How Will AI Transform Contract Management?

I still remember 2001, when I was a purchaser in a global company and I had to work on contracts. If there was one thing we did not lack, it was contracts. Price agreements, delivery contracts, tooling contracts… all archived (a nice way of saying forgotten) in cabinets.

It was the time of paper. It was also the time of proliferation. Each plant had its own contract format and site specific content. Needless to say, it was a nightmare. In fact, more than that, it was often a source of problems. Forgotten milestones, heterogeneity, and, sometimes, loss. Those were just some of the issues we had. The worst was the effort needed to craft contracts as there was no standard and it was nearly impossible to reuse existing texts as they were “archived.” This was like reinventing the wheel each time.

Fast forward to 2017 and Artificial Intelligence…

These days, business communications are often full of buzzwords. Artificial intelligence (AI) is one. It is because it is often mentioned without clear use cases.

In the case of contract management, there are some interesting use cases.

For example, in the Art of Procurement podcast, Pierre Mitchell (Chief Research Officer for Spend Matters and former Executive Advisor and Procurement Research Leader at The Hackett Group) talks about how AI can help in analyzing existing contracts and in developing a library of clauses.

What Mitchell describes, would have tremendously helped me and my organization back in the days I evoked at the beginning of this post. An AI-backed contract management solution would process and analyze all existing contracts to:

– Identify the various clauses and terms
– Build a library of most commonly used ones
– Capture important metadata (like terms, signature, renewal dates, entities, etc.

Then, based on the digitization of unstructured data into a structured database, it is possible to build up critical capabilities. The most immediate one being a procurement assistant focusing on contracts. This assistant would have the capability to proactively inform purchasers of critical upcoming events (deadlines, renewals, thresholds, etc.) that they would otherwise probably miss.

And it can go further. We are all familiar with suggested or recommended purchases when buying online. This is what Amazon, Apple or Netflix do. Their intelligent systems analyze the history of your own purchases and, sometimes, purchase history of shoppers that fit your profile. This fuels a recommendation engine that suggests additional items to buy.

Transposing the same approach to contract management is possible. Because the system has digitized all contracts, it sits on a goldmine of information. It can be the source of recommendations when authoring new contracts. It could, for example, recommend terms based on:

– The frequency of usage in existing contracts
– Similarities between contracts

And because the capabilities of analysis of machines are far more superior to ours, they can identify correlations that are somehow hidden. So, it could tailor the recommendations with regards to the spend category, your location / your entity, the supplier’s location and more.

And there is one more thing….

Machines can learn. Machine learning is where the biggest and most recent progress is. This means that the recommendations will become more and more accurate over time. If the purchaser accepts or rejects a recommendation, the system will learn from it and be able to develop preferences scheme at individual, category or business unit level.

So, cognitive technologies will profoundly transform work. With regard to procurement, the application of AI and machine learning is often called Cognitive Procurement. It will have a transformative impact, so it is now the time for organizations to reap the benefits of better and more intelligent procurement solutions.

 

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