Buy–Sell, Sell-Buy. Tomorrow, and for perhaps the last time ever (not definitive), I will be presenting research that I performed for my last employer, Aberdeen Group. In a strange twist of fate, I will be presenting this research for a different former employer, Ariba, at the Ariba Live 2010 event being held this week in Orlando. Now Ariba always puts on a good show at “LIVE” and I look forward to connecting with friends, clients, and colleagues from the past and present and establishing friendships for the future too. I am particularly looking forward to the executive session that will bring industry and financial analysts together this year for the first time. After discussing several potential topics, we (Ariba & I) settled in on one that does not typically resonate down the halls of procurement and accounts payable (while I don’t write too much about AP here, I have been tracking it consistently for the past few years) but does, nonetheless, hold relevance for those procurement teams that are in the buying cycle for a contract lifecycle management solution. The topic: the value of sell-side contract lifecycle management.
Over the past four or five years, a good percentage of the total contract lifecycle management solution deals were ones that included all aspects of contract management – buy-side, sell-side, IP, services contracts, others – call them enterprise-wide deals. Now it may not be the case that the opportunity to automate procurement contracts in your enterprise is part of a larger enterprise-wide deal and it is not my recommendation that it has to be (part of a larger deal). That said, it can make sense. If it is the approach you are taking, understanding the value proposition of your business partners can be helpful. So, with that rationale, I’ll try to keep it short and to the point. Hey readers, (let’s) take a walk on the sell side (I’ll include a buy side reflection).
Complexity came and hit the streets. The increasing complexity of business relationships can and often does manifest itself into more complex business contracts – consider the impact of globalization and/or the need for competitive differentiation. First, depending on your industry and what you are selling, sales contracts can include multiple products and services with detailed SLAs (service-level agreements) (what happens when you aggregate more spend with fewer suppliers); may include unique pricing/discount/rebate instructions (i.e. pricing patterns that are tied to indices, discounts given at the order-level, rebates paid on some time interval); may also include different ordering and invoicing processes (e-procurement or vendor managed inventory, different payment terms and payment platforms based upon region); and may require third-party involvement (value-added service provider). Final contract terms may not be clearly communicated among sales, finance, customer service, etc. which can create problems like poor customer satisfaction (why don’t your customer service people or consultants know what we ordered?).
The goal of a sales (or procurement) contract (more or less) is to capture the key aspects of a business relationship or transaction. Once executed, the operating goal is to ensure that both sides conduct business in the way that was defined (in compliance to the terms of the agreement) because when transactions are compliant to contracts, good things happen. A few good things – two sides of the same coin here – potential risk is identified and mitigated (potential risk is identified and mitigated) and greater value is derived i.e. more revenue (greater value is derived i.e. greater savings). Efficient, standardized processes and enterprise-level visibility are major drivers of contract compliance. Lack of compliance is costly, very costly. The average enterprise believes that it loses between 5% and 9% of revenue due to lack of contract compliance and related inefficiencies (savings leakage of between 14% to 24% of identified savings). Think about that, 9% (24%). Quote-to-Cash? For 91%. The other 9% is more like Quote-to-Trash. Compliance would have helped that bash cash. (Straight to the Bottom-line? More like Meander to the Bottom-line. Savings is just speeding away.)
A few recommendations for Sales (and Procurement) Contracts Management:
- Standardize contract terms and language
- Streamline the contracts process (automate if possible) and integrate it more fully with the prior steps in the negotiation
- Provide access to contract data for key stakeholders
- Track compliance and use reporting and analytical capabilities to measure contract performance including financial gain (revenue or savings) and risk (transactional, financial, process, regulatory, and legal)
And the contracts team goes doo do doo do doo….
