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Are organisations getting full benefits from supplier agreements? Are contracts and best value agreements fully leveraged?

57% - Yes     31% - No     12% - Not sure

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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:
Centralise contract management

Establish a single repository of supplier contracts, common information per type, and a consistent filing process so everyone knows where to look for contracts and how to interpret them. Include all applicable documents and the supplier bid history. Establish a procedure for combining multiple contracts with the same supplier when found; negotiate higher volume discounts if possible.

Establish / follow contract reviews

As part of the contract filing process, develop and attach a schedule of reviews that cover all milestones throughout the life of each contract. Include periodic compliance reviews and performance appraisals as well as renewals. Establish Procurement department procedures to ensure reviews at each milestone.

Ensure consistent contract use

If you have an eProcurement system, be sure all contracts are put into the system and associated to the proper categories and suppliers. This is much easier if contracts are held electronically.

The right procurement system can help with each of these tasks by providing an electronic contract repository, reviewing contracts automatically and being able to analyse and report on the performance of each contract.
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