Category Archives: contract management

Sponsored Posts that make you go UGH! (AI Contract MISmanagement!)

Today’s post is brought to you by the letters W, T, and F and inspired by this Spend Matters guest article by Matt Lhoumeau on The Last Contract Lawyer.

According to Matt, the legal profession is experiencing its iPhone moment because your competitors are closing deals in 26 seconds (and I certainly hope not!) using AI that outperforms human lawyers by 10% in accuracy (on what scale?!?). More specifically, he claims AI can complete a contract review in 26 seconds (spoiler: it can’t) while a human takes 92 minutes (on average I assume) and, furthermore, that this will cost you up to $6,900 (and this math makes no sense if the lawyer is only spending 92 minutes; because even top tier lawyers will generally only charge $500 per hour for a contract draft or review, so what’s the other $6,150 for).

Anyway, the most UGH! part of this article is not these false claims, it’s the missing information. Why is this the most UGH!? Because most of the claims the article makes are true, and when you tie all these claims together, if you don’t understand what this technology can’t do, and what risks it brings to the table (which is the missing information I refer to), you’re likely to believe the claims, join the AI religion, go all in on AI-CLM, and fire all your contract review lawyers. (And while I am no more fond of lawyers than the next guy, I am no less fond of them either, especially when they have a critical role to play.)

You see, the right AI engine (not ChatGPT) can:

  • process a contract in an average of 26 seconds or less and perform a (very) large number of contract review tasks during that time
  • cut approval times by 50%, and significantly reduce overall review times (that can easily add up to a calendar year for an organization that needs to review 500 contracts) to a small fraction of the time required (down to a few weeks to a few months)
  • do more accurate pattern recognition than most humans, including “experts”
  • significantly reduce outside counsel spend

And the benefits, when deployed properly, can be as great as the article claims. But this is the key — deployed properly. And there is no discussion of how you do that. The only piece of counter-information in the entire article is a reference to a Stanford Law School research study (that puts AI on Trial) that notes that AI tools using retrieval-augmented generation systems still hallucinate in 1 out of 6 benchmarking queries (but yet somehow outperform human reviewers on standard contracts? really?).

As we wrote earlier this year when we told you Don’t Kill All the Lawyers (and reminded you a couple of months later in our post that said you should embrace Legal tech … backed by lawyers), we’ve reached the point that you should (almost) never use a lawyer to:

  • draft a contract
  • review a contract for standard clauses, terms, and conditions
  • locate the relevant statutes
  • summarize your obligations
  • summarize your incident response options
  • etc.

because a tool can take your templates, standard terms and conditions, RFP, negotiation summary, and draft a better contract that most paralegals; ensure all of your standard terms and conditions are in there or review counter-party paper to ensure the same; review the redline you get (or are planning to give) that and determine which changes are good or indifferent for you; and then run the final contract through a standard agent for risk assessment to identify if the contract contains any known risks and flag anything that needs to be addressed, and do this better than a lawyer.

But what the tool absolutely, positively, can not do is:

  • determine if the mitigations to known risks are sufficient in the particular instance addressed by the contract
  • determine if there are any unique/non-standard risks that need to be addressed (that your existing checklists, templates, and review agents wouldn’t know about or check for)
  • determine if there are any unique requirements for a contract with a supplier in a new jurisdiction that could require special considerations around key clause phrasing or standard risk mitigations
  • have confidence beyond its models

You still need the human review, at least where it counts. And that’s the part you have to understand — and the part the referenced article doesn’t address at all.

If you’re a company doing a Billion dollars in business a year and signing over 10,000 contracts a year, you certainly don’t want to still be doing end-to-end manual reviews as that would be a minimum of 2 million minutes of review time, or the full time attention of almost 20 lawyers. Wasteful and completely unnecessary.

In fact, since you’re doing a Billion dollars or more (and likely 20 times that if your company is a Fortune 100),

  • you probably don’t want to manually review any contract under a threshold (say $100,000) unless it is flagged as a high risk,
  • you probably don’t want to spend more than an hour on a review of any contract under a larger threshold (say one million dollars) unless it is flagged as medium risk,
  • you don’t want lawyers to read the remaining contracts end-to-end reviewing every clause and comparing those clauses against every checklist when it’s only the risks and unique requirements of the contract that require human intelligence

because limiting low value contracts to review only in high risk, low-mid value contracts to review only in mid-risks, and leaving the costly (but valuable) review time to the high-value or potentially high risk contracts will not only cut costs by 60% or more, but increase the value of the manual exercise.

