The recessions hitting nations across the globe are causing disruption. Companies are freezing purchases, reducing the speed at which they implement new technology, and positions of leverage are changing in the supply chain.The invasion of Ukraine, frequent cyber attacks, general inflation and the continued impact of Covid are combining to make the business environment incredibly challenging throughout 2023.
The challenges Procurement, Finance, and Legal teams face are fierce. They are responsible for ensuring that the business is protected from risk, with vendor and contract management in place.
As part of this management, they need to ensure that contracts are signed following reviews and approvals. The teams need to ensure the business is audit ready. Perhaps most importantly, we will need vendors working to the highest standards.
Typically, Procurement tries to lower the spending going out to vendors and find ways to assist the sales team in increasing their revenue. When procurement can help with revenue generation by finding innovations in its vendor base, it is operating at the top of its capability."
We’ve discussed how restoring the visibility of vendor contracts can empower a business to make better use of the data it has. For example, by forecasting spending more appropriately.
But how do we take control of our vendor and contract base and make the most of our visibility?
Let’s cover this.
Maverick spending is an activity that infuriates almost every Procurement Manager I know. Maverick Spend is a term used when a requester in the business uses a vendor without going through the agreed procurement process.
The requester may choose to use a vendor that is not an approved vendor.
It can be a symptom of a rigid and clunky procurement process without going into the weeds of why it happens.
It can also stem from a disjointed way of working, with the requester in the unknown as to how they raise a request for a new service, goods, or vendor.
Not extracting contract value
One issue we repeatedly see before a company adopts Gatekeeper’s Contract and Vendor Platform is its inability to extract full value from its contracts.
Value is a broad term used to describe:
- Performance of all obligations by the vendor
- Negotiation of renewals for better quality and price
- Deliverables that meet the contract value without any scope creep
- On-time delivery of all deliverables
- Quality expectations delivered
- Relationship Management
- Risk Management
According to The Faculty, less than 50% of negotiated savings are typically realised over the life of a contract.
If we are losing ground on any one of these activities, we increase our susceptibility to:
- Additional Spend
- Risking our relationship with the vendor
- Poor requester engagement within the business
- Missed opportunities and delays to projects, programmes, and products
We cannot afford to lose ground on extracting value from our vendor and contract base.
Audits can sound terrifying - and they are if you’re ill-prepared. I’ve been there and had to pull together emails, Slack messages, Excel spreadsheets, Word documents and a million other pieces of information for ISO27001 and SOC 2 Audits.
Not to mention the government audits I used to deal with in defence. I would walk around the entire office, searching for the relevant contract files in the cabinets because, you guessed it: they were paper, wet-inked contracts.
These audits are not there to catch you out. They are there to ensure you are doing what you said, following a process that includes specific gates of review and approval. And you now need to show that.
Almost every vendor contract your business has will have some form of performance clause. Some won’t, but all of those will have specific obligations, such as delivery times, quality metrics, and specific deliverables.
Some of these vendor contracts will contain:
- Service Level Agreements (SLAs)
- Key Performance Indicators (KPIs)
SLAs and KPIs typically cover a performance level that needs to be met and achieved within a defined period.
These can be used to drive deliverables improvements or measure a service uptime.
One of my favourite quotes is, “what gets measured gets managed”.
I don’t overcomplicate this quote.
Suppose you aren’t tracking the performance of your vendors. In that case, you’re inviting them not to deliver to the standards you agreed to during the sourcing phase.
So how do we overcome the challenges here and take control of our vendor and contract base?
Self-Service Intake Forms
One way to prevent maverick spending and encourage the use of the procurement team is to have a slick procurement process. Do you know what’s better than a slick procurement process?
A slick digital procurement process.
Consider someone in your business who wants to work with a new vendor.
One way to empower this is to give them the freedom to work with new vendors. However, that vendor will need to undergo an onboarding process that ensures they are a suitable fit for your business.
This onboarding process can start with a link the requester sends to the vendor. We can begin onboarding the new vendor and asking them any relevant questions we may have.
This method of vendor onboarding enables the vendor to maintain control of their data, and you can ensure the data you receive is up to the standards you require.
This process helps reduce maverick spending and ensures approval gates are in place.
Contract Negotiation and eSign
The contract negotiation phase is critical to controlling so many pertinent causes for concern. An effective contract negotiation of the vendor terms can ensure:
- Reduced risk with better distribution of risk
- Performance clauses are included and meaningful
- You achieve any must-have positions that your business requires, perhaps on payment terms
- Data privacy is included and managed in GDPR compliant ways
- Review sessions are included at the contract level, with formal outcomes expected
And many more.
Of course, we can fast-track this if you issue your contract terms, including the required positions.
eSign then allows you to let go of those paper contracts forever. I get it; I used to hold bundles of 500-page complex contracts together and feel a sense of pride in getting it over the line. The truth is, this isn’t practical or expedient.
Not to mention, we want to create live contract records the moment we receive those magical signatures. From there, we can kick off renewals, reviews and performance surveys with no manual involvement from a Procurement, Finance or Legal professional.
One of the most basic maturity levels for any Procurement or Legal team is ensuring that their vendor contract obligations are tracked and visible.
What are contract obligations?
Typically, they are provisions of the contract that relate to the operation of the contract. They can apply to either the vendor or you, or even both. With contract obligations, you need to be on top of them because they require you or the vendor to complete a task in a specific way or by a particular date.
We can track all of these obligations through a contract record with captured data from the contract document. In addition to that, we can kick off renewals within defined timeframes without a procurement manager doing so. We can ensure that payment terms data is covered and even passed through to your ERP, such as NetSuite.
For any other obligations you want to stay on top of, you could create a recurring event that brings in internal and external stakeholders to remind them of the specific tasks, objectives and agendas.There’s power in having data, in one place, with all actions stemming from this. That place could be Gatekeeper’s Contract and Vendor Platform.
In times of economic hardship, going digital and saving time on low-value work that software can take care of, can free up your teams to manage risk better, improve relationships, and look for new opportunities to leverage your vendor’s innovation for an improved competitive position.
We can control our Vendor and Contract bases.
We can all feel helpless at times when macroeconomic events happen.
There’s negativity that appears in every headline around the world. But we cannot let that trick us into thinking we cannot do anything to lessen the risks of economic impact within our businesses.
Our Supply Chains are some of our businesses' most important assets. We should treat our vendors and our vendor contracts like assets. We should work on them, protect them, and ensure they are performing as expected and that the return on investment is as expected.
Suppose we don’t do this through the recession. In that case, our vendor contracts are going to bleed value, and we’re going to put third-party relationships in a fragile position. Let’s ensure the basics are done well, and that we can track and measure our vendors.
Taking control of your vendor and contract base is critical to thriving in the perfect storm of recession. Not every company is going to survive during this time.
The most efficient way to take control is to utilise Contract and Vendor Management Software like Gatekeeper. It’s what I did in my last role to solve all of these problems.
With Gatekeeper, I was able to get full visibility of my vendors and their contracts. From there I could prevent maverick spending by making an easy to use digital procurement process, I could respond to audits quicker than ever (SOC2 and ISO 27001 in particular), I could survey performance checks, track SLAs/KPIs and own the contract lifecycle.
It’s a real game changer.
If you’re ready to find out more about how Gatekeeper can help you achieve control of your contract and vendor base, contact us today.