PROACTIS Blog

When Neglected Supplier Contracts Bite Back

Simon Dadswell
Simon Dadswell,
PROACTIS
Imagine working hard to buy a new sports car – only to leave it gathering dust in the garage, while you renew the insurance automatically and take taxis everywhere instead? It sounds bizarre, but there's a striking parallel in the world of corporate procurement.   
Every month, countless numbers of Procurement teams battle hard to win ‘best value’ agreements with suppliers. Specifications, prices and quantities are hammered out and signed off – as both parties look forward to a deepening business relationship.

But sometimes these crucial contracts slip from view and all their potential savings are lost. In fact, rather than being a benefit to organisations, they can become a costly headache. Relationships with suppliers can sour too, when prized agreements get overlooked.

So what's going wrong?
Put simply, a contract is only as good as the way it's managed. It's easy to point the finger at Procurement teams. But the problem is that contracts are living entities with births, anniversaries and a purpose. Take your eye off them for a moment and they can wander into trouble at key moments during their lifecycle. And this happens all too easily because Procurement teams are frantically doing so many other vital tasks.

Here are five typical points of failure:

Failure #1: Contracts are often filed in different places, making it difficult to know where to find a particular agreement. It can also become virtually impossible to get a consolidated view of an organisation's liabilities. 

Failure #2: Distributed contract management leads to duplicate agreements and missed opportunities for volume-based savings – especially for larger enterprises. The lack of any central repository means this can occur without trying!  

Failure #3: Contract review dates are often missed, resulting in unexpected lapses and unwanted automatic renewals. Imagine if, when your Purchasing team has spent valuable energy and time gearing up for a major new deal – you discover there's another 17 months to run on a now-expensive, old agreement with an out-of-favour supplier. Ouch. Conversely, organisations on both sides may be at risk if contracts expire – or if either party fails to maintain compliance with contract provisions.

Failure #4: Buyers have no visibility of contracts at the point of purchase. Purchases are made off-contract instead, resulting in missed savings and poor relationships with your best suppliers. 

Failure #5: Companies have little idea whether a contract is being used and by how much. Without automatic capture of actual purchase and delivery activity, it is very difficult to measure contract compliance. This is significant because a supplier may have happily lowered their prices on the basis that X amount was ordered over the contact term. If this doesn't happen, then the contract could come back to bite you ... in the budget.

Here's the good news
While contract management is often one of the weakest links in the machinery of corporate procurement – it's also one of the simplest to fix. Where humans struggle to physically keep track of every date and detail, solutions exist today that can handle this with ease.

What's needed is a central management platform for all supplier contracts, providing clear visibility to buyers at purchase time, automatic capture of activity and automatic reminders for key dates and events. 

So how's it all possible? Find out by reading our next blog on how to squeeze every drop of goodness from every supplier contract you negotiate.