Especially if those contracts are indexed by a natural language system that can allow the lawyer to ask key questions about the clauses that are in there, bring up the clauses she is interested in for a review, identify any processing flags, and apply her unique insights to the domain, jurisdiction, and business risks and ensure the contract accurately addresses all of these or focus her time on the right additions and modifications. For example, she might realize that the contract for on-site support in the nuclear power plant is extremely risky and the company’s across-the-board liability insurance requirement of 5 million is just not enough, realize that the AI safety requirements are not enforceable in the US and instead insist that the agreement be shifted to the Irish sub-entity and that jurisdiction apply, and so on. A check-the-box system won’t catch these things (as it can only look for risks it knows of and check boxes that have been identified), and neither will an open LLM (where you have no idea of the quality of the training, how much it is hallucinating, or, even worse, deliberately lying to you).

You still need a lawyer. Because, while it is an iPhone moment, it’s only an iPhone moment for lawyers who, if you aren’t using the tech, will be using the tech to help them focus on what’s important on the review stack and what isn’t. Because if the worst case is that you might lose an average of 10K to 50K here and there on every 100th contract in exchange for saving 10 Million on legal contract reviews and related matters (10 lawyers from outside council at an average of one million a year), that’s likely a worst case loss of a 2M loss in exchange for a 5X savings of 10M. And you know you won’t have many large losses because you’ll be able to focus legal review on the contracts that matter in dollar value or risk rating, not the contracts that don’t. And, all of a sudden, a close legal review of key contracts becomes a luxury you CAN afford!

Quell Your Lower Mid Market Buying Frustration with Novo-K BuyingStation!

Lower Mid-Market companies have a lot of problems modernizing their procurement practice. These include, but are not limited to:

  1. small procurement teams
  2. low budget
  3. lack of modern knowledge of best practices and tool sets
  4. few solutions that meet a. to c. on the market

This is the situation that Novo-K discovered when they started their managed procurement service offering a decade ago. Looking for tools that would support them in supporting their clients in a service-to-self-serve model (as they believe in enabling and training you to be more self sufficient as time goes on), they couldn’t find any that:

  • met the core 80/20 needs of their target market
  • came with an easy-to-use UX and built-in workflow
  • tackled tail spend effectively
  • was affordable for their customers

And having covered this space for 19 years, the doctor can confirm that when they started looking, this was more-of-less the case since:

  • most of the suites are over-engineered for the lower mid-market (LMM: £150M to £500M)
  • many could be configured, but the workflow wasn’t always simple out of the box, and UX varied
  • to this day, only a handful of providers have focussed on tail spend
  • most providers were priced out of the LMM range, and those that weren’t got scooped up in the M&A mania in the mid-to-late 2010s

but most importantly,

  • none (at the time) were really built to power a consultancy or MSP to serve it’s LMM customers in a service-to-self-serve model (where, over time, the customer would do more and more for themselves, only using the MSP on high-value/critical projects where it needed expertise or extra manpower or occasional strategic spend/category analysis projects)

So, after digging and digging and coming up empty (as most of the mines were at the point in time they were looking), they decided to build their own solution for the mid-market growth companies they focus on. They started by prototyping the workflows on Sharepoint, proved out the value proposition with their clients, then rebuilt a solid, modern, SaaS solution on AWS (which is SOC-2 compliant, G-Cloud approved, and currently going through ISO 27001 certification) [in the EU West Data Center 2 in the UK].

While the solution is new, it’s a really good Source-to-Contract solution for their target market, and especially so when you consider the price point is only £649 a month for most LMM procurement departments (as you can have up to 50 users at that price), can fit on a P-Card, and allows their Procurement department to manage all of their tendering processes for less than £8K a year! (And when it comes to saving, 80% often comes just from doing proper processes.)

