Your Procurement team works hard to identify the best suppliers and negotiate best value agreements. Contracts ‘lock in’ those prices and terms for use by the organisation. But are those contracts fully leveraged once they are secured?
Proactis questioned Finance and Procurement professionals in a recent Joining Forces Survey
and it is encouraging that the results show that more than half of organisations are seeing potential savings being realised.
But it also highlights that around one third are failing in this area — which is likely to be leading to goods and services being purchased from more expensive, poorer quality and riskier suppliers.
Failures in this area can also sour relationships with important suppliers who had previously committed to a deal, only to see little business coming their way.
Why does this matter?
The ‘potential’ savings associated with good supplier agreements are only realised when purchases are actually made against those contracts.
But this isn’t a ‘set and forget’ activity. Contracts should be monitored to ensure the supplier is complying with price, delivery and quality terms. Also, when contracts expire or automatically renew without anyone noticing, there may be unexpected lapses in coverage and/or lost savings. Again, this is unnecessary cost and risk.
Three ways to improve the leveraging of contracts: