Contract management is often viewed from a local and departmental perspective as merely a result of an action, but in fact it represents the start of a new cycle involving several functional roles of an organization.
Setting up a contract management system for one department can save you both precious time and money, however a more global appraoch will leverage these savings.
Following are some areas where value can be leveraged with active contract management:
- Many contracts roll over on a periodical basis and present a great opportunity for renegotiating the contract or changing the supplier.
- By having several people receive reminders for a single contract, the risk of non renegotiation gets eliminated. Sometimes an owner does not renegotiate due to lack of time, or because they are not aware of the expiry date or the fact that they can renegotiate.
- Some others may be conscious of the fact but prefer to let the contract carry on as it is because of their past relationship with the company. There may be others still who would renew the contract as a token of long lasting friendship.
- Use the period of inputting data into a contract management system by probing every single contract and eliminate contracts for unwanted goods and services.
- Increase “on-contract” spending. By having a central repository, other departments like procurement or finance can easily identify expenses for which there have been no agreements with the supplier. By detecting and putting these expenses on-contract, important savings can be achieved.
- Once contracts have been entered, you can easily run reports by contract types to check if other departments and locations have similar contracts with different suppliers. Try to put them together and renegotiate.
- A contract management system helps reduce the time it takes to get to the actual contract execution. Just imagine how this could impact cost or revenue numbers. Envisage how a 5-day reduction in time could effect your revenues.
- Providing templates improves control of contract language, thereby reducing costs resulting from errors, like litigation and legal fees.
- It helps eliminate the risk of having to make uninformed decisions because you do not have instant access to your contracts and contract data. Think of the time you can save by getting these documents prior in hand.
- You no longer have to send contract copies or scans to other departments to let them know. Assign disciplines like accounting and controlling access to the system so that it can verify that contracts have been correctly abided by and rebates applied without disturbing you.
- If your company is audited or is in take-over talks, what do you think it would cost you today to compile all contract information?
Contracts play a large role in an organization’s ability to drive toward predictability and searching for ways to improve margins , so take the opportunity.
“Poor Contract Management Costs Companies 9% — Bottom Line”
– Independent research by IACCM
9% represents an average which varies significantly between companies and industries
Following calculator can be used to obtain an estimation of savings from the buy-side. Exclude those cost that cannot be infuenced on a short term like office rental agreements to obtain a more realistic view.
This estimation is from a buy-side only and does not include savings on time spent and sales-side.
Contract management software delivers benefits that can quickly pay for the entire investment while continuing to add value to your company in the future. However, these benefits depend on how a contract is implemented and the internal commitment involved in its execution.