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17 January 2012 | Angeline Albert
Many purchasers are missing out on cost savings because they are not automating contract management processes.
Research by Aberdeen Group, based on a survey of 130 organisations in November 2011, found that although contract management is automated by what the group defines as ‘best in class’ organisations, many businesses ignore this path and rely on manual, paper-intensive processes.
According to its report Procurement contract lifecycle: assessing the value of contract automation, organisations are limiting their visibility of spend and contractual commitments by resisting the automation of contract management. This in turn exposes them to the risks of “missed cost savings, poor compliance and regulatory backlash”. A lack of visibility could lead to legal arrangements and business obligations not being met, the study said.
Best in class organisations (those with at least 79 per cent of managed spend and 17 per cent of average contract savings realised) are automating contract management to define savings targets and make contract approval more efficient. “Organisations distinguishing themselves as procurement leaders are those driving towards paperless contract management automation,” the report said.
In the 2011 survey, 66 per cent said establishing better control of spend is a key pressure and reason for improving contract management. Two thirds said they preferred a centralised approach to contract management, saying centralisation created a consistent contract language and promoted the sharing of legal documents. Aberdeen’s report said organisations that do not take such a centralised approach to managing contracts are twice as likely to have agreements stored by individual employees, which reduces the visibility of agreed commitments.
It said companies should adopt more technology to automate contract management and establish a central repository for all procurement contracts.