Ardent’s “Summer of Sourcing” series of articles will focus on all things sourcing or strategic sourcing-related.
Today, we’ll tackle a “classic” process/function within the contemporary procurement stratosphere in which Best-in-Class organizations (those top-performing organizations in Ardent’s upcoming “State of Strategic Sourcing” research study) have gained critical efficiencies and driven true value to the greater organization.
One of the most interesting angles of modern supply management is the delicate balance between the strategies and processes of old and the newfangled strategies and solutions currently leveraged to not only improve those items, but drive additional value. For most organizations, contract lifecycle management remains a more “traditional” aspect to the source-to-settle process; Many procurement organizations fail to prioritize this component because of its long history of running as a “support” beam instead of a direct source of efficiency.
However, in looking at the “future” of the procurement function, it should be noted that any enhancements, whatsoever, to support sourcing will have positive ramifications across the organization. Effective contract management, in this case, can impact the following:
- The financial health of the greater organization via improved compliance and reduced risk
- The quality of supplier performance measurement
- Efficiency and effectiveness by providing access to critical information regarding key pricing and service terms within the supplier agreements
Ardent Partners research has discovered that Best-in-Class organizations have taken the “right” approach to procurement contract management by shoring up specific competencies regarding this series of sub-processes. These top-performing organizations are:
- Nearly 33% more likely than all other organizations to have visibility into procurement contract compliance rates. This critical capability allows the CPO and his / her team to accurately view how their unit and other key buyers within the organization are currently performing against existing contracts and supplier agreements. The higher the rate of contract compliance, the better the company is at purchasing at negotiated rates (and discounts) from preferred suppliers. Poor contract compliance rates are aligned with the ever-present problem of savings leakage.
- Best-in-Class companies are also nearly 40% more likely than all others to have standardized contracting processes as part of their overall procurement program, a factor which readily contributes to, amongst other things: higher contract compliance rates, superior visibility into contract status (a multifaceted item, as “status” could include performance against milestones, delivery dates, budgets, etc.), and an enhanced consistency with how the organization purchases its materials in accordance with supplier agreements, terms and conditions, corporate templates, etc.
- Top-performing enterprises are 63% more likely than all other companies to have a tight linkage between the sourcing and contracting processes. With CPO Rising’s “Summer of Sourcing,” it is important to note that contract management is a key cog in the sourcing process and that a tight linkage between these two sub-processes under the strategic sourcing program will ensure that both sides leverage each other’s synergy for maximum savings, visibility and consistency.
