Daily Archives: December 28, 2006

Contract Management II

Looking back, it would appear that this is one topic that I have not really tackled yet. Back in week one, I made an initial post on Contract Management, but although I have mentioned the importance of good contract management in a number of posts here and over in my summer series on eSourcing Forum, I haven’t really dived into contract management and contract lifecycle management systems in detail.

Back in my first posting, I noted that today’s (E)C(L)M (Enterprise Contract Lifecycle Management) systems are quite powerful and offer a number of advanced features above and beyond just contract tracking. These features will generally include a searchable centralized contract repository, collaborative capabilities, workflow capabilities, monitors, alerts, reporting, and even template and clause-based contract creation capabilities.

In addition, I noted that I believe that one of the areas of future improvement will be in the area of business intelligence, specially in the area of automatic recognition of contracting patterns. These systems will not only point out What types of contracts and clauses are usually used for a certain type of supplier and / or commodity, but what types of contracts and clauses should be considered given the financial status of the supplier, historical performance, and commodity specifics. They will automatically draft starting contracts for you and indicate when you are missing important clauses like IP protection or delivery terms and when recommended updates are inconsistent with your usual practices.

Since then, I’ve put some considerable thought into what’s missing in today’s C(L)M systems, and how they can be used to provide you with benefits above and beyond simple document management and drafting. I’ve come up with a few more ideas, but two in particular stand out.

The first major breakthrough in next generation contract management systems, which has already crept into some current best-of-breed C(L)M systems, such as pure-play Nextance‘s offering (another company that I spent some time chatting with recently), is contract optimization. What is contract optimization, you ask? It’s the ability to globally analyze all of your contracts and determine where you spend is going, where your products are going, and what IP you collectively possess. For example, as Ralf Vonsosen states in his recent article in Contract Management, ECM plays a role in solving the new complexities of IP management and optimization. On the front end of the IP life cycle, ECM solutions can improve revenue by creating and negotiating attractive IP portfolios. On the back end, these solutions can optimize royalties, by carefully and effectively managing the resulting IP licensing agreements. These recent advances in ECM technology are no longer just for procurement or contract professionals – they now ensure companies that they are creating, managing, implementing, and tracking their IP licensing agreements to optimize revenue, mitigate risk, and improve compliance. In addition, a complete CLM system defines what you should be spending. Contrast this with what you are actually spending, as determined by your leading spend analysis solution, and you have identified the areas you need to work on to improve your compliance and realize your negotiated and planned savings. Finally, it helps you understand whom your biggest and best customers are, and where you should focus your marketing and sales efforts.

The second major breakthrough in next generation contract management systems will be in the area of supply chain visibility. If you think about it carefully, since today’s business runs off of contracts, the contracts in your repository collectively provide the best picture you can get of your immediate supply chain. Data on all of your suppliers and all of your customers in one place. Furthermore, by tagging your strategic suppliers and customers, as well as the suppliers you heavily buy from and the customers you heavily sell too, you can immediately identify the key branches of your supply chain that need to be mapped out. Any single sources of supply, or restricted transportation routes, that are subsequently identified are your starting points in your risk mitigation planning efforts.

Regardless of what happens, I’m sure you’ll hear a lot more about (E)C(L)M systems in the coming years, and that some of the advances they will include will surprise you.