Let’s Talk About the Elephant in the Filing Cabinet

Chris Smith, director at Wax Digital, global eProcurement provider, discusses the risks of using paper-based supplier contracts

Look under the bonnet of many organisations and no matter how well regarded they are you’re likely to find a few processes that don’t quite live up to corporate standards. Commonly, one of these ‘elephants in the room’ is the way corporate and supplier contracts are managed.

Indeed, a study by Adobe found that as many as 98% of people dealing with contracts were still using signed paper documents, and 56% lived in fear of losing them. Only 18% had moved to a purely digital process yet 73% of managers admitted that it would be simpler and more secure if they adopted an electronic system.

One of the key issues with paper-based contracts is that they are often not stored or managed effectively - they can be squirrelled away in any number of desk drawers, filing cabinets, box files and cupboards. And considering the increasingly fluid nature in which many of us work, some may even reside in home offices and laptop bags.

Clearly, holding these vital documents in a disorganised manner is an inefficient way of managing them securely and safely. However, the issue of paper versus electronic goes further than simple security and loss, especially for the procurement team. How, for example, does a company know when a contract is in need of renewal and therefore the supplier is due a review? Is the supplier abiding by agreed terms and conditions? How can the procurement team be sure that suppliers are compliant with legislative, regulatory and corporate governance standards like Sarbanes Oxley and ISO? Or do they leave the business exposed to crisis or costly legal battles? Put simply, these things can’t be achieved without an effective system for managing contracts that triggers action at the pivotal points in time.

So, let’s talk about the elephant in the filing cabinet and in particular the benefits of deploying contract management software (CMS).

Sheer convenience alone is a sound reason for investment. At times when you need to refer back to a supplier contract, it goes without saying that you’ll find it quicker using an online search in your CMS than sifting through a big pile of paper documents, even if they are well organised and referenced. Imagine that your business needs to quickly prove compliance on a number of fronts, including its supply chain.

If all contracts are stored, referenced and managed by a CMS rather than in paper form it is much easier to find information in them exactly when you need to. But obviously procurement also has an on-going responsibility to review supplier contracts and ensure that they are still valid, continue to support the needs of the organisation and are not about to rollover into a new period of tie-in. A CMS offers the ongoing visibility you need to monitor terms and conditions in this way, automatically identifying key trigger points in the contract lifecycle and flagging the need to take action precisely when required.

Electronic contract management is also critical in ensuring that suppliers are delivering on their contract terms on a rolling basis. While a CMS is a highly effective standalone solution, when part of an integrated Source-to-Pay platform managing the full sourcing and purchasing process, it has the added benefit of giving access to real-time information on supplier performance through the procurement of goods and services. Is a supplier meeting their ‘on time in full’ delivery promises? Are they invoicing correctly and at the right price? Are they stating agreed payment terms or touting the rules?

A digitised contracts system can also recognise any pricing terms that may be off the mark. For example, over time a business might have sourced several suppliers to deliver a similar range of goods and services. A paper process may fail to flag key differences in price, but using a CMS enables the management of costs and identification of price discrepancies. Also if an unfavourable contract is coming to an end, the system can flag the need for planned renegotiation in advance, generating cost savings or at least minimising cost increases.

Saving costs with suppliers is obviously a key benefit of best practice contract management but process cost savings are another. Manually administering each individual supplier contract is a time-consuming activity requiring many people and hours. Automating this process using CMS stops contract management being laborious and automating the process also reduces the chances of human error.

There’s no escaping the security issues that working with paper contracts presents too. Even if they’re under lock and key, contracts sitting in drawers and filing cabinets aren’t necessarily adequately protected. Theft, fire, flood and simple loss are all factors to consider. Add to that the fact that unless there are copies held on site or electronic scans, paper contracts may not be backed-up securely and become irretrievable.

Contracts are the foundation of business relationships, but research has shown that despite the automation of many processes, the majority of them are still paper-based, and therefore at risk of poor management, loss and lack of visibility. The information held within these contracts is critical to the performance of the organisation and should be easily searchable and available to trigger action within the procurement team, precisely when it needs to be taken.

While change can be a painful thing to implement, organisations should look at how moving from paper to electronic contract management can help them reduce risk, boost efficiency, manage supplier performance and minimise cost. The problems that paper contracts present will quite literally pile up if nothing is done to step up to a digitised system. Perhaps it’s time to talk about the elephant in the filing cabinet and consider the benefits of contract management.

 

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