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November 15, 2016

A platform approach for improving the link between supplier & contract management

When we look at software, we often tend to think of the use case in isolation – or as a horizontal if you will. Think back to when you first started using MS Office. Word was for creating documents, of course; PowerPoint for presentations; Excel for spreadsheets; Outlook for emails and calendars.

But today, the interactions of all of these business-related activities has blurred the lines of functionality based on intent and use. Creating document templates with PowerPoint or using Excel as a database, for example, is now an online collaborative effort linking documents, process and activities. Just think of the revolution that Google has created with Gmail, Google Drive, Calendar and all the other related apps.

In a similar vein, enterprise software in the past ran into this challenge of balance. For instance, contract management was software for managing contracts; sourcing was for managing sourcing events; supplier management for managing supplier information; procurement software was for purchasing and catalog management; invoicing software for invoice creation and payment management.

As a result, the traditional practice of handling contracts and suppliers in isolation has given rise to a number of cause-and-effect disconnects between them, including:

  • Sourcing and supplier selection decisions are often made in isolation and/or silos, creating duplication of effort, increased costs and potential damage to the supplier relationship and corporate brand as a consequence.
  • Sourcing supplier criteria not always being translated into contracts due to the lack of harmony between the two systems with processes that are managed by their respective owners.
  • Separation between supplier “contract creation” and “supplier onboarding” resulting in a lack of a “holistic” visibility into the relationship and the validations necessary to manage the two processes (e.g., validating a supplier before creating a contract).
  • Handing-off of a supplier relationship in the form of a contract to the contract owner is not consistent or effective due to the lack of proper workflow oversight to manage the process. Supplier risk and performance is not effectively managed by the business, given that with any third-party entity it is not unusual to have over 1500 pieces of associated data.
  • Separate systems holding supplier information, contract data, supplier performance and spend information; in fact, it is not uncommon to have five different systems functioning individually.
  • The inability to effectively track ongoing contract performance whereby managing “obligations” post-contract is often unknown or underestimated, and not linked back to supplier profiles or supplier performance efforts.

While there are still solution providers that cater to each of these needs individually, it is clear that the convergence of functionality and process for managing compliance and risk requires much more of a multidisciplinary approach in the modern enterprise.

A lot of this convergence has to do with the variety of stakeholders involved with both supplier and contract processes, and can come from a multitude of areas: vendor management, legal, procurement, accounting, lines of business, supply chain, etc.

Therefore, the ability to holistically tie these efforts together is critical to optimizing supplier and contract management.

Using a platform approach with a single master database that manages these relationships in three distinct ways is an ideal starting point:

  • Document management — As a system used to track, manage and store documents and reduce paper within complex workflows; it further enables the ability to keep records of the various versions created and modified by different users (history tracking).
  • Metadata management — As the system providing oversight of data associated with data assets, to ensure that information can be integrated, accessed, shared, linked, analyzed and maintained to best effect across an organization.
  • Master data management — As the technology-enabled discipline in which business and IT work together to ensure the uniformity, accuracy, stewardship, semantic consistency and accountability of the enterprise’s official shared master data assets.
  • By managing all these functional processes under one system or suite, organizations are better enabled for a smooth hand off or transition; for example, from supplier onboarding to contract management to transaction management.

3 Part Technology Approach

What this provides is improved access to information that enhances the ability to:

  • Conduct due diligence and supplier selection across functional roles, addressing risk and how the service/contract/supplier will be managed.
  • Create robust contracts with well-defined scope, activities, performance measurements and clearer terms that outweigh the use of standard “form templates” through improved contract creation mechanisms based on specific buyer-supplier requirements.
  • Improve contract performance plans established and formally transitioned from sourcing to the contract owner to purchasing to accounts payable with better workflow.
  • Unify facets of contract and supplier risk and performance so they are more easily accessible by the business.

When you have a chance, I encourage you to listen to our on-demand webinar to hear the three different perspectives presented by me and my co-hosts Chris Monk of Protiviti Inc. and Tim Cummins of IACCM.

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