The True Value of Contract Intelligence – Discovery and Analytics

If you missed our webinar with Seal Software in December , we’re pleased to say we cover the same ground and more in a new briefing paper, titled The True Value of Contract Intelligence; it is free for readers to download here . “Contract intelligence” in our definition is the potentially useful and important information and data found in supplier contracts that every organisation hold, but few truly understand, utilise or exploit.

In the paper, we look at why procurement executives should pay attention to contract management (some still do not, unfortunately), and explain why the concepts of risk and opportunity are central to everything in contract management. We then get into the value of contract discovery and what exactly we mean by contract analytics. It is a paper that starts with some relatively straightforward issues, then gets into what for many organisations will be more in the way of leading-edge thinking.

We published a first extract from the paper before Christmas here; and a second one here. In today’s extract we get into real value of contract analytics; but please do consider reading the whole paper – this is a big issue for procurement in our opinion!

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The Value of Contract Discovery and Analytics

That is the process of contract discovery and analytics; what then is the true value of implementing this for organisations? At a high level, we are talking about the ability to gain actionable insights from the often unstructured language in contracts - including those contracts we may not even be aware are in existence and relevant to the organisation. Once the insights are available, the organisation can leverage those to realize on-going cost saving opportunities and to manage risk.

The risk aspect is often the main driver for implementing contract discovery and analytics programs. Risks include contracts with automatic extension or auto renewal clauses, with cost implications if the buyer is not on the ball and does not understand the requirement for intervention. Other contracts may have automatic cost increases built in, perhaps linked to inflation or other metrics. There may be onerous clauses if either party goes through a “change of control” event. Damages, indemnifications and other penalty clauses, perhaps linked to performance can be another source of risk. Termination for convenience is yet another contentious area.

On the value side, understanding the contract population can often highlight opportunities for consolidation and leverage where there are multiple contracts for the same purchased item or across different products but with the same supplier. More specifically, within contracts, there may be benchmarking or “most favored customer” clauses that can be used to drive value. It is not unusual to find pricing and value mechanisms, such as rebates or volume incentives, perhaps negotiated by a buyer who has long since left the organization, that can bring value if brought to life….

In summary, this is all about moving from the reactive position many organisations find themselves in, to a proactive stance that can be generated by understanding contracts better. That will drive those opportunities both to increase value and to mitigate and reduce risk.

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