So what does the solution do:

  • requests
  • project pipeline
  • quoting and tendering (RFQ)
  • supplier (information) management (and some supplier discovery)
  • contract management
  • savings tracker
  • administration

Requests

The platform is organized into a typical Procurement Project Workflow which starts off in an average (Lower) Mid-Market organization with a requisition from an organizational employee who needs to buy something. When the requisition enters the system, it is then routed to the appropriate budget owner(s) and approval queue for review and approval. If approved, it kicks off a project which is used to manage the source-to-contract process in the system.

Project Pipeline

Projects in the BuyingStation system go through the following standard workflow:

  • (approved) request
  • sourcing
  • selection
  • signing
  • supervision
  • document management (ongoing)

When a request is approved, it kicks off the project which captures all of the relevant information about the request (owner, budget [type], categories, need by date and/or sourcing timeframe, etc.) which can be used to inform later stages. Standard fields are pre-configured from the request, but more can be added to the request on a self-serve basis by the organization.

Quoting & Tendering

In the sourcing phase, the buyer defines the sourcing details, which will include, but not be limited to all of the standard definition fields (as the organization can define any additional fields that they need); uploads, or selects from the library, the terms and conditions, any required product or service specification documents, the pricing matrix and, optionally, the evaluation matrix (and indicates whether or not that will be shared with the supplier), and then selects the suppliers who will receive the quote requests (which have to be part of their organizational supply base — more on this later).

Sourcing Project Specification is the one place they currently use Gen-AI LLMs, and its specifically used for creating draft natural language project specification documents in standard formats using the sourcing event type (product or service), specific categories (and items) being sourced, project metadata, and other key elements of interest (which will be included in the prompt). Since they have no clue what you will source, their LLM training has focussed heavy on proper structure, core requirements, and high-level category specifics, and they expect their clients to use what is generated as a starting draft (that should only need a bit of editing for most standard products and services), and not a final document.

Once the sourcing specifications are complete, the quotation/tendering phase can be launched, and then requests are sent to the suppliers for completion. The suppliers get an email with link that takes them straight to the supplier portal where all they have to do is enter their password and they can upload their quotes and specifications. (As we’ll discuss later, chances are they already have their password setup as they would have completed their one-click registration when they were onboarded.)

Once the quotations are returned, the buyer can click into each and review them one by one. Note that, as of now, there is no in-platform support for viewing the Excel file responses, nor is there any support for the evaluation matrices, which will have to be completed and uploaded by the buyer once all of the quotations are reviewed.

Supplier Information Management

Backing up, when the user selects the suppliers, they select them from “My Suppliers” that tracks all of the organization’s suppliers and their current state of (un)approved and (un) contracted which lets the organization know where the supplier is in its onboarding, validation, and selection lifecycle. An unapproved supplier cannot be invited to quotations. An approved supplier is one that can be considered for business, but is one that hasn’t been selected if still un-contracted. (And, thus, an approved contracted supplier is one that has been approved and awarded business.)

Every supplier has standard corporate and administration details (which can be augmented as desired by the buying organization), a set of minimum information requirements for doing business (which can include, but not be limited to: credit information, data protection office, insurance, and baseline regulatory requirements) reference information, RASA* (optional, but an enhanced profile that can capture supply chain policies/considerations, cybersecurity & data privacy, conflict minerals, DEI [remember, they are UK and serve primarily UK and EU right now], IP policy and protection, and, very important, AI and Automation), associated projects, and associated contracts.

In addition to this standard supplier information management module, they also have a supplier directory that consists of baseline corporate profile information of every supplier who has registered in the portal, which allows a buyer to find potential suppliers based on standard filters of location and category.

Contract Management

The platform supports a basic contract repository that indexes all of the organization’s contracts with standard, user-defined, meta-data. While they don’t include AI for auto meta-data extraction, note that if you associate a contract with a project, a lot of the meta-data can be pulled in from the project to start you off. (They don’t deploy AI to auto-extract meta-data since their tests of the low-cost options, and remember this is very low-cost suite, found that accuracy for some contract types / older documents can be as low as 30% to 40% for many fields, with average performance around 70% at best. And while you will see that some of the larger vendors will quote accuracy rates of 80% to 90%, and that a few of these claims exist, this is not low-cost off the shelf third-party tech getting these results consistently — it’s highly specialized, and still expensive, tech.) Moreover, the metadata can also be uploaded from an Excel spreadsheet if that’s easier. (And when you’re only tracking a few dozen or so fields, do you really need overpriced AI? Might take you 15 minutes to enter it if you have your mallards in a row.)

