This article was originally published on the Icertis blog.
Procurement is a complex part of global business that carries serious commercial and regulatory risk. These risks are especially pronounced when a company does not have an effective way to centrally manage its contracts.
In a recent survey conducted by ProcureCon, leading procurement officials were asked about contract-related challenges they’ve faced that caused revenue leakage, increased cost or financial penalties. Here were the results:
A critical component to tackling each of these issues is enterprise contract management software, which sees contracts as live documents enshrining all risks and obligations incumbent upon an organization.
Indeed, good risk management begins with good contract management. With enterprise contract management, you can identify and manage risk throughout the contract lifecycle with proactive insights. A configurable risk model helps track risks across different categories, such as financial, contractual, performance and third party.
Let’s look at how each of the above challenges is addressed through contract management software.
Challenge: Higher operations costs
Finding: 43 per cent of respondents said higher operations costs have hurt their procurement organisation.
Because contracts are the foundational element of modern commerce, they govern every procurement action and transaction a business undertakes. With the power of a modern contract management system with an ability to seamlessly integrate with procurement systems in place, an enterprise can gain unprecedented control over spend.
Through full visibility into all their commercial relationships, contract management software ensures that cash flow is complying with corporate plans, and allows executives to continually monitor money moving in and out of the business at all levels of the supply chain.
Challenge: Slow contract creation and approval
Finding: 46 per cent of respondents cited slow contract creation and approval as a challenge.
With enterprise contract management software, users can accelerate and optimize the contract authoring process. For example, users can self-service contracts with pre-approved clause libraries, eliminating the need for legal to get involved at every level of the authoring process but still control contract language.
Configurable notifications alert relevant stakeholders for revisions, redlines, and approvals, ensuring nothing gets missed. And robust, highly configurable rules increase flexibility while driving quicker approvals and execution.
Challenge: Unclaimed entitlements/lost or untapped revenue
Finding: More than half of respondents cited unclaimed entitlements or loss of untapped revenue as a challenge.
Best-of-breed contract management software draws on artificial intelligence (AI) tools that index and “interpret” every entitlement in each contract across the enterprise, allowing users to achieve the full potential of negotiated contracts through better enforcement of commercial terms.
The software captures the terms of products and services, prices, discounts, rebates and incentives in a structured form after interpreting the entitlements. You can then integrate the data with enterprise systems and help enforce terms for better savings and revenue performance.
You can also avoid missed entitlements or revenue potential. For example, sourcing organizations can automatically check purchase orders against agreed upon contract language to detect incorrect billings issues with regard to slabbed discounts or other innovative payout models.
Challenge: Missed obligations
Finding: 55 per cent of respondents said missed obligations have been a challenge.
Contract management software gives unprecedented insight into these contractual commitments, ensuring nothing gets missed. The same indexing and reporting capabilities used to surface entitlements also capture a business’s obligations to third parties, preventing leakage caused by lost business or penalties.
Challenge: Regulatory enforcement actions
Finding: This emerged as the most common challenge for procurement leaders, with nearly 3 in 4 saying they’re concerned with regulatory enforcement due to noncompliance.
It’s no wonder this was the number one concern, given the serious financial penalties and lasting brand and reputational implications of regulatory violations.
A robust library of clauses and templates goes a long way to reducing ad-hoc, or maverick contracts. Readily accessible templates, combined with a rules-driven workflow engine, helps support compliance throughout every stage of the contract management lifecycle.
Contract management software can cross-check country- or region-specific rules with relevant contracts. Compliance, down to the smallest supply subcontract, can be continually monitored through integrations with external software. Contract management software can even take a preventative role in compliance, via innovative contract creation tools.
Sophisticated contract management software can identify such regulatory enforcement and compliance obligations not just from their own contracting policy and authoring rules but also from customer specific contracts and cascade them to buy-side contracts used for fulfilling commitments. This makes the whole supply chain subject to internal regulatory enforcement and compliance actions.
To learn more about how a modern CLM solution can improve procurement at all levels of the supply chain, download this report from ProcureCon.
Vivek Bharti is general manager of product management at Icertis.