This site is operated by a business or businesses owned by Informa Abc lines in forex and all copyright resides with them. Informa PLC’s registered office is 5 Howick Place, London SW1P 1WG. Operational efficiency is imperative during a recession. Without question, it’s become critical for organizations of all sizes in the past twelve months to eliminate unnecessary costs and increase financial transparency.
And over the coming year, procurement leaders will need to balance the need to further streamline their operations. For many companies, contract management will prove the key that brings together operational efficiency and savings compliance. Organizations need to consolidate contracts across their enterprise. One of the primary goals of procurement professionals must be to close process gaps, ensuring visibility to all contractual and non-contractual spend. The core of an effective contract management program is a central repository for holding contracts.
Contract compliance helps to provide guidance and insight into procurement processes and helps to achieve savings through better negotiations with suppliers. This article shares industry best practices for contract management, including how the right automation approaches can enable companies to achieve contract compliance while helping drive further savings opportunity identification. Define, communicate and effectively manage to specified contract metrics. Institute regular contract audits and apply learning to turn them into opportunities. Contract negotiations are one of the many ways that companies can leverage savings opportunities. Given today’s highly volatile currency and commodity market environments, organizations need to identify savings opportunities that can take advantage of market conditions versus sacrificing savings to them.
Many companies involved in global — and even regional — contracting observe that it is difficult to increase their visibility into contract exposure around multiple currencies and commodities. Because procurement organizations often denote contracts in both local currency and the dollar it is often difficult to track specific exposures. Moreover, currency fluctuations may result in companies overpaying and losing out on considerable savings. ABC now establishes a reference price. The reference price may be the price of oil on an agreed upon commodity index. The new contract rate generates a saving of 17.
Of course, this is a simplified example and the clause contains several caps and conditions. But it shows how simple it is to identify the potential savings of linking contracts to commodity indices. Track and measure compliance and quantify the savings accrued from these contracts when possible. Many industry experts argue that it is necessary for companies to put in place quantifiable contract compliance performance metrics across their organization to achieve the types of savings opportunities that best-in-class organizations realize on a daily basis. Having quantifiable measurements for contract compliance also helps to identify underperforming segments.
Most companies progressing through the contract management journey realize at some point that establishing performance metrics is often easier said than done and matching spend data to contracts is the biggest hurdle. Our experience suggests that the secret to overcoming these challenges is process automation. Communicate and elicit input from decision makers while determining parameters. It is one thing to proactively identify opportunities during the contracting process. But it is another to capture lost savings opportunities after the fact. Our experience suggests that vendor overpayment is one of the most common forms of non-compliance. For most companies, consolidation of contract data across different geographies and disparate formats is a roadblock in performing an efficient and thorough audit of internal contracts and trading partner relationships.