Looking to Maximize AI Value in Industrial Manufacturing? Consider Your Contracts

Any AI investments need to deliver value in a way that is both practical and tactical. One such use case is to centralize contract data, and then using AI positively impact the bottom line. 

December 4, 2023 By Bryan Baum (Icertis) and Deborah Kaplan (SAP)

According to a recent Deloitte Report, Industrial manufacturing has performed better than expected since the pandemic. Yet with so many factors changing the marketplace there remains an urgent need to consider how these factors will impact the future of work.

The global economy remains volatile, meaning opportunities for growth in the form of making more sales are limited. A new strategic approach is needed focusing on ways to reduce leakage, improve supply chain resilience, and accelerate digital transformation efforts.

There is a great deal of interest in the potential of AI, especially with generative AI making waves and creating opportunities for efficiencies in many industries. The question industrial manufacturing leaders are asking is: how best to apply emerging tech for the greatest commercial benefit?

Any AI investments need to deliver value in a way that is both practical and tactical. This means identifying use cases to maximize ROI. One such use case is to centralize contract data, and then use AI to connect the clauses, terms, deliverables, and opportunities that exist between sourcing, logistics, process, and payments, to positively impact the bottom line.

We are both industrial manufacturing experts, specializing in helping organizations in the industry connect contract data with their operational SAP systems. We recently connected to share notes about how AI is changing what is possible with contract data, and where we see this exciting trend going in 2024 and beyond. Here are a few highlights from our chat, the full version of which can be found here.

How end-to-end visibility creates efficiencies

Most contracts between suppliers, partners, and materials handlers are designed and drawn up with the goal of protecting the stakeholders’ interests and adding to the bottom line. That value gets diminished, however, when the intent of the contract is not realized in practice. We call this contract leakage and often occurs simply because terms negotiated in contracts are forgotten about over time, especially when there are complex order cycles or manufacturing processes.

“When organizations digitize their contracts and integrate contract data with operational systems, they create a single source of truth that connects all the planned processes and obligations with actual deliverables.”

When organizations digitize their contracts and integrate contract data with operational systems, they create a single source of truth that connects all the planned processes and obligations with actual deliverables. Connected contract data provides easy access to information and proactively prevents leakage: Was what was ordered, delivered, in the right quantity, on the right day? Was payment made according to contract terms and at the right price, or was there a difference?

AI takes this further by automating the extraction of contract data. AI trained to identify what an “obligation” looks like can then analyze huge volumes of contract documents to ensure they are complied with.

Having end-to-end contract visibility and being able to reconcile data across the entire organization has multiple benefits. It enables automation and digital transformation, using AI to do what it does best – work through thousands of contracts, invoices, delivery notes, and procurement processes. It’s an efficient way of processing data, unlocking the potential for cost savings and reducing leakage.

Improving supply chain collaboration with AI

In industrial manufacturing, products are often complex, requiring ongoing customization to get the product from the initial design phase through to what finally ends up being manufactured in bulk. The process requires close collaboration with suppliers and the customer, and keeping on top of the multiple changes, both practically and in terms of contract agreements, is challenging. Trying to manage this through spreadsheets or even a string of emails is practically impossible. Inevitably some detail will get overlooked, which could hurt the bottom line via penalties dealt out by the customer for missed specs or rework whose cost can’t be passed along.

By contrast, digitizing contracts and then integrating the contract datawith operational systems creates the potential for cost savings that can have a major impact on the bottom line. The Deloitte Report indicates that most businesses lose between 2.5% and 8% of contract value by not managing the process efficiently. Even at the lowest end of that scale, recovering 2.5% of potential leakage is significant, given the scale of industrial manufacturing operations.

Another use case to consider is the impact that can be achieved with closer collaboration between materials handlers that manage incoming materials and suppliers. There’s the potential to automate procurement processes, ensuring pricing, inventory, and delivery lead times are more effectively communicated and coordinated. Nobody wants factories standing idle because they don’t have materials to process, or because product changes are being held up.

When there is greater collaboration and visibility throughout the entire operation, and this is driven by data, that’s where manufacturers can derive the true value of contracts. Through every product release and variation, changes can be accurately tracked and documented. The impacts of these changes can be visualized in terms of contract obligations, materials, and pricing. With this information drawn into a central repository, it becomes much easier to manage. This reduces the burden on employees and enables them to be more efficient.

Unifying data between contracts and operations

Usingthe AI-powered Icertis Contract Intelligence (ICI) platform, integrated with SAP operational systems, it becomes possible to save between 20% and 25% of time spent on managing contracts. It creates a more effective collaboration tool giving broader visibility into all aspects of operations.

With the rapid advancement of AI as an emerging technology, most businesses are looking for ways AI can impact operations and generate efficiencies. Icertis Contract Intelligence helps industrial manufacturers unlock the full value of every contract and link it to operations. Leveraging the terms that were hard won in negotiations so that they have a real impact on the business bottom line.

Want to learn more? Hear from SAP and Icertis experts about how Contract Intelligence can equip your business to facilitate growth on the buy-side and sell-side.

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