Tag Archives: contract lifecycle

Improve Contract Compliance by Thinking Like Sales…Not Procurement

Call us crazy but we reckon Procurement would be better off looking at the Contract Management process the same way sales does…

If you’re anything like me as a procurement practitioner, you think of our end-to-end process in a linear fashion. It usually starts with spend analysis or some other source of information (budget, ERP, BI system output, etc.) and ends with Contract Management and/or Supplier Performance Management. For us, this is completely logical because the sub-processes that we view as the most “active” portions of procurement – strategic sourcing and negotiation – have been dealt with at this point.

In Contract Management and Supplier Performance there is something of a phased handoff back to the budget owners. After all, the spend we bring under management is rarely associated with a procurement need; we are often just temporary custodians of someone else’s spend.

Unfortunately, the procurement phase that covers implementation and ongoing Contract Management includes the following two milestones:

  • The majority of the supplier’s value is created for the business.
  • Weaknesses and disturbances come to light, threatening to diminish total value and reduce contract compliance.

Procurement may see the contract phase as the end of the project, but our internal stakeholders (and in many cases, our suppliers) see this as the beginning of the effort. Everything up to this point has been theoretical, now it is real.

Contract compliance: think like sales

As crazy as it sounds, procurement would be better off looking at the Contract Management process the same way sales does. The day after you sign a contract is the first day of a new sales cycle. Your contract win is a prospect once again, maybe not for the same product or service they just bought, but for expanded coverage, increased volume, a longer commitment, or an alternate type of offering. This is the worst possible time to go hands-off, especially if you think there is the potential for more business.

Procurement may be guaranteed “more business” from their captive clients (a.k.a., internal stakeholders), but if those clients aren’t satisfied with the services and support they receive, they have no incentive to be loyal; to procurement or to the contract. In the alternate scenario, procurement stays involved to ensure a smooth transition to the new contract and serves as an advocate for the business as well as the supplier during the agreement lifespan. In this case, spend is far more likely to stay on contract where it lowers risk, increases savings, and delivers the desired value.

Here are a few examples of how procurement’s proactive investment in contract compliance can build loyalty for the future:

If the shirt fits…

In a sourcing project for driver uniforms at a freight company, several business divisions were combining their demand for the very first time. Each division brought their supplier and their current service levels to the table. Although being an incumbent was an advantage, the mandate was to select one provider for the whole company. This would inevitably lead to someone losing their incumbent so another division could keep theirs. After the selection was made, procurement redirected the team members who had been responsible for the sourcing effort to manage the rollout at the division transitioning to the new supplier. This not only minimized disruption to the business, it prevented the rise of resentment – something that could easily have lowered compliance and become a barrier for future sourcing efforts.

Have your supplier’s back

Sometimes you can tell that compliance is going to be an issue before the ink on the contract is dry. During a reverse auction for “35% water-added ham” at a wholesale grocer, procurement discovered that the category owner was secretly telling their incumbent supplier what they needed to do in order to win. After much drama, the supplier was excluded from the business because of their willingness to undermine the negotiation process. That left us with a guarantee of a new supplier and an ANGRY category owner. No supplier selected at that point was going to have an easy time with implementation. Knowing that contract compliance would be an issue, procurement took extra time to include metrics and SLAs in the agreement and worked with the new supplier to ensure that they would be able to report their performance back in detail. This effectively created a framework where they could quantitatively prove their performance. The wholesaler got the product they needed and the supplier was protected from unfair, costly complaints about their performance. Orders for “35% water-added ham” were placed and fulfilled with no disruption to local grocery chains. Yum.

Compliance credit where it’s due.

If procurement goes hands-off during Contract Management, we get no credit for value creation, but full credit for having created the circumstances leading to buyer inconvenience and frustration. The amazing thing is, that effective Contract Management is borne out when projected savings become realized savings – or not. And actual purchases become managed spend – or not. Without active Contract Management, there is a good chance that procurement’s efforts will be undermined and we’ll inadvertently create a tense relationship with internal stakeholders who we will, no doubt, need to work with again in the future.

In a Determine webinar featuring Spend Matters’ Jason Busch, Contract Compliance: Why It Matters to Procurement, he stated that contract compliance is more important than procurement performance. Strong words, but there are many components to that truth — and it’s a must-watch on-demand video.

Contract compliance and procurement’s role in ensuring it are a big and growing topic. You’ll find information on the subject in Determine’s extensive library of resources, or contact them to schedule a personalized demonstration of the Determine Cloud Platform.

