Leveraging technology to drive business performance — Part 3

In the second part of the 5 part series on ‘Leveraging technology to drive business performance’ we provided an overview on ‘Strategic decision making on future sourcing projects’. (Part 1, Part 2). Part 3 of the series will focus on contract management which also forms an important part of strategic sourcing. Contract management is a process which encompasses activities right from contract drafting to contract optimizing. This post will list down the best practices adopted by best-in-class organizations with respect to contract management.

1. Create dynamic contract repositories that reflect operational requirements:

• Include escalation and de-escalation clauses during contract negotiation and link these to market parameters like foreign exchange & commodity indices.
• Set a system of alerts and reminders for the specific escalator/de-escalator clauses linked to commodity or Forex indices.
• Track and measure the compliance and if possible quantify the savings accrued from these contracts.

2. Define, communicate and effectively manage to specified contract metrics:

• Link contracts to spend to establish parameters of measurement.
• Establish benchmark parameters with regards to peers and industry.
• Track and measure contract compliance and utilization based on these parameters and benchmarks.
• Communicate and elicit input from concerned decision makers while determining parameters.

3. Institute regular contract audits and use them to create opportunities:

Improve visibility in the following areas;

• Currency Change and Conversion.
• Volume Discounts.
• Buyer Turnover.
• Clerical Errors.
• Carryover provision for Replacement Contracts.

4. Standardize and accelerate contract authoring by maintaining a contract template and clause library:

• Define mandatory / non mandatory clauses.
• Define templates and clauses based on geographies and categories.
• Ensure continuous updates to all clauses and ensure access to relevant stakeholders to modify templates.

5. Create a standard workflow for collaborative authoring and negotiation of contracts:

• Create a standard work flow with set protocols and procedures.
• Define hierarchies for approval process.
• Ensure access to all necessary stakeholders during the contract authoring and amendment process.

To download this piece on contract management click here