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AI, Machine Learning and What They Really Mean for Procurement and Contracts

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Your contracts. Even though they govern all of your supplier relationships and deal with huge sums of money, they’re error-prone and are in dire need of meaningful controls. Procurement solutions don’t encompass contract management, and technology-enabled as they may make you may feel (especially compared with what you had only a couple years ago), leave you with the manual, administrative tasks that keep you from more meaningful work.

Machine learning (ML), with 1) a more comprehensive view, 2) a more complete understanding and 3) a better ability to keep up or never be distracted, can automate those tasks, and use your contract data to deliver insights that will create tremendous opportunities for increased profit, efficiency, savings and accelerated growth without you lifting a finger.

Contracts, the story of a company or the “constitution of the business,” hold all of the data for every transaction, every partnership, every penny ever spent. And while they hold the past, they also plan the future. I didn’t say predict because it’s not a prediction — the future of your company is already written in your contracts. Leveraging all of your contract data, ML will be able to make big impacts in concrete ways that deliver savings, revenue and greater value to procurement and the organization as a whole.

You already use AI and machine learning (ML) everyday, even if you don’t know it. Amazon uses it to make reading and product recommendations based on past decisions and purchases made. Facebook uses ML for face-tagging after a photo is uploaded. A recent TED Talk discussed a computer that created a 3-D-printed cabin partition that’s stronger than the original but half the weight. Why is this amazing? Because using the internet, that computer was able to analyze all of the available data, data you or I may not have considered, to create something better and stronger than currently existed.

Artificial intelligence (AI) is not a new idea. It’s been simmering for a long time. Machine learning, however, is the technology that will have more of an immediate impact for procurement. Before diving into the benefits of AI and machine learning, the two terms, while different, get used interchangeably and require some definition.

Artificial Intelligence is the broader concept of machines being programmed to be able to carry out tasks in a way we would consider “smart.” Machine Learning is where machines, without programming or human input, crunch data and use things like facial recognition, voice commands or natural language processing (NLP), pattern recognition and predictive analytics, paired with access to data and the Internet, to continually learn how to improve — make better, faster, stronger.

3 Immediate Benefits of Machine Learning for Procurement Contracts

Automated Compliance

Able to quickly scan all contract data, using NLP machine learning can automatically extract important information from a contract — names, organization and vendor information, the contract signature date, renewal dates and more — meaning the hundreds or thousands of contracts you have, and those created in the future, can be auto-tagged with the right companies, the right data, the right deadlines and automatic renewal alerts can be set. You’ll never miss the end of a contract again.

Increased Efficiency

ML can also identify patterns within procurement processes to identify areas for improvement — a sticking point where contracts consistently get delayed; a better vendor that matches your preferred vendor profile that would work better, deliver greater savings; a combination of new workflows that can reduce contract completion cycle times or onboard suppliers faster. That same pattern recognition and predictive analytics can identify when the majority of contracts are signed, helping procurement accelerate signatures and shorten cycles drastically.

Increase Savings Through Better Negotiation

Are you leaving money on the table? One of procurement’s biggest opportunities for savings is during negotiation. Many factors contribute to missing out on revenue, and many of those factors you or I wouldn’t catch unless we read through each and every contract. You know will read those contracts? ML. Searching through the history of the contracts with that specific supplier or suppliers that match their profile, ML can highlight opportunities for savings or growth, capturing revenue that would have otherwise been missed.

Getting Down to Brass Tacks

What machine learning and AI really come down to is savings, in both money and time, and helping procurement deliver more value. Robots won’t replace you. They can’t do the strategic tasks you want to do, but they will automate the administrative tasks you don’t want to do. The world is already experimenting with the limitations of ML with significant success. And while it won’t happen overnight (a higher level of automation will likely be seen in three to five years), there are steps that should be taken now to prepare your organization for the technology of the future.

The first step: bring all your contracts into one central repository with a contract management platform. Documents spread out and stored in multiple locations — filing cabinets, hard drives, individual computers — will only deliver the insights that will soon be table stakes for remaining competitive.

AI is the future. AI is science fiction. AI is already part of your everyday life. While all may be true, the real-world application of technology cannot and should not be ignored. The top-performing procurement departments are ones that become technology-enabled by embracing and adapting what technology can do. In reality, you’re already reaping the benefits of machine learning in your personal life. Start realizing the benefits in your professional.

Matt Lhoumeau is the CEO and co-founder of Concord.

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