Posted by  Lance Mercereau  Published on  13 Jul 2018
  • Procurement Strategy

How can getting a grip on your contracts save you money? Years ago, a client negotiated a contract with a real-estate firm in a faraway land. The lease was expensive, costing the company millions every year to rent a large office in one of the world’s most expensive cities. 

Due to changes in local staff, no one knew that the contract was due to expire, and that the contract was set to roll-on for another three years unless someone decided to inform the supplier.  Fortunately, the client’s centralized procurement team, who had centrally registered all contracts, was alerted to the expiring contract and took immediate action to re-negotiate the contract – saving more than a million dollars in the process.

Poor contract visibility puts companies at risk for lost revenue and added costs. Not surprisingly, procurement professionals are taking contract management increasingly seriously. They understand the importance of digitally aggregating, indexing and managing contracts; in mature organizations, contracts are linked to other data sources such as supplier and spend, which provide greater insight and controls over internal procurement processes such as supplier performance, contract compliance and risk mitigation.

Many procurement professionals I speak to often ask what insights they can expect to achieve by utilizing a contract management solution. Here are 10 frequently asked questions and the measures and sources of data needed to answer them:

Questions Measures Data formulas
What spend is uncontracted? Spend not associated with contracts Invoices + contracts
What uncontracted spend should be contracted? Spend not associated with contracts Invoices + contracts
Which of our suppliers are not contracted? Suppliers flagged without contracts Vendor master file + contracts
How much of our spend is maverick? Spend with non-preferred supplier where a preferred supplier exists Invoices + contracts
What is the percentage of spend with contracted and uncontracted suppliers? Spend with a non-contracted supplier Invoices + contracts
Who are the largest non-contracted suppliers that should be under contract? Spend not associated with contracts by value Invoices + contracts
Who (individuals, business units, categories, geography) spends the most with non-contracted suppliers? Spend not associated with contracts by dimension Vendor master file + Invoices + contracts
Are we complying with our existing negotiated contract terms such as payment or on-time delivery terms? Yes/No Invoices + Contracts
Which suppliers do we have SLAs with?

Yes/No

Contracts
When do contracts with our suppliers expire? Contract end date Contracts

 

So, how many of these questions can you answer today?

Whatever your answer, gaining greater control of your supplier contracts isn’t a big project but it does have big rewards – simply by looking at your data and the contextual information you can rest assured there are no costly issues waiting to emerge when you least expect them.