Automated contract management solutions that feature robust analytics and reporting tools can help procurement organizations offset staff shortages, perform more of the “heavy lifting” needed to manage and search through voluminous documents, and alert stakeholders of critical risks, opportunities, and events as well as contract milestones that need to be quickly addressed.
Like oil reserves buried deep underground, contract information is not valuable unless one can extract it, collect it, refine it, and then capitalize on it. For example, contract header information that effectively summarizes the key contract terms – who the supplier is, what they provide, and how much the organization pays – helps businesses quickly evaluate a supplier relationship.
But the next step (and the challenge) is to mine the next level of information to allow procurement teams to fully understand opportunities or risks that exist. Being able to dive down into the key clauses and terms which may or may not be standardized in an automated and scalable way can enable enterprises to derive contract intelligence. For example, these solutions can help procurement:
- Identify supplier contracts with improper and/or non-standard clauses, assess the associated risks and develop plans to mitigate them, and avoid the wrong clauses in the future
- Respond to changing statutory or regulatory environments with proactive strategies to ensure ongoing compliance
- Adjust to changing business and category requirements
- Capture the full scope of criteria to be used in supplier performance evaluations
- Gain a “portfolio” view of suppliers and contract relationships and develop best practices, assess larger trends, and enable procurement staff and business stakeholders to more adeptly change contracting and sourcing practices
Just as spend analysis provides the visibility that allows procurement teams to understand their spend, suppliers, and risks, contract analytics provides similar visibility, but with other value-added and qualitative components that are built into contracts (which can include unstructured data) that allow procurement teams to better aggregate and segment risk. Details like product origination, production, and labor or safety regulations that may prohibit the importation or sale of a good or service can all be stipulated by an organization within the contract and pulled into an automated report.
With visibility into contracts, procurement organizations can begin to understand the details and entirety of their supplier relationships much in the same way that they can understand their spend, and modify sourcing behaviors with spend analysis. For example, a fictional manufacturing company based in the United States buys items from 15 suppliers around the world, but mostly in Asia-Pacific and Eastern Europe. With contract analytics tools, their procurement department gains visibility into each of the supplier contracts and understands the details and specific relationships. But more specifically, they can roll this information up to see if their relationships are exposed to risk at the supplier level in Asia-Pac because of child labor laws, concern over counterfeit products, or concern over whether the goods can be offloaded in West Coast ports.
And at the portfolio level, the procurement team realizes that they have three critical component suppliers located in Ukraine, which triggers a broader strategy discussion on supplier/supply risk given that country’s recent problems. All of this information is not found in the spend data, but it is information located within the contract. Contract analytics tools can help procurement teams aggregate and analyze this information from deep within the contract, bring it front and center, and allow it to become actionable.
Contract analytics tools can also help organizations from a comparative standpoint, allowing them to understand, for example, that they may have negotiated particular terms and SLAs with one supplier but not others – and begin a process to standardize contracts using best practice terms and conditions. In doing so, it can allow organizations to standardize contract negotiation and supplier management best practices as it moves forward.
RELATED RESEARCH
Visibility into Savings, Spend, & Impact
Beyond Savings and Risk: Next-Gen Procurement Analytics is Coming into their Own
The Significance of Contract Management in Plugging Procurement’s Savings Leakage
Procurement Performance: Moving Beyond Savings
