Top Reasons why AI is important in Contract Management

Organizations across the world, depending on their nature of business will have contracts located across repositories and possibly in multiple languages. Unless the contracts are digitized and brought into a central repository there is no way one can know what is inside these contracts and if there are any potential risks with any of these contracts. Traditional contract management processes fail in terms of speed, time, and resources required to get to the bottom of each executed contract.

Let us understand a use case

As a practical use case let us take an example of an organization that is into the manufacturing of several spare parts of Automobiles and the organization has manufacturing facilities across the world spread across several countries. Obviously, such an organization will have to deal with multiple raw material vendors across the world and the organization must enter into agreements for the supply of raw material with each of these vendors. Let’s also assume that there is a central procurement department for this organization that is handling vendors through their country-specific procurement teams with each country making their own agreements with the country / region-specific vendors.

What are the possible pain points?

With such a distributed organization architecture, it becomes difficult and unviable to keep a track of all the vendor contracts, understand which contracts are expiring, which are in the auto-renew mode, which has penalty clauses, which are signed on company templates and which are executed on third party paper, etc.

Not having visibility on contract key terms and metadata can lead to huge risk across the organization along with the possibility of getting into compliance issues.

When there are several hundred to thousands of contracts that need to be constantly analyzed and reviewed a lot of legal counsel efforts are warranted which can involve huge amounts of money and human resources along with a lot of time to be able to mitigate risks.

How Artificial Intelligence can help with better Contract Management?

It is observed that an inefficient way of handling the contracts can lead to business loss. Also, as per the study of the International Association of Contract and Commercial Management (IACCM), almost 40 percent of the contracts fail in delivering the full financial benefits with shortfalls costing 10 percent of annual revenues on an average.

It looks like with better contract management it is possible to improve contract profitability and there is none to match with Artificial Intelligence in this aspect.

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