Procurement executives and other business leaders overseeing contract lifecycle management face some basic challenges and pain points. These include:
- Minimizing contract leakage and identifying breaches and duplicate contracts, as well as ensuring that purchase orders are issued under existing contracts and within the terms of negotiated agreements.
- Applying governance and quality to implement benchmark clauses, ensure visibility throughout the lifecycle and track progression and bottlenecks at different stages.
- Maintaining negotiation leverage through visibility into upcoming renewals, being proactive during negotiations and seizing cost savings opportunities.
- Managing the basic logistics – locating contracts, maintaining visibility into contract hierarchies and identifying SOWs and sales orders.
In today’s marketplace, these traditional tasks take on new urgency. Research from ISG shows that – driven by demand for digital transformation services – the global sourcing market has reached its highest level ever. That means that procurement executives have more total spend to oversee. And, given the long-term trend towards supplier specialization and niche capabilities, they likely have a higher volume of contracts to oversee.
As such, the task of contract lifecycle oversight becomes more challenging. Moreover, in increasingly competitive industries, the stakes around maintaining negotiating leverage and avoiding value leakage are higher than ever. In other words, procurement teams face more pressure than ever.
The good news is that the digital technologies and intelligent automation tools driving business spend can also be applied to addressing the challenges of contract lifecycle management.
With today’s capabilities, procurement organizations can drive significant digitization of existing, active contracts, as well as new contracts coming on-line. This establishes a contract management foundation characterized by visibility and auditability of activity, as well as a high level of automated alerts, notifications and renewals. Freed from the manual, labor-intensive tasks of monitoring contracts and reactively managing milestones, teams can focus on strategic activities.
In addition, implementing digitization and contract automation creates an opportunity to take procurement outsourcing capabilities to the next level. Take, for example, tail end spend – the spend consumed by a large volume of non-strategic suppliers that deliver ad hoc and one-off goods and services. While representing a relatively small portion of total contract value, tail end spend requires a disproportionate share of management oversight to administer. As such, for businesses tail spend is a longstanding source of value leakage and nagging frustration.
With the right combination of digitization, automation and process optimization, businesses can simplify oversight of each individual supplier and consolidate tail spend. Moreover, by identifying a partner with the capability to aggregate and manage the multiple financial transactions involved, businesses can implement a “single vendor/ single invoice” approach to tail spend. Under this model, enterprises identify a partner to aggregate tail spend, while retaining visibility into individual agreements as needed via a dashboard tool. In a recent article in Future of Sourcing magazine, I discuss how CIOs can apply this approach to consolidating IT tail spend.
