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The Best-in-Class Contract Management Program: More than Just Contracts

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There are several key components to the modern procurement function that are unheralded in nature and often considered to be more tactical than strategic writes Andrew Bartolini for CPO Rising.

However, in the greater purview of the total impact of procurement, attributes such as contract management sit inside a territory of processes that, when mismanaged, can wreak financial havoc within the average enterprise. Those enterprises that deem contract management a critical component of their overall procurement programs are the ones that avoid savings leakage, maintain legal and financial visibility, and ultimately drive more value to the greater organization.

More than Just Contracts

The Best-in-Class contract management approach is multi-tiered, relying on an interconnected series of capabilities that ultimately drive visibility and insights and are founded on repeatable principles via the standardization, automation, and linkage of key processes within the greater strategic sourcing process, like sourcing and contract management. Top-performing enterprises are more likely than their peers to leverage this mix of standardization and automation.

eSourcing automation ensures that supplier bids, information, and negotiated prices and terms are saved in a central, digital repository that can be carried over to the contracting process. It also helps contracting officers link the sourcing, negotiation, contract creation, and contract execution phases of each sourcing event. As a result, automating eSourcing helps to fill gaps between sourcing and contracting, foster visibility into both processes, and in turn prevent savings leakage. Best-in-Class organizations are nearly 40% more likely than all others to have this level of automation in place.

The Best-in-Class are also nearly 30% more likely than rival groups to standardize their sourcing processes, thereby leveraging common sourcing language, templates, terms, and conditions for easy reuse during the contracting phase. There is no need to reinvent the sourcing wheel for every supplier, category, or sourcing event; standardization simplifies the process and makes it easier for teams to reuse applicable documents and establish best practices. Not surprisingly, Best-in-Class procurement teams are also 21% more likely than “All Other” teams to standardize their contracting processes. With common formats, templates, and language, contracting officers can convert information from supplier bids into contractual documents and reduce the likelihood of inaccuracies or omissions between the two contractual phases. This ultimately ensures that, when executed properly, the groups will drive a desirable (and correct!) level of cost savings across enterprise spend.

The biggest gap between Best-in-Class and rival procurement teams lies in their linkage of sourcing and contracting. Not surprisingly, the Best-in-Class are 45% more likely than their peers to report tight linkage between these areas, enabling them to more quickly leverage sourcing and supplier information into contractual documents for quick, easy, accurate, and compliant execution. In the business world, time is money, errors are costly, and non-compliance can ruin businesses or relationships. As the stakes get higher, fewer procurement and executive leaders can tolerate inefficient, costly, or risky processes.

Conclusion

Contract management automation is a multi-faceted series of technology-driven processes that can drive real efficiencies across the entirety of the contract management function. Best-in-Class enterprises are nearly 36% more likely than their peers to leverage this automation, which actively closes the loop between sourcing and contracting, mitigates both internal and external legal risks, and also supports a wide range of repeatable processes that can be utilized for different sourcing events and initiatives. Contract management automation can also enable access to central repositories and standardized service-level agreements to ensure that suppliers perform against the negotiated terms and conditions. In the quest to reduce maverick spending, curb savings leakage, and identify compliance gaps, contract management automation may be the most critical capability of all.