Spend Matters welcomes another guest post from Shannon Lowe of Verian.
Most organizations spend a lot of time negotiating terms with their suppliers. Unfortunately, many lack the internal controls to ensure that their hard-fought supplier contracts are used well. The resulting off-contract spending and poor negotiating leverage rob companies of millions in profit every year. In response to these expensive challenges, many organizations are turning to automation, which offers viable solutions to control off-contract spending and improve contract leverage and negotiation.
Controlling Off-Contract Spending
Managing contract compliance is one of the most painful elements of purchasing oversight. This is especially true in large organizations that rely heavily on facilities and inventory spread out across multiple locations. Manually monitoring terms on thousands of items is nearly impossible, and many large companies can only hope that most of their supplier contracts are being honored. Companies often lack the time, resources, and controls to achieve compliance across the board. Regardless of how it occurs, off-contract spending is almost impossible to track because there is no paper trail.
Automated purchasing applications allow users to buy all goods and services from supplier catalogs that have negotiated terms already built in, virtually eliminating off-contract spending. Automated approval workflow replaces manual paper trails, allowing decision makers to avoid non-compliant purchases, rechanneling them to authorized suppliers. This improved visibility and control ensures negotiated terms are being honored, resulting in cost savings and higher profits. Some organizations take automation a step further by sending RFQs to selected vendors, driving costs down even more.
Improving Negotiating Leverage
Knowledge is power in negotiating contract terms. That means purchasing and supplier performance data is very important. In large organizations encumbered by paper and manual tracking processes, simply gathering this data can be immensely difficult. These types of circumstances often force organizations to rely on suppliers themselves to help analyze purchasing trends, which puts them at a definite disadvantage during the contract negotiation phase.
Automated purchasing systems remove such tracking barriers by capturing and storing all spending details in one place, providing a panoramic, on-demand view of all spending. Reporting and analytics are vastly improved, which means there is much more spend intelligence available to help analyze and understand supplier performance. Armed with ongoing and virtually instantaneous information on what is bought, where, and at what prices, organizations are in a much better position to determine which suppliers are truly providing the best value. This enables much more strategic sourcing, which puts organizations squarely in the driver’s seat in negotiating better contracts.
Automated systems provide a number of other benefits as well, such as pre-set reminders to prevent important supplier contracts from expiring and volume tracking to encourage purchasing paired with volume rebate goals. Most importantly, automation helps organizations regain confidence and control in their supplier relationships, which undoubtedly drives more value to the bottom line.