Contracts, in one form or another, have probably been around as long as humans. There isn’t much written on the topic until Plato got around to it in 348 BC, and even he doesn’t go into much detail. Fast forward to today, and contracts are a fact of life. Business is built on contracts, and their importance can’t be overstated. So it is a curious thing that Determine still encounters so many companies using manual or spreadsheet-based contract management processes. It’s almost as if they’re treated as inconsequential afterthoughts, rather than invaluable assets. In this September DetermiNews, we explore a month of resources focused on contracts and how to best manage and leverage them.
How much time, money and hours are you wasting on contract management?
According to IACCM, the International Association for Contract & Commercial Management, organizations lose an average of 9.2% of revenue each year due to substandard contract management, lack of oversight and no visibility. Survey results in the 2018 Sourcing & CLM Insight Report from PayStream Advisors show that 58% of companies are still using manual contract management processes. These two stats are not a coincidence.
Procurement was center stage again this month (fitting, in terms of it being a summer of trade uncertainty). We covered the discipline from a number of different angles, from taxes to tactics. But in looking back, one thought from Andrew Bartolini, founder of Ardent Partners, stood out as particularly relevant to how procurement as a whole is developing: “While intelligence is critical, a precise measure of procurement intelligence is less important than the performance it generates. In point of fact, as a department (and the entire profession) matures, the definition of procurement intelligence becomes a moving target; and it becomes relative to nearly all stakeholders in the source-to-settle spectrum.”
Bring sustainable value to the bottom line.
Increasingly, procurement is being looked to for the added value it can bring to the organizational table. Expectations are on the rise as well, with big data and advanced analytics driving decision making to new levels by enabling teams to generate new insights and achieve unprecedented proactive capabilities. As covered in recent reports by both Ardent Partners and PayStream Advisors, demonstrating procurement’s value can include many components depending on the priorities of any particular company. But with increased reliance on cloud platform P2P solutions, showing procurement ROI is a great place to start.
Unlocking the strategic value in contracts.
A recent McKinsey study was chock-full of surprises in terms of procurement and CLM, including this little gem:
Across industries, total procurement operating expenses are typically less than 1 percent of total spending. By underinvesting in this way, companies are overlooking a significant source of value: suboptimal contract terms and conditions combined with a lack of effective contract management can cause an erosion of value in sourcing equal to 9 percent of annual revenues. For Fortune’s 2016 Global 500 companies, this 9 percent would have equaled $2.5 trillion in value.”
Kind of makes you wonder, what’s in your contracts?
Depending on who you ask, France was either a shoe-in or a long-shot to win the World Cup this month in Russia. Why they won is very well explained by this paraphrased excerpt from the New York Times:
(The team) will be remembered for what it was: a team of exceptional talent and ruthless efficiency, a group in which every player knew his job and performed it flawlessly. All that it achieved — through diligent planning, hard work, relentless discipline — was remarkable; a team of top-class talents willing to sublimate their individual games to a collective mission.”
It also sounds very much like a description of a world-class procurement organization.
One of the continuing questions in our industry is whether an organization should be considering contract lifecycle management or enterprise contract lifecycle management. It really isn’t one product versus another, because it’s not about the solution, but the strategy behind your contract requirements. As we always stress, when it comes to contracts you have to think about the enterprise even if you are starting with just one department or office .
Good contracts make good relationships.
Interesting snippet from a Gallup article (undated) that I read recently: Gallup finds that customers increasingly expect suppliers to possess the deepest and timeliest information on their most important business issues. These include the economics of customers’ businesses, emerging challenges within customers’ industries and trends within a supplier’s customer portfolio . What’s interesting is that they refer to supplier/customer dynamics as “partnerships” instead of just “relationships.” Optimizing those partnerships requires integrated supplier management and contract management.
From process “black hole” to complete visibility, traceability and control.
At Determine, we are obviously (and justifiably) biased toward a source-to-pay and contract management cloud platform approach that is based on modular, implement-as-you-need solutions. The model makes perfect sense from every logic perspective. That’s why, when a customer like Amee Foss, National Director of Procurement and Plant Operations at Watermark Retirement Communities comes to the same realization, her story makes a much more powerful case than we can make. And she tells it beautifully in this interview in Supply Chain World.
I read recently that there has been a growing trend – call it an outbreak – in towns, cities and municipalities having their computer systems held for ransom. Apparently, it’s more common than most people realize (they’re easier prey than the business world). What was interesting about the story is the fact that many of these towns refuse to pay the ransom, and instead pay A LOT more to upgrade and update their systems to be more secure. Or they might do both. But it shouldn’t take a catastrophe to convince an organization that implementing the latest technology is the right thing to do – for risk as well as operational reasons . And it doesn’t have to cost a king’s ransom.