This month, in his exclusive PASA column ‘Gordon’s Window’, Gordon Donovan, VP of Global Procurement Research at SAP, provides a handy expert summary of June’s global procurement research. Save your own time reading research when you can get the key takeaways in one place!
This month’s reports highlight how artificial intelligence (AI) is revolutionising procurement, especially in automating source-to-pay and contract management for greater efficiency and cost savings.
Reports from WorldCC and McKinsey emphasise blending AI with strong governance and change management, while CAPS shares key procurement performance metrics.
We also explore how organisations are managing rising tariffs, optimising costs and using scenario planning to build supply chain resilience.
Insights from Gartner, BCG and KPMG address the challenges of complexity, cognitive overload and the need for upskilling as AI adoption accelerates.
World Commerce and Contracting
WorldCC shared a series of reports this month. First up, we will take a look at a couple that focus on AI and CLM.
AI and the Contract Management Lifecycle
AI is revolutionising contract management – it’s probably the original use case – and, according to the Economist, it’s the one that has seen the biggest impact.
Specifically, impact areas include:
Efficiency and risk reduction:
- AI speeds up contract creation and approval, reduces errors and automates compliance checks
Cost savings and resource optimisation:
- By automating repetitive tasks, organisations can cut costs and reallocate human resources to more meaningful, strategic activities. This shift not only boosts productivity but also helps tackle the value erosion that often goes unnoticed in contract management
Smarter negotiations and personalisation:
- AI provides real-time insights and data-driven recommendations during negotiations, making it easier to reach better deals
Humans and AI: Finding the Right Balance in Contract Management
AI is already reshaping contract management, but the real challenge is balancing automation with human expertise. The future isn’t about AI replacing people; it’s about using AI to handle routine tasks so professionals can focus on what matters most.
Segmenting tasks for AI and humans:
- Not all contract tasks are created equal. Routine, high-frequency, low-risk tasks like extracting metadata or generating templates are perfect for AI automation
Reducing fragmentation and integration costs:
- Contract management often involves many stakeholders and disconnected systems. Effective AI integration means minimising inefficiencies that arise when AI outputs need human correction
Managing risk and governance:
- The cost of failure in contracting can be high. While AI can handle low-risk areas autonomously, high-risk stages like compliance checks or liability assessments must remain under strict human oversight
Strategic adoption and mindset shift:
- Organisations should map where AI adds the most value, invest in contract lifecycle management systems that connect insights across functions and redefine roles to focus on strategic, value-driven activities
Both reports agree that the future of contract management is a partnership between humans and AI. AI automates routine work, while humans focus on strategic, high-value tasks. This shift elevates the role of contract managers, demands new skills and requires seamless integration and strong governance.
Organisations that embrace this hybrid approach will unlock greater value, reduce risk and transform contract management into a strategic asset.
Next from WorldCC is a review on managing tariffs. This report captures how executives across industries are navigating these headwinds and what’s next for procurement, contracting and supply management.
Most companies are in a reactive “wait, watch and react” mode, closely monitoring tariff impacts before making structural changes. Few can pass tariff costs down the supply chain due to rigid contract terms, especially in IT and infrastructure sectors. Instead, businesses are scenario planning, seeking alternative suppliers (where possible) and pushing for greater cost transparency from vendors. Some are renegotiating long-term contracts, but many remain constrained by fixed pricing or limited indexation.
Executives are considering contract innovations like economic price adjustment (EPA) and gross inequity clauses, as well as more robust cost transparency requirements. However, there’s scepticism about relying solely on new contract terms without strong governance to prevent opportunism or disputes.
The conversation is shifting from linear supply chains to resilient supply networks; ecosystems built on shared standards, redundancy and collaborative governance.
Market disruptions can foster collaboration or reinforce transactional behaviours, depending on industry and supply chain flexibility.
The path forward is evolving procurement and contract management strategies, focusing on transparency, scenario planning and governance preparation, not just for tariffs but for a future defined by continuous uncertainty.
CAPS
CAPS held a webinar on procurement performance, in essence to help procurement sell internally the value of what is done.
Key performance metrics include “Managed Spend as a Percentage of Sourceable Spend” (showing procurement’s influence), “Cost Reduction Savings as a Percentage of Managed Spend” (demonstrating financial impact) and a Department Maturity Score (assessing capabilities in talent, risk, analytics and more).
To justify headcount, metrics like Supply Management FTEs per $1B in spend and source-able spend per FTE help organisations benchmark staffing efficiency and identify resource needs.
The focus is on balancing operational and strategic roles for maximum value. I’ve selected a few and put the SAP benchmarking programs equivalent results against them.
McKinsey: Mitigating Procurement Value Leakage with Generative AI
Recent McKinsey research shows digital enablement is now a core priority for procurement leaders, rising sharply in importance over the past year.