Thus, once a supplier (or suppliers) is (are) selected for an award, and once the contract has been inked, it can be uploaded to the contract repository and associated with the project.

Savings Tracker

The platform also supports a savings tracker that allows the savings for each project to be tracked over time. However, since it’s a Source-to-Contract platform, it doesn’t do any automatic tracking as it doesn’t have access to historical, current, or future spend data in the procurement system, data store, or spend analysis system, and the user has to enter the historical price, negotiated price, and, on a regular basis, monthly or quarterly spend from the AP system. It requires some diligence, but seeing results quarter over quarter, if not month over month, is worth it and shows a mid-sized organization the value of a good sourcing process in the hands of an appropriately (platform-) powered Procurement team (trying to get budget and sufficient headcount to transform the buying, and savings, power of the organization).

Administration

Administration focusses on three capabilities:

  • system settings
  • user roles
  • forms

System settings are standard system settings such as language, currency and other financial settings, finance system redirection (email or link) if a buyer wants to kick off a PO, supplier directory settings, email account (for supplier communications), and whether or not the AI feature is on or off.

Security and access in the platform is roles-based, and the buying organization, on BuyingStation acquisition, will define (or customize) the (default) user roles (of Admin, Procurement Lead, Procurement [Buyer], Legal, Operations, IT, Legal, HR, and Marketing), and lock down user access by module and permission level. One unique characteristic of the system is that if a user doesn’t have any access to a part of a platform, they are not simply locked out (often by way of a greyed-out menu item), they are restricted from even seeing an interface that would indicate its existence. Unavailable functions don’t show up on the menu or in any part of the application they access.

Dashboard

Like most modern systems, the user logs in to a summary dashboard which not only summarizes expected vs. delivered savings year to date, but also statistics on project status, supplier status, contract status, and upcoming expirations.

Summary

It captures the majority of the process the average growth-focussed (lower) mid market organization needs (closer to a 90/10 than an 80/20, and really isn’t missing that much besides the ability to view quotes (side-by-side) and evaluation matrices in the platform (vs. having to go into Excel), so we can confidently say it’s a great solution for the price (which any organization can put on a P-Card). The two other things you need to note that it’s currently missing are:

  • an Open API to integrate to your Finance system (which is being developed now to support the out-of-the-box integrations they are planning for late this year/early next year that will allow you to push POs directly into your standard platform [like NetSuite] and even pull in basic invoice data) and pull in data for tracking and spend analysis (but at least this is coming at some point)
  • integrated spend analysis to help you identify what you should be sourcing, but this is an easy fix too — just buy a few Spendata classic licenses for your power buyers/analysts at $699 a year (as most mid-sized organizations won’t have data sets beyond 5M records, need local installations, or other enterprise capabilities when there will just be a few users) — and since Novo-K offers spend data cleansing and initial spend cube construction and analysis, they can jump start you on the right cube to start your sourcing and spend analysis journey

Now, of course, since the full commercial release of this new platform is only a year old and since it was designed to be low cost (and help Novo-K provide you with a platform that you can eventually use yourself after they start you off on your Strategic Procurement journey), there are lots of improvements that could be made, but not many are needed for you to start seeing ridiculous value from a low-cost solution that puts a best practice process (which is the ultimate key to savings) in the hands of your Growth-Focussed Procurement team that, to date, probably only has email, Excel, and a buying guide from 20 years ago. So, if you’re a lower mid-market still running off of email and Excel alone, we would suggest you look at BuyingStation today.

* Risk Aassurance of Supply, Assessment

CLM is Dead! Long Live CLM!

Last month THE PROPHET ran a RIP post for CLM over on LinkedIn where he heralded the demise of CLM.

Which is coming fast and furious for CLM 1.0 and CLM 2.0 because, as we’ve said before, most current CLM solutions are nothing more than a glorified document repository / barebones CMS with a bit of linguistic rebranding, a few customized meta-data fields, maybe a bit of versioning support, and if you’re super lucky, some integrated e-Signature support.

As for the prophet’s suggestions, most of them won’t happen.

CLM absorbed into I2O?

Considering most I2O (Intake to Orchestrate) players still haven’t absorbed a fleshed out working Source to Pay model … not likely.

