Procurement teams with mature SIM and CLM systems can extract greater value from supplier relationships. How can the two be brought into better alignment?
This article was written by Kelly Barner for Determine
Procurement is so accustomed to aligning our technology and processes with the objectives of the business at large that we sometimes miss opportunities to align our own technologies and processes with each other.
Supplier Information Management (SIM) and Contract Lifecycle Management (CLM) provide a perfect case example. Both bring together suppliers and internal touch points, extend beyond procurement’s peak involvement in managing spend categories, and play an important role in addressing (and mitigating) supply chain risk.
Procurement teams that have mature SIM and CLM programs in place reduce their risk, but they also create opportunities to extract greater value from each supplier relationship and reduce confusion within the enterprise.
When we stop and think about how SIM and CLM can be brought into better alignment, three critical shared issues come into focus: information integrity, ownership and actionability.
Information Integrity Through Integration
Information is such an important component of SIM it is included in the name, whereas with CLM the devil is always in the details. An incorrect piece of information in a contract can easily become a legal liability. Both start with essential supplier contact information and metadata and extend to the details associated with supplier onboarding and contract terms. Although the following information is collected for separate reasons, it is critical that it be consistent across SIM and CLM:
When a new supplier is on-boarded post award, a standard set of information is usually collected. This includes their contact information, location details, proof of certification, and details regarding the users who will represent the supplier in company systems during the term of the agreement. Making sure as quickly as possible that this information is complete and accurate lays the groundwork for an equally smooth implementation and on-going relationship. Beyond simple collection and centralisation, procurement must also validate supplier information at the time of onboarding – paying particular attention to documentation associated with certifications that were included in the award decision.
When creating a new contract, it is natural for procurement to focus on product/service specifications, prices, terms and SLAs, but capturing other more straightforward information is just as important. For instance, specifying a production location might seem like a minor detail — until the supplier makes the decision to outsource their production to another facility, or even another country. Having specified the location in the contract may not prevent the change from being made, but it does create an opening for discussion of the associated quality and oversight expectations. As contracts become an increasingly dynamic part of supplier management, more details need to be incorporated.
Since managing risk and increasing performance are at the heart of both SIM and CLM, establishing ownership early on is critical. Who will manage the relationship and who will be the documented owner of the contract? Should it be the same person? Why or why not? Alignment of goals can not be achieved if the individuals associated with each responsibility are not also aligned.
Supplier Relationship Management
Any supplier may have multiple relationships in an enterprise. Procurement is certainly a point of contact, but so are the budget owner and any functions that have a high volume of demand associated with that supplier. Many people may have contact with a supplier in the course of daily business, but information about performance reviews and contract updates should be managed in an organised fashion so that the supplier is kept informed and no one speaks out of turn.
In addition to including a complete set of terms and signatures, each contract needs an owner from the outset. While captured as a simple name field in many CLM systems, a lot of consideration must be given when deciding who will own each contract. The primary value proposition of CLM is that it allows contracts (and the business deliverables they govern) to “leave the filing cabinet” in order to have a measurable impact on the business. Empowered by automated CLM notifications, someone in the enterprise needs to take action based on the information provided; and having an appropriate designated owner from the start provides accountability and ensures a prompt response.
Putting SIM and CLM in place is not about static documentation or information centralisation, but rather the actions each motivates. Unlike information integrity, where consistency is key to alignment, actionability requires each of these systems to “feed” information to each other. There are supplier performance considerations in both systems, and while they are different, it is in their combination that the best result is achieved.
SIM systems often include supplier performance details submitted by procurement, as well as the other individuals in the enterprise who come into contact with the supplier’s products or services. In some cases, determinations of performance will be based on buyer perceptions and expectations. This information should be recorded and communicated to suppliers on a regular basis.
When viewed through the lens of a contract, supplier performance is about following the “letter of the law.” Just as suppliers can have performance issues that do not rise to the level of legal non-compliance, a supplier can be in perfect standing based on the requirements of the contract and still not meet the expectations of the company. If performance measurement and contract terms are not both aligned and visible, it will be hard for procurement to know the difference and lead the appropriate response.
The full benefits of SIM and CLM alignment are realised over the term of the agreement, as long as 3-5 years in some cases. The sooner the enterprise can achieve alignment in terms of information integrity, ownership and actionability, the shorter the timeframe to evaluate and lower the overall risk.
This article was orginally pubished on Determine.