The report identifies that two major sources of value leakage are contract optimisation and compliance. Poorly structured contracts and weak enforcement lead to disputes, missed savings and ‘maverick’ spending, costing large enterprises millions annually. For example, unfulfilled supplier obligations can leak about two percent of spend – $40 million per year for a $2 billion budget.
McKinsey suggests that Gen AI offers powerful solutions by processing complex, unstructured data at scale.
AI-powered tools can:
- Extract and monitor key contract terms, ensuring best practices and flagging non-compliance in real time
- Reconcile invoices against contracts, catching errors and duplicate payments before they occur
- Automate routine tasks, freeing staff for higher-value work and reducing processing costs by up to 80 percent
- Early adopters have seen rapid results. One company identified 4–10 percent in contract savings through AI-driven reviews, while another flagged over $10 million in invoice leakage within weeks
APQC: Artificial Intelligence Trends in the Finance Function
AI adoption in finance is rapidly accelerating, with nearly all surveyed organisations exploring or piloting AI to transform key processes like financial planning and analysis (FP&A), order-to-cash, record-to-report and procure-to-pay (P2P).
FP&A leads in adoption with 37 percent actively using AI, mainly for forecasting and modelling. Order-to-cash and record-to-report follow, focusing on customer invoicing and reconciliations, while P2P lags.
25 percent of organisations are actively using AI in P2P, with another 39 percent in early adoption stages.
Over a third remain undecided about AI in P2P, the highest hesitation among finance functions. Of those using AI, nearly half (47 percent) apply it across the entire P2P workflow, indicating a trend toward full automation in this area.
Many organisations face challenges such as lack of skilled talent, employee resistance and technical integration issues with existing systems and workflows.
Gartner: Procurement Complexity
Procurement is moving at breakneck speed, but with transformation comes a surge in complexity – and staff are feeling the strain. Gartner’s latest research warns that cognitive overload is now a critical challenge for procurement teams, risking burnout, reduced effectiveness and resistance to future change.
Cognitive overload is real: Nearly half of procurement leaders have expanded their teams’ responsibilities recently and most plan to add more. This ‘additive’ approach, coupled with a volatile external environment, is overwhelming staff and stalling productivity, even as technology and education advance.
Redefine productivity: The old model of measuring output per hour no longer fits. Leaders need to focus on increasing available cognition, not just available time. Automating simple tasks only works if the new, more complex tasks don’t drown staff in information and decision fatigue.
Design simplicity into operations: To offset complexity, leaders should:
- Develop clear templates, process maps and decision rules for all procurement activities
- Separate tactical from strategic work to reduce mental switching costs
- Monitor user experience, not just engagement, but by tracking workflow usability, complaints and error rates
BCG: GenAI in Procurement
This article, in a similar way to the other reports on AI this month, highlights how generative AI is transforming procurement from a cost centre into a strategic value driver.
AI enables procurement teams to achieve cost reductions of 15 percent to 45 percent across categories and can automate up to 30 percent of repetitive tasks, freeing staff to focus on more strategic work.
By rapidly analysing vast procurement data, AI identifies savings opportunities, enhances negotiation leverage and accelerates processes like supplier communication and tender management. This not only boosts productivity but also helps mitigate operational and supply chain risks by providing real-time risk insights.
Importantly, as suppliers themselves adopt AI, procurement teams must act fast to capture value and maintain a competitive edge. Success hinges on upskilling teams for new AI-powered workflows and embedding these tools into daily operations.
KPMG: AI Quarterly Pulse Survey
The latest KPMG Q1 2025 AI Pulse Survey reveals a surge in AI investment and adoption among large US organisations, with leaders planning to boost GenAI, spending nearly $114 million over the next year.
While daily use of AI productivity tools and knowledge assistants has jumped sharply, actual deployment of AI agents remains limited. Risk management, data quality and trust in AI outputs are top concerns, with 82 percent of leaders citing risk as their biggest challenge.
Workforce readiness is also a sticking point, as complexity and skills gaps hinder broader implementation. Trust emerges as a critical issue, both within organisations and society at large, as leaders worry about accuracy, fairness and misuse of AI.
Notably, responsibility for AI initiatives is shifting from CEOs to CIOs, reflecting a move from strategy to operational execution. Overall, optimism about AI’s strategic value is high, but so is caution around risk and trust.
Beroe: US Tariff Hikes
This article describes how US tariff hikes in 2025, like the 145 percent tariff on China and 25 percent duties on Canada, Mexico and key sectors, are sending shockwaves through global procurement.
China’s 125 percent retaliatory tariffs and similar moves from other nations are reshaping trade routes, supplier dynamics and cost structures.
Procurement leaders now face higher import costs, production delays from nearshoring and increased risk of recession, with export-heavy economies and industries like food, pharma, electronics and packaging feeling the pinch.
To stay resilient, procurement teams should:
- Diversify sourcing to regions with lower tariffs
- Build regional resilience through joint ventures and improved logistics
- Negotiate flexible contracts to manage price volatility
As always, reach out to discuss more. I’m always happy to hear your thoughts!