CLM goes vertical?

The whole point of CLM is horizontal — to get a grip on all of your contracts, not just a subset of them!

Agentic Solutions?

I like my contracts the way I like my maps: ACCURATE!

The best “AI” can do is enhance the productivity you get from a (very) small legal team … it CAN NOT replace it!

GPOs?

Standard terms around pricing DOES NOT satisfy geographic requirements which vary on levels of regulation, compliance, etc.

Clause based?

Ask Icertis and especially Exari how well that worked out for them …

Every other suggestion

Maybe … but all of this is trickier than THE PROPHET lets on!

The reason that CLM doesn’t work, as we noted above, is that the majority of “CLM” solutions on the market are NOT CLM at all. They are glorified repositories with some authoring and e-Signature support … not at all what an organization needs.

An organization needs “lifecycle” management. That’s a heck of a lot more than just drafting, redlining, signing, and sticking in a repository. That’s because contract “lifecycle” management really starts when the contract is signed (whereas most platforms seem to think it ends when the contract is signed).

It’s about automatically extracting the obligations, indexing them, assigning them, tracking them, and making sure they get done.

It’s about extracting the milestones and deliverables, as well as those obligations, and wrapping them in a project plan, assigning the resources, assigning the supervisory chain, tracking them, making sure they get done, and making sure all requirements are met.

It’s about extracting the SKUS, price tables, rate cards, and pushing them into the Procurement systems to allow those systems to perform the right m-way matches and make sure nothing is paid out that wasn’t agreed to. It’s about pulling in the paid invoices for tracking purposes and allowing the contract/relationship managers to track total contract fulfillment.

It’s about ensuring that the right parties are notified when a contract is coming up for renewal, have all the information necessary to make the decision on termination, renegotiation, or allow an evergreen renewal.

And about a whole lot more where VALUE is concerned. Just check out what The Maverick has to say over on Spend Matters.

Can’t Get Your Contracts In Your Sights? Maybe You Need a Birdseye.

Birdseye(.digital) was created by With, a Strategic Consultancy founded to enable strategic sourcing and contract management excellence, to solve the most critical problems their clients had in value realization from strategic sourcing: post-signature execution. This, as we identified yesterday in our post on why aren’t you realizing the full value of your sourcing efforts, is one of the primary reasons that up to 40% of value identified during a sourcing project never materializes — as value realization requires proper Procurement (and a proper system), proper logistics (and a proper system), and proper contract execution management (and a system to support that).

Birdseye(.digital) was created for the

  • Procurement Managers,
  • Contract Managers
  • Risk and Compliance Managers, and
  • Legal Counsels and Advisors

who are responsible for managing the organization’s contracts, allowing them to get a 360 view of each contract as well as all contracts that fall under their purview and/or relate to a compliance requirement, risk, or obligation that they are responsible for.

So what is Birdseye(.digital)? It’s fundamentally a contract governance solution that allows you to define:

  • the responsibilities (obligations) of the organization as tasks and action items
  • the risks that need to be tracked and managed
  • the supplier management and (re)qualification activities
  • the stakeholder engagement and surveys

The primary components that allow this are:

  • workflows
  • risk matrices
  • forms
  • review/governance templates (scenarios)
  • calendars
  • dashboards

Workflows

When an obligation or action item is defined and assigned, the platform will track it, notify the appropriate stakeholders when it is coming due, kick off associated activities when a task is done or a status changes, and monitor those as well.

Risk Matrices

A user can associate all risks relevant to each (sub) contract, track their levels, track changes over time (during [regular] review schedules), define notifications on change, and associate mitigations. It can also define a custom risk matrix that derives a color-coded risk level from a combination of the risk probability and the impact of the risk occurrence for easy visual display and classification. This allows users to quickly see if there are any high or critical risks associated with a contract, whether or not mitigations have been defined, and compute an overall risk level of the contract, which can be monitored over time during regular reviews.

Forms

Just like modern RFP solutions, a user can build their own custom review/survey forms with ease and associate them with scenario templates, activities, or one-off projects. They can also attach files as needed.