This blog was orginally written for Determine by Kelly Barner .

Are Your Suppliers Treating You Like a Cash Cow?

Businesses are at risk of being treated like a cash cow by their suppliers if they are not managing their supplier agreements and contracts with complete visibility.

Cash Cow

This article was written and has been shared with Procurious by Daniel Ball, Director at Wax Digital.

We’ve all done it. Stuck with the same old suppliers year after year, because they’re doing the job and, let’s face it, it’s far less hassle to stay put than to make a change. Whether it’s for banking, car or home insurance, or even utilities, as long as prices haven’t risen too significantly, and you’re getting what you pay for, why go to the effort of changing?

For the consumer, a failure to review supplier agreements means that, at worst, you’re potentially missing out on a more competitive deal (and a complimentary Meerkat). For a business it can have much more serious consequences.

A large organisation will typically have hundreds or even thousands of contracts in place. A lack of management of these contracts can have a huge impact on business performance, bottom-line and risk. So what can organisations do to make sure they’re not milked like the proverbial cash cow?

Lack of Clear Visibility

Auto-renewing ‘evergreen contracts’ are a problem we see frequently, and they cost organisations millions of pounds in wasted budgets or unintentional spend. With no system in place to effectively manage contracts, they can easily get ignored or forgotten about, and without realising it, you’re locked in for another 12 months.

Worst case scenario, a high value contract has auto-renewed just as you sign another with an alternative supplier offering a similar service, or decide that you no longer need this service at all. It’s easy to see how missed renewal dates, contract overlaps, timely supplier reviews or intended supplier terminations can be overlooked.

This can be an inconvenient truth for large organisations whether they have a procurement function or not, left grappling to manage the contracts they have in place without clear visibility of them.

Aside from wasting money, with no control over contract terms, how can you be sure that your contracts are delivering what was originally agreed with the supplier? If you’re not in the habit of reviewing or monitoring your supplier contracts, the service you are receiving may have gradually moved away or deteriorated from what was originally intended.

The supplier may have been providing alternative quality products (substitutes), changed services levels or personnel (in the case of professional services), or altered other factors from the original terms agreed. All of this could potentially reduce the value of the original agreement.

Factoring in Change

It’s also necessary to consider the changes that will undoubtedly have occurred in your business since your contracts were first put in place. Throughout the lifecycle of a contract, it’s highly likely that your business will have changed in some way, whether that’s changes to pricing, or other things which may affect the terms of the original contract, or your organisational needs.

For example, the sum you spend with a supplier may have quadrupled since the start of your contract, putting you in a far stronger buying position. This of course should mean you are in a better position to negotiate discounts or lower rates, but it is difficult to do this without having the facts at your fingertips.

The first step towards managing contracts effectively is to have a clear and in-depth understanding of them. This won’t happen if they’re stuffed in the top drawer of a filing cabinet, or indeed held by each department that owns the supplier relationship.

The last thing any department head wants is to be going into a new budgetary period with a legacy of unwanted supplier costs to justify and accommodate. It’s one thing to have to field tricky conversations with your CFO, but another entirely using up valuable budget on historical services that are no-longer essential to you.

Your suppliers’ contracts themselves hold the answers to many of the key things you need to know in order to effectively manage them. How often do you actually review your suppliers’ contracts? And how do you get the information you need to effectively monitor, manage and measure the value they are delivering to your business?

Avoid Being a Cash Cow

Contract control gives you sight of which contracts are up for renewal in the next few months. If you’re unhappy with that supplier then you have the time to put them on notice, or appraise their performance and renegotiate a better deal. Or if you wish to invite new suppliers to bid for the contract, you have time to factor in this work and consider your options.

Effective contract management is an essential part of the supplier management process. It is only made possible if they are held in a central repository so that they are accessible for all key stakeholders.

Such a repository enables all contracts to be reviewed periodically to determine if changes are needed or even if it should be renewed at all. The growing realisation for this process to be automated has led to the adoption of contract management systems.

These systems deliver a simple and secure way to store contracts which are easy to audit and provide automated alerts and reminders if an agreement is due to expire. A full contract management system within an integrated source to pay process can further streamline the process by automatically adding newly sourced suppliers’ contracts to the repository for future tracking.

So don’t risk becoming a cash cow to your suppliers because contracts were signed and filed away years ago. A structured and more formalised approach to contract management is the key to unlocking operational efficiencies, compliance and savings.