50% of organizations to utilize AI for supplier contract negotiations by 2027

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 Gartner, Inc.

According to a Gartner survey of 101 procurement leaders, conducted in November 2023, sourcing and contract life cycle management is expected to be the area where GenAI can be most impactful on their business over the next 12 months.

Artificial Intelligence, particularly GenAI solutions, are fundamentally changing the way that procurement organizations work. At the Gartner Supply Chain Symposium/Xpo, taking place through today, analysts discussed the importance of prioritizing use cases and steps to effectively deploy in organizations.

“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, shared with attendees. “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.”

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. GenAI can also add efficiency to the contract negotiation process by highlighting potential risks and offering risk reduction options.

“GenAI promises to empower procurement professionals to make informed, data-driven decisions that yield tangible results faster,” added Sommers. “Our research reveals that procurement leadership anticipates a 21.7% increase in productivity from the use of GenAI in the next 12 to 18 months. Both procurement professionals and solutions providers should be taking action now or risk being at a disadvantage over the next three to five years.”

For procurement organizations looking to begin leveraging GenAI for contract management, Gartner recommends:

• 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.

Gartner