Contract Management: The Perils of Inefficiencies
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.