By 2027, 50% of organizations will support supplier contract negotiations through the use of Artificial Intelligence (AI)-enabled contract risk analysis and editing tools, according to a report from Gartner, Inc.
The forecast comes from a Gartner survey of 101 procurement leaders, conducted in November 2023, showing that sourcing and contract life cycle management is expected to be the area where generative artificial intelligence (GenAI) can be most impactful on their business over the next 12 months.
Specifically, GenAI can help procurement teams take on more ownership in the supplier contract negotiation process by using automated editing tools that leverage legal department guidance and previously agreed-upon terms, Gartner said. GenAI can also add efficiency to the contract negotiation process by highlighting potential risks and offering risk reduction options.
“Interest in AI for procurement has increased dramatically, and we expect to see a rise in use. In our survey, 58% of procurement leaders said they already are implementing, or plan to implement AI in the next 12 months,” Kaitlynn Sommers, Senior Director Analyst, Gartner Supply Chain Practice, said in a release. “AI-enabled risk and editing solutions will help procurement expedite business decision making, decreasing time spent on the contracting process and increasing capacity for additional tasks.”
Gartner offered four points of advice for companies looking to begin leveraging GenAI for contract management:
- Move beyond a digital repository of contracts to a contract lifecycle management (CLM) solution that supports authoring and negotiation of contracts.
- Start quantifying risk in the contract clauses by using current contract templates to understand the main terms negotiated in various contract types.
- Partner with legal on defining risk across terms that are not business-led and outline the roles and responsibilities of both groups with a more digitally enabled future-state negotiation process.
- Evaluate current partners and explore new vendors to identify those that will support the organization’s ambition. These use cases are distinct and may not be offered by a single vendor.
