When you peel back the Procurement onion, contracts are often an afterthought or the last piece to add to your Procurement Stack of software. According to McKinsey “the majority of organizations invest relatively limited resources in contract development and vendor management.” A third and equally important pillar of under investment is contract management. Up to 80%, and McKinsey argues 90%, of companies have their annual spend represented by contracts, which makes managing the massive number of contracts a chore in and of itself. Those contracts represent real dollars and potential savings even after the contracts are executed.
Multiple factors contribute to poor contract management. The major problem with enterprise-wide contract management is that Procurement generally manages less than 20% of all contracts. The majority are managed by the end user or department. And, these agreements are often not even managed at all and only are brought back to light days before expiration or renewal. Where basic management systems are in place, they are generally paper-based or excel based tracking systems. Other challenges to good contract management include lack of overall resources, or a lack of focus on the fact that contracts have terms, requirements, penalties and end and renewal dates. Most of the time Procurement does not have any oversight in the dozens of different departments negotiating and executing contracts. The contract mess inside your organization is like a draft in your door where cold air escapes in the summer and warm in the winter. Money is being wasted and lost. Lots of money. According to McKinsey, and referencing data from Fortune Magazine’s Global 500, “suboptimal contract terms and conditions combined with a lack of effective contract management can cause an erosion of value in sourcing equal to 9 percent of annual revenues. For Fortune’s 2016 Global 500 companies, this 9 percent would have equaled $2.5 trillion in value.”
If you want to be a market-leading Procurement organization don’t overlook this. If you want Spend Agility in your organization’s DNA, take the steps now to get this under control. And, you don’t need fancy CLM software to identify cost savings. With many CLM software offerings and definitely not in P2P suites claiming CLM components, the actionable intelligence and proactive insights don’t exist. The first step in taking control over your mountain of contracts, that you probably fail to realize exists, is identifying the areas you need to invest in. You need command, control and scalability.
If you’re reading this, most likely you have hundreds if not thousands and maybe tens of thousands of contracts, negotiated and implemented by multiple people and departments. You need a tool that has built in Collaboration. Collaborating between departments and functions is critical to understanding the contracts’ ins and outs but also spreading the knowledge. Second, software that just manages a list or a calendar of renewal dates provides little benefit above the excel spreadsheet method. Pro-active workflow and intelligent insights, based on AI, will make your contract management processes run more smoothly and alert you to savings opportunities. Finally, a built-in savings tracker is necessary. The goal of contract management should be both performance and savings.
Why Market-Leading CPO’s Choose Suplari Agile Contracts
Suplari Agile Contracts address the pain points and money leakage all companies experience in managing their contracts. Whether you have a CLM solution or not, Suplari Agile Contracts allows you to manage your contracts with pro-active workflow, collaboration, predictive intelligent insights to realize savings from your contracts. With a 360-degree view, embedded analytics into your Spend, Contracts, PO’s and Suppliers in one place, Suplari Agile Contracts easily and seamlessly allows you to climb on top of and manage your contracts effectively and efficiently. Utilizing powerful insights and a collaborative solution built into one platform you can manage and track savings in one place.
Remember, lack of effective contract management is costing you money. Either as a separate cost savings and efficiency initiative or part of a vendor management program, effectively managing contracts will provide opportunities to optimize vendor relationships, stay in front of problems and not be blindsided by renewals or non-performance issues. Creating the contract is a collaborative process to begin with; procurement, end-users, vendors, legal and other stakeholders are involved. Shouldn’t post signature be collaborative, focused and managed with the same attention to detail?
1. McKinsey; Contracting for Performance: Unlocking Additional Value by Roman Belotserkovskiy, Jayant Sewak, Adina Teodorian and Britta Lietke, May 2, 2018
2. McKinsey, May 2, 2018 and Fortune.com January 5, 2018