Contract (Review/Governance) Templates (Scenarios)

The system allows administrators to define scenario templates that define, for a contract of a given type, what obligations and activities should be tracked, what reviews and surveys should be done, how often they should be done, and who should do them (by role). This means that governance for a contract is easily setup simply by selecting a scenario template when a contract is signed or input into the system post signature. Selecting a predefined scenario template from a single dropdown can setup all of the default management activity required over the contract lifecycle with a single click. An organization that takes the time to classify its contracts and management processes can manage contracts with utmost ease.

Dashboards

Of course Birdseye comes with a full suite of dashboards to get complete 360 insight into the contracts, with filter capability down to any subset, individual contract, or subcontract of interest. This allows all of its users to understand how a contract, supplier management effort, compliance initiative, or other activity is going. Since the platform can also be linked to a P2P or ERP system (Oracle, SAP, and any platform with an Open API that allows an invoice to be linked to a contract ID), it can also give you an update on total spend impacted by a contract, category, or initiative.

There are out-of-the-box activity dashboards for projects, contracts, relations (third parties which can be suppliers, consultants, etc.), and catalogues (of products or services that contracts can be linked to), as well as a customizeable activity dashboard for each user that can overview their contracts, projects, relations, reviews, action items, stakeholder contributions, etc. through drillable widgets that can be filtered on every dimension down to the raw data records, which can be popped up or exported as needed. These dashboards, in addition to standard metric/spend dashboards can also be of the Red/Amber/Green Traffic dashboard variety as well.

Calendars

Just like any good (project) management solution, a user can also get a calendar view of an activity, contract, or all of their tasks to easily determine what they have to do and when. The system was designed with management efficiency in mind, because the developers know that any system that is too unwieldy doesn’t get used, and, thus, the only way to extract all of the value out of a contract is to create a system that makes a user’s tasks as easy to identify, and do, as possible. The user can add tasks and activities as needed and customize their calendar to their liking.

Crossing the Ts

As for the basics, you can have as much metadata as you want associated with a contract, and add new metadata fields anytime you need to. In addition to easily being associated with a scenario template of choice, it can have as many tags as you like, be associated with a projected value, be associated with any parent or subcontracts, and have as many attachments (with versions) as required. In addition to the action items, risks, and obligations discussed, it can also have associated issues, rights, catalogues, invoices, reviews, stakeholders, and connected projects (such as reviewing all contracts with a generic force majeure clause). There are also checklists that can be associated with contracts and projects to help a user ensure they’ve dotted all the i’s and crossed all the t’s in the execution of the contract.

If the contract (template) is not created in the platform, when a user uploads an agreement, they use AI to identify all of the meta-data that is associated with a contract of the given type (using Google Gemini today, but future releases will allow users to choose between Google Gemini or Anthropic Claude, where they found the latter works better for organizations that contract in multiple languages), and not only allow the user to override anything it extracts (as it’s not perfect) but show the user its confidence ranking. The user can filter by confidence and only needs to review/validate low confidence options to have extremely high confidence in the auto-extracted metadata.

System Administration and Configuration

As we have hinted above when we noted that the user can add and track any metadata fields that they like, the system is very configurable and the administrator also has full control over:

  • business unit hierarchy which can define visibility rights
  • users who can be assigned very broad, or very narrow, roles
  • tags that can be defined and modified as needed
  • reviews and the processes and timelines they follows
  • tasks and the basic templates and workflows
  • email templates that are used for notifications
  • currencies and mappings that are used if invoices are pulled in for spend tracking
  • usage monitoring and define how to track who is, and is NOT, using the system
  • folders and structure for contracts and attachments
  • deleted record management as even deleted records are preserved for audit trails until a user with authority determines they can be permanently deleted

It’s a well thought out, usable, and fairly complete contract execution management system that goes well beyond just creation, storage, and signing … which we know is where many older generation contract lifecycle management solutions stop. The most important point to make is that they’ve found that their customers who fully embrace the solution see a 30% value increase from using the solution. Now, this shouldn’t be taken to mean that it can singlehandedly prevent the loss of the 30% to 40% of identified savings that is traditionally not realized after a sourcing event, but that it prevents about a third of that loss and, if combined with a good e-Procurement system and good logistics management, you might actually be one of the first organizations to realize almost all of the savings you negotiate (since a good e-Procurement systems typically increases savings capture by a third as well, and proper logistics paired with proper warehouse and inventory management saves a bundle as well). The 2X process efficiency alone that its clients see more than pays for the system, so imagine the results if you realize another 30% value on the identified savings of every sourcing project. (Combined with the 50% reduction in audit findings its clients also see, which increase drastically for any customer with an integrated P2P that ties invoices to contracts as they can check full payment compliance as often as they need to.) So if you are missing a birds-eye view into your contracts, maybe you should check out Birdseye(.digital).

