Inside Supply Management Magazine
Assessing and Managing Riskwith Contract Analytics
By Lloyd Alexander
Most companies rely on their procurement departments to choose the right suppliers, bring spend under control and negotiate favorable payment terms. The procurement function within an organization is also becoming much more strategic, and can involve cross-departmental inventory management, internal audit and reporting, and, as it relates to supplier relationships, the control of organizational risk, liabilities, and maximizing revenue opportunities. These responsibilities demand full insight into supplier contract information.
Knowing and truly understanding the data contained within the entire portfolio of what can be thousands of supplier contracts is critical, and extremely challenging. Knowing those terms, conditions and clauses are what’s needed for procurement professionals to effectively manage risk and exposure. Not having a clear picture into supplier contracts is what leads to missed or unenforced service level agreements (SLAs), missed deliverables, unrealized auto-renewals with unwanted suppliers, and missed opportunities for savings due to hidden incentives and rebates.
Also buried within supplier contracts are non-standard clauses. Standardization is promoted by the legal department to manage risk, but terms and conditions are often challenged and modified during negotiations, without those changes effectively tracked. This means unknown exposure liabilities that are often realized when it is already too late.
Fortunately, there are now technology-based solutions available for procurement teams to leverage in order to streamline and facilitate the management of these contractual complexities. Contract management, discovery and analytics is one such set of technology solutions. Contract management includes library services to help teams collaborate on the creation and negotiation of contracts, and often includes a process automation component to take some of the manual steps out of contract processing. But it is the discovery and analytics of contracts that help procurement departments increase the impact they have on their organizations.
Using contract discovery, a company is able to quickly locate and centralize all of the contracts that exist across its organization. The company can then extract key contractual terms and language — including contracting parties, contract dates, termination clauses, jurisdiction, right of assignment, penalty clauses, automatic renewal, incentives, dynamic pricing and much more — to aid effective procurement and sourcing.
By better understanding SLAs, uptimes, liabilities not covered by insurance, and standard and non-standard agreements through contract intelligence, a company can make even better business decisions based on real data. Contract discovery and analytics helps companies gain greater visibility into their contracts and, in turn, have a deeper and more comprehensive understanding of any inherent risks — and opportunities.
Lloyd Alexander is vice president of corporate strategy at Seal Software. Lloyd has more than 20 years of contract management domain expertise, working closely with many Fortune 500 companies.