Catalysts for Value
At its pinnacle, effective contract management drives value creation. Well-structured contracts improve supplier relationships by promoting transparency and trust. Procurement professionals can use AI-driven insights to make smarter decisions, secure better terms, and improve profit margins in every department of the business.
By treating contracts as powerful partners, procurement leaders can recover lost revenue, optimise supply chain performance, and capitalise on growth opportunities. This shift is essential for navigating the complexities of modern commerce and solidifying procurement’s central role in organisational success.
The Future of Procurement
Procurement challenges demand a fundamental shift in how businesses view and manage contracts. In an era of uncertainty, relying on traditional, outdated methods – like saving signed PDFs in a forgotten shared folder – is no longer sufficient.
Procurement leaders must embrace AI-powered contract intelligence to build resilience, control costs, and turn contracts into tools for transformation. In today’s financial climate, where every pound matters, the time to invest in AI is now.
