[Editor’s Note: We continue our “Throwback Thursday” series with another look at a past entry on the skills needed for today’s procurement leaders.]
Leading Chief Procurement Officers love to invest in their people. So, in that vein, we will be analyzing the key skills and capabilities (or higher-level competencies) that a procurement professional (and department) should have in place in order to execute successfully. We will be using Ardent Partners’ Procurement Staff Competency Matrix that we developed with our CPO audience. This competency matrix established industry-wide capability measures for the average procurement organization.
We hope this series will help professionals and their managers to better understand and communicate what the required capabilities are for specific job roles within the procurement department and thereby help identify, develop, and deploy the people with the right skills into the most suitable positions. Professionals can also use this series to better identify where current gaps exist in their organization or within their own skill sets so that they can take action to improve or move into roles with greater responsibility (and pay).
Today’s Competency: Contract Management
What is Contract Management?
Serving as the manuscript to business relationships, procurement contracts must be effectively managed to support and protect budgets, including bottom-line savings, as well as track and support the management of supplier performance. Contract Management (CM) consists of specific steps that address the development, approval, and execution of contracts. Ardent Partners identifies the sub-processes in the contract management lifecycle as follows (some of these steps may occur simultaneously or concurrently):
- Proposal development
- Creation / authoring
- Assessment of risk
- Negotiations
- Approval / review (including final signatures)
- Analysis and reporting
- Auditing
Importance to the Procurement Department
Contract management lays the foundation for successful management of supplier relationships, enabling enterprises to optimize their business relationships. In the source-to-settle cycle, contract management is a key component in ensuring that the benefits (e.g., lower prices) of a sourcing event are actually realized throughout the life of the contract.
Rigorous contract management ensures that the enterprise does not fall victim to savings leakage and non-compliant events on both the sales and procurement sides. In fact, Ardent Partners research has shown that poor contract management considerably hinders savings capture. A lack of visibility into contracts creates numerous scenarios where non-compliance occurs.
Importance to Career Advancement
I often write about the interconnectedness of people, processes, and technologies in procurement and sourcing; all three are critical to success. At the end of the day, people manage the processes and leverage the technologies that help them manage contracts and contractual processes – from proposal development all the way through to the auditing process. Mastering each sub-process in the greater contract management cycle, and demonstrating your value to your team or future team will serve you well in your career. While understanding how to craft, execute and manage contracts is important, the reality is that in many enterprises, contract managers work for the General Counsel, not the CPO.
Nonetheless enterprises are still looking to do more with less, and have expected their employees to wear multiple hats. Thus, taking on a side project or role wherein you’re building a proposal for your company’s next bid, assessing the various associated risks, or reporting on its status from the ground are all ways that the average staffer can add value to their role. As always, remember the added value you bring to your team, company, or client, and make sure others remember, too so you can convert it into a reference, raise, bonus, promotion, or your next job.
The CPO’s Grade
Contract management competency received an average score, or a C, meaning that Chief Procurement Officers believe that their staffs are okay, but not great, when it comes to contract management. But like most things, a C leaves lots of room for improvement, but for many Chief Procurement Officers, contracts are not typically a top priority. Maybe they should be. In any case, procurement leaders would be wise to examine their entire contract management process and look for opportunities to improve upon it.
How to Improve
Here is where the processes and technologies come into play.
Regarding processes, monitoring contract compliance and performance is a key factor in ensuring that savings leakage is minimized. Post-negotiation contract management activities help ensure and control performance, quality, costs, service, terms and conditions compliance. Start by putting executive mandates and incentives in place to control the front-end of the contract lifecycle.
Regarding technology, automation and usage of technology solutions are the catalysts in linking all procurement / sourcing processes into a single union of activity. The ability to peer into supplier performance information (and leverage deep-dive spend analytics / reporting) is a major factor in supporting sourcing decisions. The information extracted from the linkage of processes can help organizations close the gap between negotiations and contract management to help ensure bottom-line growth and drive significant cost savings.
Over the years, Ardent Partners has featured a number of vendors who offer contract management, contract lifecycle management (CLM), and strategic sourcing solutions. Our research shows that many companies would benefit from deploying any one of their solutions, which would help prevent savings leakage, maintain contract compliance, and benefit you and your supplier and customers.
