Spend Matters Papers – Getting to Grips with Contract Management

So here’s a plan - through August and into September we’re going to highlight all the research papers, briefings and so on that we’ve produced in the last two and a half years. We’ll  include what we said when we first launched it, and of course the link so you can download – free on registration. Why not use the quiet time in August to brush up on some procurement thinking? And they haven’t dated, in our opinion.

Today we have ““Getting to Grips with Contract Management – How the CPO Can Lead on Managing Contract Risk and Opportunity – Discovery, Focus and Capability”

 Here’s what we said when we launched it in late 2012.

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The paper is available to download from the Seal Software website here. Here’s the first of a couple of extracts to whet your appetite and encourage you to take a closer look and download / read the whole thing. In this section, taken from the full document, we look at “The current state of contract management”….

"Contract management is neglected in most organizations. There is often little knowledge even of the overall portfolio of contracts – how many, which are important, where are they stored (my basic question as a new CPO in that earlier example)!

Even if there is some basic administration, there is often little visibility into contracts; limited understanding of what they contain; and consequently limited insight into any risk exposure or opportunities lost. In large and/or devolved organizations, the CPO often has little insight into whether key standard terms and conditions are even being included in all contracts, let alone actually implemented and managed. And full consideration of how the contract is going to be managed is rarely given during the sourcing phase. For instance, conditions are included without any clear view of how (or even if) they can actually be managed and enforced.

There is also the local vs. central dichotomy, present in virtually all multinational, multi-site organizations. The CPO struggles to know what is being done around the organization, or even who is signing contracts on its behalf, even if (s)he holds supposed power and authority. As a result, it is the suppliers who often wind up holding excess power.

One issue is the sheer volume of data. A single organization can easily have several thousand contracts, containing hundreds of thousands of potentially relevant terms, conditions, and clauses, and literally millions of pages of text. Historically, this sheer issue of scale is a perfect example of what is fashionably called a “big data” challenge.

So the situation facing a CPO trying to come to grips with contract management resembles to some extent that faced by early adopters of category management, who did not have good (or any) accurate spend analytics data. Trying to develop effective category sourcing strategies without accurate, detailed data on spend, suppliers, and internal users/budgets was difficult, to say the least. Thankfully, Moore’s Law and ever-increasing processing power has made spend analysis feasible for everyone, enabling a step change in sourcing professionalism.

But the current situation in contract management – in many organizations, anyway – is still the equivalent of old school sourcing attempts, where practitioners work without clear visibility or understanding of the key contract metrics, issues or risks. When it comes to change, development, penalties and even termination, the contract manager is often negotiating in the dark or relying on overly detailed and often rushed manual work.

There is a pressing need to address this situation. Understanding the current contract population and working to improve the ongoing management of those contracts (and new examples) will enable the procurement function to help their organizations release potential value, and better manage risk".

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