Why Aren’t You Realizing the Full Value of Your Sourcing Efforts?

It’s been a well known statistic going back all the way to 2009 that at least 30% (and often 40%) of identified value in a sourcing event is never realized when Mickey North Rizza of AMR Research (acquired by Gartner in 2010 in an acquisition game of the 64,000,000 pyramid) published her classic 3-part series on Reaching Sourcing Excellence with Part 1 titled How to Keep 30 Cents of Every Dollar Spent. The reality is that while many leading organizations adopted strategic sourcing quickly during its first heyday in the mid-2000s, often before Procurement, because of the huge savings opportunities that were identified with good reverse auction platforms (in markets where supply exceeded demand) and good sourcing optimization (regardless of market conditions), as sourcing optimization identified an average savings of 12% consistently (compared to reverse auctions which saw significant drops every time they were applied to the same category), most of these leaders who identified savings of 10% or more never saw half of the identified savings. This is because savings requires more than just identification and a signature on a contract, it requires execution!

Execution that, at a minimum, requires:

  • making sure you order on the contract
  • … on time to receive delivery on time using the preferred shipping method
  • making sure you receive defect-free goods that meet the spec before paying for them
  • making sure the amount you are billed is the amount as per the contract
  • … and that you are not billed for expediting fees or surcharges you DID NOT agree to
  • making sure you pay on time (to avoid penalties)
  • … and only ever pay for any good or service once (using an m-way match)
  • making sure you terminate or renegotiate before an evergreen renewal
  • … and that you have verified the supplier has all the certifications and insurances in place before placing an order or renewing the contract
  • … etc.

It comes back to the concept of the perfect order which must be

  • on time,
  • complete,
  • damage free,
  • correctly documented,
  • correctly billed, and
  • adherent to all contract terms

This is not easy to do unless you

  • have a good procurement system
  • have a (carrier that has a) good WIMS (Warehousing and Inventory Management) system

and, the part that most people miss,

  • have a good contract lifecycle management system that manages the contract execution post signing

And when you look at the majority of contract management systems, they tend to fall into three categories:

  • a glorified e-filing cabinet / document repository where you can store your contracts and search their metadata (and literally no better than what a high school student with Microsoft Access and minimal coding skills could build 20 years ago)
  • a contract creation system that will allow you to quickly draft contracts using:
    • contract templates, from your, or their, legal department, tagged by region and category they can be used for,
    • clause libraries and templates, possibly with multiple version support based on territories and categories, or, today
    • Gen-AI drafting of templates through specification of category, region, requirements, and risks that must be covered as well as e-versions of all previously signed contracts in the category, region, business requirement, or risk categories (which then need to be mildly to moderately edited by a Legal expert)
  • a signatory platform with negotiation support (version control, dynamic redlining, audit trails, etc.)

Which is all fine and dandy, and well implemented can make your Legal team and Sourcing teams considerably more productive during the negotiation process, but does diddly squat when it comes time to actually helping you manage the contract execution. Now, you might think that you can do that in the Supplier Management system, because you’re ultimately managing a supplier, or the Risk Management system, because you’re ultimately managing a risk, and you can, to a point, and specifically the point at which those systems allow you to define contract tasks, but none of these are set up to let you holistically manage a contract — contract 360 if you will. This is especially the situation if you have a master contract with a number of sub-contracts, and those sub-contracts have sub-contracts as well. This will be the case if you are buying off of a contract tied to a GPO master contract, a holding company master contract (if your company is part of a group of companies), or in construction / engineering / shipbuilding industries where your main supplier will need to subcontract to a number of smaller suppliers for custom parts or services and your organization needs to manage that for regulatory or risk reasons.

In other words, the only contract lifecycle management solution that is truly valuable to Procurement is the solution that allows the contract to be managed from post signature to termination, helping the organization ensure all of the obligations are met and rights are received.