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The Procurement Process and Contract Management: The Key to Managing Risk

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It’s no secret. Organizations are losing millions due to cost volatility, supply disruption and non-compliance fines. An ever-increasing pace of business and rising levels of uncertainty within our global economy have brought about an alarming amount of potential pitfalls for procurement leaders. This means risk management has become a higher priority than ever, and procurement is on the front line of managing that risk. The good news is procurement has a secret weapon: contracts.

While some may consider the contract management process routine or unglamorous, in reality it’s the cornerstone of running a sustainable, successful business and should be considered a key procurement activity. I know nothing more glamorous, actually. Contracts are to procurement practitioners what Q is to James Bond: behind the scenes making every mission possible. For Bond that’s stopping Spectre. For procurement that’s reducing costs, delivering value and accelerating growth.

Here are three instances when contract management helps procurement teams manage risk and deliver more value.

At the Close of the Deal

Contracts are ground zero for setting expectations for the future and where you assign risk. Each side must assess what level of risk it is comfortable carrying based on the appropriate factors — precedent, probability, impact, mitigation resources, necessity and so on. During this stage procurement teams should be collaborating with their legal teams, not circumventing them, to ensure when a contract is drafted, risks are accepted that are fair and manageable. Now is also the time to make sure that any pricing, service-level agreements (SLA) and terms and conditions are carried over from the sourcing phase and written into your contracts.

Advanced features in contract management platforms can simplify this process with capabilities such as approval workflows and templates, guaranteeing an organization’s approval policies are respected and all necessary information is included on every contract.

After the Ink Dries

As global regulations proliferate and expectations increase, an audit, or risk assessment, as painful as they can be, is a necessary step in due diligence — helping you hold suppliers accountable and save money in the long run by reducing risk and improving processes and controls. After all, you can’t mitigate risk if you don’t know it’s there.

Contract management solutions not only make performing a successful contract audit easier, they make implementing changes and enforcing them easier, too, giving your organization faster processes and the flawless compliance that accelerates growth.

Looking to the Future

Theodore Roosevelt may have said it best when he said, “Risk is like fire: If controlled, it will help you; if uncontrolled, it will rise up and destroy you.” If managed well, risk can be opportunity. Procurement needs to create and take advantage of those opportunities. One way to turn the tables in procurement’s favor is to embrace technology.

Digitizing contract management processes puts every contract online, in one central, searchable repository that is accessible to any internal party with the proper credentials. Procurement teams gain greater visibility into existing contracts, and the ability to run reports on a contract portfolio to identify opportunities to fuel negotiation efforts and capture more revenue.

Final Thoughts

If risk management is never operationalized as new suppliers get added, supply shifts and supply chains change, new and increased risks can go undetected. The best way to circumvent this is by incorporating robust, next-generation contract management into all key procurement activities.

Modern contract management platforms drive more visibility, performance and compliance throughout the procurement process, and provide a significant opportunity for procurement to capitalize on its time and resources, as well as outmaneuver volatile market conditions and mitigate or eliminate risk. A contract management platform is quickly deployable, with a rapid time-to-value. It’s not a competitive advantage, it’s table stakes. And the stakes have never been higher.

Matt Lhoumeau is the CEO and Co-Founder of Concord.

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Voices (2)

  1. Digby Barker:

    Thanks, Matt: my view is that it is helpful to think of a Contract as a Risk Management device. Taking that perspective encourages the identification of all the issues that need to be covered in the document and the best way to do that is to start with a good risk analysis. I also find it helpful to recognise that one manages things by managing the risks: from that perspective it’s arguable that Risk Management is actually a tautology !

    1. Abiye Asefa:

      can anybody share the contractual language that need to be used to mitigate risk through extended supply chain/sub suppliers.

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