Many CPOs would consider contract management being the basis for continuous supplier management, when combined with strong supplier governance. However, there are 10 key challenges that hinder contract management performance. These challenges are:
- Limited transparency on claims and service credits
- Lack of supplier performance information
- Unclear responsibilities in supplier disputes
- No tracking of spend as opposed to the time plan
- Contingency or risk mitigation plans missing
- No notifications of terms, rights or obligations
- Undefined handover processes
- Cost and scope creep
- Business cases are rarely revalidated
- 10-15% of contract value is lost
Getting all of these under control brings you numerous benefits. Your cost savings become sustainable and increase, as you get working capital benefits, improved contract breach penalties and streamlined claims process. Controlling these also reduce your operational costs and gets your risk mitigation into a more effective mode. You are spending less time dealing with delivery issues, as those are under control and your SLA’s are kept in check. Overall, having a better contract management works both ways, as your suppliers are also kept happy when the realized value of contracts is kept under control.
How to Take Control of Contract Management
When we are working with contract management, we need to divide the actions into separate processes. After the contract has been signed, it’s inputted into the relevant IT systems and handed over to the stakeholder that is responsible of handling the contract.
The first task is to establish a coherent monitoring function. Each contract has multiple dimensions to monitor. These include KPI/SLA metrics, risks, overall contract compliance and ultimately realized transactions. The contract governance needs to bein check as the contracts can have different changes and actions performed on during their lifecycle. A key function is the change management and dispute management functions, which assist in keeping the contracts up to date and suppliers accountable. Ultimately, there also needs to be an exit and renewal function to help in the latter stages of the contract lifecycle.
Next step needed to implement contract management is categorizing your contracts by their value and complexity. Successful contract management requires you to know which contracts are high value and which are of lower value. Many lower value contracts need just a small amount of the functions listed earlier and they are good grounds for automation. As for the strategic, high value contracts, they often require full time resources for managing them in an efficient and comprehensive manner.
How to go forward with implementing a good contract management solution? Quick win here is to identify quick wins and retrospective claims. This helps you to prove the value to the management. After the identification is done, a high level design of how the entirety of live contracts will be tackled. These designs help you to understand the business cases, RACIs and the overall impact of the contract to your organization. After these designs are in place, a tactical approach to chasing the value leaking contracts is next. This is where implementing focused IT tools will be key. Implementing a valuable IT solution helps you to categorize your contracts by category and per supplier. Another tool that can be established in this phase is an as-is status heatmap that shows the real time status of your contracts. This helps you in further segmenting your contracts and focus on finding the contract value leakages. All this helps you in setting up the final stage of the contract lifecycle and automates it for continuous use.
Automation is the Key to Fully Tap Your Contract Value
As the amount of tasks in the contract management processes is high, automation is necessary for getting the most efficient contract management function in place. This is where Sievo can help you. To begin, you need a unified repository for all your contracts. With Sievo Contract Management, you can easily upload all your contracts to a unified platform that can be accessed anywhere. This uploading also enables the inputs of KPI and SLA information for more efficient contract management. Having all this information helps you in tracking all the benefits and value of your contracts, while also forecasting possible risks that might occur.
Sievo can help in automating your contract handling, since automated notifications of upcoming milestones, such as end of a contract period, are automatically sent to all the stakeholders and important performance exceptions are also taken into account. Notifications can also be configured for informing about price drops and credits in invoices. A powerful contract management tool is a key tool in assisting tracking performance, as you can instantly track your supplier performance. Sievo Contract Management can also be useful in tracking your contract coverage. When 3-way matching between Purchase Orders, Invoices and Contracts is established, an instant transparency to maverick purchasing can be established and this in turn helps you improve your procurement spend.
Handling supplier contracts can be a daunting task, but with Sievo’s Contract Management solution, these processes can be easily handled with the out-of-the box functionalities offered.