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Contract Management: The Perils of Inefficiencies

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Now, more so than ever, it is of paramount importance that procurement organizations scrutinize their Contract Lifecycle Management process for apparent inefficiencies and benchmark themselves against world class organizations.


In a recent survey by Aberdeen group, procurement professionals across industries acknowledged that their main concerns are around risk management, low visibility, and compliance, most of which are majorly impacted by their contract management process, among other reasons.

Contracts are the "Glue" between strategic sourcing and operational procurement. On one hand strategic sourcing is responsible to execute the source to contract process and the consistent improvement in purchasing activities, and on the other hand operational procurement enables the daily requisition to pay process for all goods and services

Given this vital linkage that contracts provide, it is amply evident that an ineffective 'contract management process' or as it is better known as 'Contract Lifecycle Management (CLM)', can results in multiple inefficiencies and compliance risks in the entire sourcing and procurement process of any organization.

Some of such risks are -

  • Ineffective contract creation
  • Ineffective contract value delivery
  • Disconnected negotiation processes
  • Contract deployment challenges
  • Non visibility of automated contract compliance due to disjointed AP, ERP, and procurement applications
  • Off-contract spending from contracted suppliers
  • Inefficient ERP data quality

On top of this, global trends like turbulent economic situation, ever increasing globalized procurement, focus on sustainable procurement and efficiency are putting additional pressure on procurement organizations to bring in efficiencies in every aspect of the procurement process.

Hence now more so than ever, it is of paramount importance that procurement organizations scrutinize their CLM process for apparent inefficiencies and benchmarks themselves against world class organizations. Easier said than done, hence it is not a bad idea to use the expertise of an external consultant to enable them change the outlook towards their contract management process and deploy best practices.

Comments

A very important aspect to start and sustain commercial relationships. It is easier to win a deal but difficult to maintain it. From both the perspective of a client and a provider, contract is the key document that mitigates risks inherent in a project, identifies and limits liabilities and assigns responsibilities for each party under contract. Very well written and apt for today's time.

Very important and relevant topic in today's world. All procurement professionals are struggling in this area. Good overview.

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