Maximising value from your supplier contracts.

Supplier contracts are essential to your organisation's success. Not only do they define the terms and conditions of your supplier contracts and relationships, they should also play a vital role in ensuring that you get the best possible value for money.

But with stretched procurement teams and senior management pushing for cost-savings and better value for money, finding the time to focus on contracts whilst getting the day-to-day done is one of the biggest challenges.

Are you sure that your supplier contracts are working in your organisations best interests?

Read on...

Let's start with an eye-opening statistic...

An average of 9.2% is annual revenue is lost through poor contract management. In larger organisations, that figure can increase to as much as 15%.

Source: WCC

So, why is this happening? There's a whole host of reasons; including:

• communication between business units and procurement
• internal time, skills and technological resources
• the sheer volume of complex contracts
• lack of, or non-existent SRM (Supplier Relationship Management) and contract management.

It's a simple fact that many procurement teams are stretched and don't have the consistent resources or long-lasting expertise to focus 100% on their long-term contracts.

But we're preaching to the converted, right? This challenge is likely to resonate with you as a recent report stated that 98% are facing critical barriers to transforming their handling of contracts.

Getting on top of your SRM/contract management processes may seem like a challenging task, especially if you're a larger organisation with hundreds, if not thousands, of complex contracts. This is where we advise you to start with manageable changes: small steps can reap big rewards.

How you can transform your contract management.

Optimise Supplier Relationships

The better your relationship with your suppliers, the better the overall deal you are going to achieve both in procurement and within Contract Lifecycle Management. Regularly engaging with suppliers after the goods or services have been procured develops a positive win-win relationships with suppliers. This can be key in times when you require items for unforeseen issues or resolving any disputes in a timely manner.

There is of course a fine line between maintaining supplier relationships which can get overly formal, or too friendly. The key is to optimise the relationship to ensure you realise the expected contract value. If you want to optimise your supplier relationships, there are a few things you can do to improve this;

1. Create channels for consistent communication This is essential for good practice with suppliers, it will help garner support and create transparency on both sides of the channel and prevent unforeseen issues. You want to have the right tools to ensure that communication is consistent and open on both channels.
2. Agree that mistakes have been made by both parties Pointing fingers when things don’t go right isn’t a good look or way to resolve conflict. Acknowledging that better communication is the start of resolving issues is a vital step forwards and equally, something that both parties must work at in order to avoid issues appearing in the future.
3. Create transparency through technology Using a fully integrated procure-to-pay system, procurement is able to access real-time information that they would typically have to request from their supplier.

Purchase Orders & Negotiation T&Cs

When it comes to creating a purchase order or even negotiating the terms and conditions of a contract, the first phase of a procurement team is about having a negotiation strategy and selecting the right suppliers. A ‘qualified supplier’ will allow your team to be able to quickly engage, draw up purchase orders and even move stock and services in a shorter timescale.

Once you have a list of approved suppliers, you can move away from manual processes which take time, cause errors and can over time erode trust with your suppliers. By automating the process of supplier selection as well as receiving proposals when required and then selecting the supplier you want to work with, you can increase efficiency in a short space of time. By having pre-approved suppliers in a centralised system, you can negotiate contracts and speed up associated processes in contract data.

Contract data will include pricing, Service-Level Agreements (SLAs), and terms & conditions. Advanced CLM (Contract Lifecycle Management) solutions ensure that the organisation’s approval policies are followed and all necessary information is included in every contract.

Streamlining the Procurement Process

When streamlining the procurement process, you are creating a database of suppliers and contract register with the relevant information. From names, email addresses, telephone numbers and key supplier policies and certificates, you are making it easier to get in touch with your contacts, increase efficiency and remove human error with procurement procedures.

But how can the procurement process be streamlined? There are a few ways that this can be achieved, including;

• Use a centralised system - A centralised system allows you to leverage your system to scale, provides a unique source of information and creates organisation wide synergy whilst removing mass scale inefficiencies and human errors.
• Design a user-friendly platform - From understanding who is in the chain of command on giving approval to knowing if you have the budget to make the purchase possible.
• Automate as much as possible - There are many processes that you can automate through automation, such as digitally sending out contracts on approval, raising purchase orders or even reminder emails and invoices. This will reduce time, increase efficiency and remove any potential manual input errors. AI-powered contract management systems can also help to analyse huge volumes of data, pick up issues or anomalies to help ensure contracts are accurate and compliant.

Monitor and Managing Expenses and Terms

When everything becomes more centralised through software and process systems, it becomes easier to monitor and manage contract terms ensuring compliance and governance. In short, it is easier to understand how much money you are spending with suppliers, see spending patterns and savings opportunities, and if the terms of agreements are being adhered to or not.

A CLM solution can work by improving transparency across the procurement process, as such it can give a thorough breakdown of the terms and conditions of each contract as well as monitor the level of spend and expenses per supplier.

• Review Terms and Conditions - In a centralised system of all contract information, businesses can now monitor and manage contract terms and conditions ensuring compliance and governance. By simply leveraging any pre-approved clauses and using templates in the system, a procurement team can enforce the use of approved language and formats whilst also quickly searching and reporting where certain clauses and terms are used with their suppliers.
• Inventory Management - Do you already have high stock levels of an item? Is it worth purchasing more? Or could you even sell stock back to suppliers? Ask these questions before making new orders.
• Purchase from agreed catalogues or portals - Ensure that as few as possible brands or types of products are purchased. Higher orders from one less supplier leads to better discounts due to economies of scale.

Enhancing Supplier Performance Visibility

Automation helps organisations in their procurement procedures identify problems at an early stage – by continuously monitoring what is happening through the terms of the contract and the performance of the vendor. This is essential to ensure that a procurement department can identify any issues early on and develop either new relationships for better performance or investigate problems to raise awareness to the vendor and in return strengthen relationships.

You can measure performance through a series of different metrics, importantly your CLM software will be able to help in all of these areas as they are integral to the analytics packages which are incorporated into the programs. This includes;

• Quantity ordered vs quantity received/service paid vs minimal viable service - How many items did you order versus the amount that you received? Is there a reason for an over order or a shortfall? Were you advised on any variations and didn’t take this into account? You can track this quite easily and quickly and use a percentage to identify the suppliers that are giving you the best value of service. This applies to services as well as goods; are you paying for too much or too little service? Both can have major impacts to your organisation!
• On Time delivery - Are you tracking the delivery times of the products you are receiving? You can calculate this with the percentage of deliveries received at their promised arrival time. How accurate is this? This should all be based on the SLAs you have in place.
• ASN Accuracy - For suppliers who provide ASNs (Advanced Shipment Notifications) you can use a similar method to On Time Delivery to ensure that shipments arrive when they say they are going to. ASN accuracy is typically measured on the basis of the number of ASNs, and how many of those were accurate.

Contract management is a large part of the ongoing services that eXceeding brings to organisations, delivering solutions designed to help organisations thrive.

Don’t take our word for it though, here is what the BGL Group said about their experience when it came to our procurement solutions for their business:

“eXceeding worked with us to ensure that our procurement processes and procedures were aligned with our culture. They also helped us to identify an overspend in one area which resulted in a spend review and led to considerable savings for our business.”

If you're in need of some support, knowledge, or simply want to ask for some guidance, please do drop us a message.