Source-to-Pay+ is Extensive (P21) … And We Have a Long Way To Go! Next Up: Contract Management

When we started in Part 1, we noted that even though all core sourcing and procurement technologies have been available for twenty (20) years (although it is debatable just how good the initial versions of many of these applications were) … the majority of organizations still do not have what any modern analyst would consider reasonable support for the full, core, source-to-pay process.

However, now that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot, and most organizations are in a cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), they need to update their procurement tech stack fast.

But, and this is the kicker, they can’t do it all at once. We went into a lot of the details as to why, but, basically:

  • the applications don’t work without data … and don’t work well without LOTS of data … clean, organized, enriched data … (that you don’t have now and won’t have for a while)
  • the applications don’t deliver without user training …
  • you need value out of the gate to justify the purchase … and good luck getting enough value to justify the license cost of an entire suite!
  • your users need to see results for them to adopt … and use … a solution long term

So, you need to figure out where to start. And after three posts, we figured it out — e-Procurement. We then spent a few posts discussing the need for e-Procurement, the benefits, the barriers to e-Procurement (which were not what you think), and providing you with a large list of vendors. But then we had to step back and figure out what came next again because, depending on the particular situation at hand, there were good arguments for contract management, spend analysis, strategic sourcing, and supplier management. It took quite a bit of analysis, and the answer was spend analysis because, even if all things seemed equal, or one solution looked more attractive than another, spend analysis could identify the (biggest) opportunities and the solution best suited to the most / biggest opportunities, and so spend analysis always made the most sense to adopt after e-Procurement.

After that, it was difficult. But, if all opportunities are equal, or there is no one to do the thorough spend analysis that can help differentiate the savings opportunities that can be enabled by each S2P module, there still has to be a best choice for what’s next. And that was … Supplier Management, which is what we just finished covering after a deep dive into the ten (10) facets of the CORNED QUIP mash that is Supplier Management today. The reason? Just like you needed to get your spend data captured for everything to function (which is what e-Procurement does), no matter what you’re doing, you’re interacting with suppliers, so you need to manage them effectively.

However, now it’s not so difficult as we’re down to two choices as to what comes next: Strategic Sourcing and Contract Management … and the answer is Contract Management.

Why? Don’t you have to find the products and services you need before you contract for them? Technically, yes, but the reality is that you’re already buying products and services, you already have contracts, and chances are you can’t find most of those contracts, don’t know what the obligations and deliverables are for anything that’s not available through the e-Pro catalog, and don’t even know the pricing, permitted price escalations, etc. Not to mention, most organizations without a modern CLM don’t know how many evergreen contracts they have, when they automatically renew if not terminated or renegotiated by that date, when key contracts they need are expiring, and so on. And this doesn’t even take into account the excess manual effort and time the organization is taking to re-negotiate existing or negotiate new contracts. Nor its inability to do a proper analysis of existing payment terms, key risk clauses that are required for a new regulation, and so on.

Contract Management may not identify any big opportunities, but without a good, enforceable, contract that can be easily monitored throughout its lifetime, the reality is that the identified savings will likely never materialize. Thus, Contract Management is key to have in place before you start strategically sourcing, as you want to immediately turn the bids into contract terms before the process disconnect from not having a good CLM solution causes bids to be retracted “because they were only good for 15 days” or some other excuse a supplier will come up with to not honour a bid.

However, like Supplier Management, Contract Management is also a bit of a mixed bag. To be precise, it’s a NAG, but most vendors can’t even get that right, and instead offer solutions that typically fall primarily into one of the three camps:

Contract Negotiation
which supports the authoring and negotiation part of the process
Contract Analytics
which supports the syntactic, semantic and numeric analysis of the contracts
Contract Governance
which supports the ongoing monitoring, management, termination/renewal, and long term archival of the contracts

Tomorrow we will begin our coverage by diving into Negotiation in Part 22.