The Lack of Strong Contract or Supplier Management Is the Silent Killer Of Expected Results
Transformation of your Contract and Supplier Management routines is critical to realizing the commercial value that you worked so hard to secure.More and more companies are seeing a bigger portion of their operations being handed off to Suppliers in the form of services based outsourcing agreements. The objectives of these agreements are clear. Drive cost out and increase productivity. The challenge becomes how to ensure the full value or outcome expected from these outsourcing agreements is actually realized. Typically, Contract and Supplier Management is done in a very reactionary, ad-hoc manner if even done at all, often times left to the individual business unit that entered into the contract with no standard business process, focused resources or technology tool. The result is a substantive gap between expected value and actual delivered results.
Research tells us that this gap or value leakage from outsourced contracts if not properly managed can amount to upwards of 15% to 20% of the annual contract value. This includes both hard dollar value (paying more) as well as soft dollar value (missed deliverables, service level failures) that is lost from the contract vs. what was expected after the hard-fought negotiations were finalized. The other very important element that erodes away from the outsourced arrangement by not proactively managing the contract is the Supplier Relationship. The impacts are significant. Strong Supplier Relationships result in better pricing, higher quality, emerging innovation and technology, the best resources and access to scarce capacity. All of the above results fall to the bottom line as a negative financial impact.
Successful contract management does not end when the ink on the signature page dries. That is only the beginning
So now with the problem understood, how best to approach the solution. Let’s first look at what a good Contract and Supplier Management Governance Model looks like.
Each component, working together in a well-orchestrated, recurring governance routine will help deliver realization of the business outcomes and supplier relationships envisioned when the outsourced agreement(s) was first put in place.
Now that we have touched on the components of a robust Contract or Supplier Management Governance Model, lets next talk about technology tools that can help with execution. As our business processes are becoming more and more digitalized, we should look to this digitalization to help us with the management of our commercial agreements. There are a number of tools in the marketplace that do a very good job in this regard. These tools have evolved from basic record keeping functionality to enterprise level core systems addressing realization of business outcomes, risk mitigation, cost minimization and revenue maximization. Gartner provides a comprehensive review of the leading Contract Management Tools in the marketplace. As you think about what tool is best for your business there are a number of considerations that should be taken into account before you make a final selection. Think of these as evaluation criteria.
• Security and digital encryption
• Contract Authoring
• Intelligent automation / machine learning around standard clauses and deliverables and obligations tracking
• Compliance validation in particular to legal and regulatory requirements
• Service Level Management
• Multiple contract types
• Contract volume and environment scale
• Personalized performance dashboard
• Multi-dimensional searches
• Mobile Application
• Roles based access controls
• Ease of configuration and deployment
• Supplier risk assessment
• Contract / Supplier performance assessment
• Contract benefits realization
• Integration with adjacent applications
The other consideration from a business process digitalization standpoint as you transform your Contract and Supplier Management environment is Robotic Process Automation (RPA) and Intelligent Automation. Manual work is being automated across a wide variety of Contract and Commercial applications including Spend Analytics, PO Provisioning, Supplier Master Data, RFP Processing, SLA Reporting, Tactical Sourcing, etc. There area number of terrific RPA tools in the market place as well as development and deployment expertise that can be leveraged to get your organization moving down the automation path at an accelerated pace.
Successful contract management does not end when the ink on the signature pagedries. That is only the beginning. Benefits realization, emerging innovation, good supplier relationships, etc. do not happen by accident. They have to be worked in a proactive manner. A robust Contract or Supplier Management Governance model enabled by a very capable Contract Management Technology tool are the keys to success. Remember, lack of Contract or Supplier Management is the silent killer of expected results. Place your bets accordingly.
For additional support on the topic of Contract and Supplier Management, leverage the help of the International Association of Contract and Commercial Management (iaccm.com). They are committed to fostering great trading relationships between Buyers and Sellers.
Daniel is a Retired Senior Executive at General Motors where he most recently served as Executive Director of Global Business Services (Procurement, Supply Chain, Manufacturing, Request to Pay, Enterprise SAP, etc.). Prior to that Dan was Chief Contracting Officer for Information Technology at GM. Dan also sits on the Board of Directors of the International Association of Commercial and Contract Managers (iaccm.com) and was prior Chairman of the Board. Dan also sits on the Board of Ashling Partners an emerging services firm specializing in Robotic Process Automation and Intelligent Automation.