An important requirement for effective Spend Control is a central repository of supplier contracts. You work hard to identify the best suppliers and negotiate best value agreements. Contracts ‘lock in’ those terms for use by the organisation. But those advantages are lost when contracts are not closely monitored and managed.
Many organisations find themselves today with contracts stored in many different places – often in paper form, which carries all the costs and inefficiencies of storage, filing, copying, etc. Even scanned documents alone cannot support integration into purchasing systems or automated monitoring.
The cost impact is significant – often more significant than organisations realise:
The organisation is also at risk:
- Savings opportunities are lost when negotiated contracts are not used
- De-centralised contract management leads to duplicate agreements and missed opportunities for volume-based savings
- Unnecessary costs are incurred when unwanted contracts are automatically renewed, the opportunity to re-negotiate is missed, or penalties are incurred due to unmet commitments
- There are excessive administrative costs everywhere contracts are held or used the organisation is also at risk
But when you have hundreds or even thousands of contracts organisation-wide, there are many challenges:
- There can be unexpected lapses in important services or supplies
- The potential for supplier non-performance and non-compliance is high when contract reviews and other events are not performed in a consistent, timely manner
- How do you maintain visibility of so many contracts and contract details?
- How do you keep track of so many contract dates and events?
- How do you maximise awareness and usage of contracts across the organisation?
- And…how do you do all of this without high administrative time and expense?
In order to move toward improved Spend Control, Procurement needs to take the lead when it comes to contract management. It’s clear what needs to be done: collect and store all of the organisation’s supplier contracts in a central electronic repository that provides ‘paperless’, organisation-wide visibility and enables automation of contract monitoring and management processes.
All that is required is a proven, efficient approach, and this is what we’ll address in Part 2
of this article.