Master Agent Featured Article
Resources for Better Contract Management Require Strong Bottom-Line Arguments
September 02, 2013
The importance of contract management in the role of procurement is undeniable. Unfortunately the only people who understand this importance are the ones in procurement. It is often a challenge to persuade decision makers to provide the resources needed to better manage contracts. The most successful approach will likely be to quantify the benefits and show how they affect the bottom line.
Collecting data is the first step in preparing the case to management. Looking at past contracts that did not take advantage of available savings will provide much of the supporting data. A vendor may offer volume discounts, for example. If it was possible to make fewer but larger purchases in a given period to reach the discount thresholds, yet still keep the company supplied, the cost savings would be in real, not theoretical. Showing the cost of missing this opportunity and others like it builds part of the case.
The problem that many procurement professionals make is in connecting the dots. It’s fairly easy to demonstrate that a company could have saved $1 million by taking advantage of every discount the vendors offered. The counter-argument is always going to be, “Yes, but that doesn’t prove that the costly resources you suggest would have helped.” You have to show that the resource has a direct effect on delivering the savings.
Resources needed to help companies take advantage of savings opportunities from their purchasing patterns could be lots of things but may include software for tracking contracts and better training for procurement professionals. Tracking contracts manually may cost less money up front but human review can be highly error-prone and subject to fatigue and transposition errors. The benefits of better-trained employees are self-explanatory.
Connecting the dots means being able to quantify these changes and it usually means doing homework outside of the company. Getting a similar company’s story, their ‘before and after’ snapshots and savings in hard dollar amounts will be very persuasive.
Contracts often do not have nice structured information that other types of data such accounting data does. This can make it difficult to uncover lost money and to make the argument for resources that reduce these losses. Preparing a case that persuades management to acquire more resources for managing contracts is a thorough collection of data, specific cases and demonstrating real cost savings.
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