Test your contract compliance know-how

Getting a grip on your contracts can save you money, says Lance Mercereau of Rosslyn Data Technologies.

Years ago, a client negotiated a contract with a real-estate firm in a faraway land. The lease was expensive, costing the company millions every year to rent a large office in one of the world’s most expensive cities.

Because of local staff changes, no one knew that the contract was due to expire, and would roll-on for another three years unless someone decided to inform the supplier. Fortunately, the client’s centralised procurement team, who had registered all contracts centrally, was alerted to the expiring contract and took immediate action to re-negotiate it – saving more than a million dollars in the process.

Poor contract visibility puts companies at risk over lost revenue and added costs. Not surprisingly, procurement professionals are increasingly taking contract management seriously. They understand the importance of digitally aggregating, indexing and managing contracts; in mature organisations, contracts are linked to other data sources such as supplier and spend, which provide greater insight and control over internal procurement processes such as supplier performance, contract compliance and risk mitigation.

Many procurement professionals I speak to ask what insights they can expect to achieve by utilising a contract management solution. Here are ten frequently-asked questions, and the measures and sources of data needed to answer them:

 

Questions Measures Data formulas
What spend is uncontracted? Spend not associated with contracts Invoices + contracts
What uncontracted spend should be contracted? Spend not associated with contracts Invoices + contracts
Which suppliers are not contracted? Suppliers flagged without contracts Vendor master file + contracts
How much spend is maverick? Spend with non-preferred supplier where a preferred supplier exists Invoices + contracts
What is the percentage of spend with contracted and uncontracted suppliers? Spend with a non-contracted supplier Invoices + contracts
Who are the largest non-contracted suppliers that should be under contract? Spend not associated with contracts by value Invoices + contracts
What individuals/business units/categories/regions spend the most with non-contracted suppliers? Spend not associated with contracts by dimension Vendor master file + Invoices + contracts
Are we complying with existing negotiated contract terms such as payment or on-time delivery terms? Yes/No Invoices + Contracts
Which suppliers do we have SLAs with? Yes/No Contracts
When do contracts with suppliers expire? Contract end date Contracts

 

 

 

How many of these questions can you answer today?

Whatever your answer, gaining greater control of your supplier contracts isn’t a big project but it does have big rewards – simply by looking at your data and the contextual information you can rest assured there are no costly issues waiting to emerge when you least expect them.

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