European supply chains faced significant disruptions last year. These included ongoing freight transport delays at key border crossings due to new Brexit regulations and global ripple effects from incidents like the Suez Canal blockage. These disruptions cost businesses an average of $82 million each, denting annual revenues by up to 10%.
The 2025 landscape may grow even more complex with U.S. President-elect Trump’s proposed tariffs poised to reshape import and export dynamics while potentially increasing costs.
For procurement professionals and business decision-makers, this points to an urgent need for greater agility in supplier relationships alongside more resilient and responsive supply chain strategies. From shifting revenue models to restructuring vendor networks, contracts are the cornerstone of commerce. More and more, they are the key to accelerating financial outcomes. Yet inefficiencies in contract management and outdated contracting practices are draining millions in potential revenue.
From Risk to Opportunity
Managing a large portfolio of supplier contracts is an intricate and time-consuming challenge. Each one has their own unique terms, conditions, and performance obligations. Recent Icertis research reveals that 90% of CEOs and 80% of CFOs acknowledge poor contract negotiation practices. These subpar practices result in leaving untapped value ‘on the table’ for their businesses. These missed opportunities are particularly glaring for procurement teams responsible for managing spend before contract execution. Additionally, unchecked supplier costs, inflation adjustments, and overlooked auto-renewals are also leading to significant revenue leakage across the post-signature lifespan of a contract.
For instance, 70% of CFOs identified cost increases due to inflation as a leading source of financial loss. However, more than 40% of businesses are not leveraging inflationary pricing protections in contracts. These contract oversights not only create unnecessary expenses but also expose organisations to greater risks. This is particularly true as supply chain disruptions grow more frequent and severe. Taking action requires reimagining contracts as dynamic tools and data resources, with AI providing the necessary solution to effectively make this shift.
Applying AI in Contracts
AI in contracting eliminates the dependence on antiquated ways of working or cumbersome manual processes, equipping businesses with a clear, real-time understanding of their supplier agreements. This visibility enables enterprises to pinpoint potential revenue drivers, identify missed renegotiation opportunities, and uncover costly hidden risks, positioning leaders to respond quickly and make better informed decisions.
AI-driven solutions for intelligent contracting simplify supply chain complexity by analysing agreements at scale. With actionable insights into what’s outlined in every supplier contract, and how suppliers are performing, business leaders are positioned to:
1. Navigate disruptions with agility.
By harnessing AI to identify supply chain vulnerabilities in existing contracts, businesses can effectively mitigate potential revenue losses and implement precautionary measures, such as price adjustment clauses and liquidated damages clauses within agreements. Additionally, companies can diversify their supplier base by entering into new contracts to establish contingency plans in preparation for potential disruptions before they occur.
2. Transform financial weak spots into strategic advantages.
Poor contract management costs companies as much as 9% of their bottom line, and the stakes are only multiplying. By automating the monitoring of key contract terms and the parties’ obligations, such as inflation adjustments and discounts, organisations can reduce financial losses and ensure commitments are fulfilled.
3. Futureproof supply chains.
The future of procurement lies in the convergence of technology and strategic planning. As economic pressures grow and geopolitical risks become more rampant, businesses that adopt AI-driven contract management platforms will be more agile and resilient, positioning themselves for long-term success.
Intelligent Contracting in Action
In today’s volatile environment, the ability to quickly identify problems and opportunities is crucial. Unpredictable events like floods or political unrest create bottlenecks, raise prices, and reduce stock availability, impacting a business’s ability to meet customer needs.
Consider the Panama Canal crisis. A climate-crisis-fueled drought resulted in a queue of 154 commercial ships with average wait times of 21 days. These delays impacted supply chains across almost every industry, hindering shipments, limiting production, and driving up costs. Businesses with AI-powered contracting were positioned to quickly identify impacted suppliers and adjust logistical strategies to ensure business continuity.
Another notable example is the adaptation of the force majeure clause, which gained critical relevance during the COVID pandemic. AI enhances the application of force majeure clauses in contracts by enabling businesses to automatically ensure they are included in every agreement and easily and quickly triggered, should a crisis or catastrophe occur.
The Bottom Line
As we look to 2025 and beyond, procurement leaders have an opportunity to leverage contracts as a source of strength and operational value. Contracts are the foundation of business relationships, and effective management across the enterprise is imperative to safeguard financial health, reduce risks, and create more resilient supply chains in any economic climate. By adopting the right AI tools and forward-thinking approaches, organisations can avoid the financial strain that often accompanies unexpected disruptions. AI-powered contracting is an indispensable part of modern supply chain management, equipping businesses with the agility to not only address immediate challenges but also build greater resilience for future uncertainties.