Contract Lifecycle Management V: Do You Know What The Must-Haves Are?

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while arguably one of the most tedious acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III of this series, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

However, up until now, CLM has not been well defined and the best definition, which could arguably be that given by Gartner (see Part I), has been, more or less useless, because you already know it’s a good process supported by a great platform. What you need to know is what that platform is as vendors, analysts, peers, and even professional organizations don’t, or won’t, tell you. That’s why, in a landmark effort, Sourcing Innovation and Spend Matters, as the two leading independent authorities on Supply Management, led by the doctor, the maverick, and the prophet, have joined forces to define, publicly and openly, the core Supply Management platforms, starting with CLM.

In our last post in this series we discussed that neither sourcing nor procurement were enough because Contract Management, the core platform powering CLM, is not (traditional) Sourcing, which is the process of identifying a source of supply. Nor is it (traditional) Procurement, which is the process of acquiring products and services that have, in many cases, already been contracted for. Contract Management is the end-to-end negotiation, execution, and implementation of contracts that also supports performance, compliance, relationship management, and, when it happens, dispute management and corrective actions. And as a result, it requires a platform with the right mix of core and supporting capabilities. In today’s post we’ll list the core capabilities and discuss a couple of them, but for the full picture, you’ll need to check out our in-depth piece on Core Contract Management over on Spend Matters Pro [membership required].

The following capabilities are core:

    • Contract Library (& Document Archival)

    • Template Management

    • Key Contractual Data Element Search & Discovery

    • Tamper Protection for Signed Documents

    • Security

    • Amendment Control / Change Management

    • Audit Trails

    • (XML) Data Import & Export

    • Contract / Document Authoring / Versioning

    • Obligation Management

    • Alerts

    • Reporting

    • Expiry & Renewal Management

Most of these you probably expect, and for some of these you probably have some idea why, but a few of these are probably unexpected, including expiry management and obligation management. We’ll discuss these, but refer you to our in-depth piece on “Core Contract Management” over on Spend Matters Pro [membership required] for coverage of the rest. (However, the must-have, should-have, and nice-to-have function lists will be made, and remain, public as they are the common measuring stick that both Spend Matters and Sourcing Innovation will be reviewing and measuring vendors against going forward.)

Most people overlook the importance of contract expiry and renewal management because they figure that once a contract is over, it’s over, and no longer needs to be managed. That’s only the case if the contract is truly over, there are no future obligations, and, most importantly, the contract doesn’t automatically renew unless explicitly cancelled in writing. Without a good contract management system with auto-renew detection and expiry management, many organizations suffer evergreen contracts that lock them into above-market rates for outdated and inferior products because they don’t realize an evergreen contract exists until after the final date for termination has passed and they are locked in for another one to three years. Maybe your buyer got tired of constantly negotiating the office supplies contract and believed that getting 20% off of MSRP was a smashing success and locked in an auto-renew clause that said, if not cancelled in writing by the buying organization within 30 days of contract expiry, the contract would auto-renew for another year, under the same terms and conditions, at the same rates. But if the buyer, who didn’t do his homework very well, didn’t realize that the MSRP rates were 40% more than the vendor’s cost, then the vendor is, of course, going to let this contract coast forever (especially since the organization is providing double his typical profit margin as compared to his big GPO clients that negotiated 30% off MSRP), and the organization will likely be automatically locked into a renewal that is costing it an extra 10% on office supplies.

Similarly, most buyers or category owners often feel that obligations are the responsibility of the supplier, so obligation management isn’t that important. But even if everything is the responsibility of the supplier under the contract, it is still up to the buyer to insure that the supplier meets their obligations. Specifically, if there are insurance requirements then the buyer has to make sure the right policies are in force (or risk opening his organization up to multi-million dollar lawsuits). If there are compliance requirements, the buyer has to make sure that the right tests, reviews, or approvals are in place before the products are shipped or sold (or risks goods being delayed, seized, or even destroyed at the border). And if the organization needs to acquire, or renew, licenses to meet its end of the contract, it has to make sure it does so at the right time (or risk losing access to critical IP or software tools).

And even though we only called out renewal and obligation management, each and every other core capability listed above is just as critical and to understand why, and what the platform has to support with respect to that core capability, check out
Core Contract Management over on Spend Matters Pro [membership required], Part V of the doctor, the maverick, and the prophet‘s landmark ten-part series fully defining CLM.

Two Hundred and Forty Years Ago Today

Benjamin Franklin was named as the First Postmaster General of the United States, during the second continental congress in Philadelphia, an office that is older than tooth the US Constitution and the Declaration of Independence. In the beginning, the postal system mainly carried communications between Congress and the armies. This was the beginnings of the modern postal system in the US, which was later officially organized as the Post Office Department in 1792, and then replaced by the independent Postal Service in 1971 (by the Postal Reorganization act which was signed into law by Nixon, one of America’s lesser loved Presidents).

Even though the postal system is far older than many essential services we use on a daily basis, it is still a vital service and one we often take for granted. Direct mail, Magazines, and even invoices in and cheques out still flow the mail in the millions on a daily basis. We might be in the digital age, but we still haven’t given up our paper.

Contract Lifecycle Management IV: Neither Sourcing Nor Procurement Are Enough.

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while arguably one of the most blah-blah-blah acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

We also argued that while the common definition of CLM was correct, as it stated that CLM required the right processes and the right platforms to support those processes, it was not useful because while an average organization has a decent understanding of a good contracting process, it does not have a good understanding of what the right platforms are to support them.

Why? Because most organizations don’t have anywhere to turn for a good, solid, stable definition of what a good supporting CM system is. Vendors only educate on their platform. Analysts only educate on the definition that is common across the cross-section of the market they are covering. Peers can only educate you on what they have, which might have been chosen randomly. And professional organizations stay out of the mix by focussing on process.

That’s why for the first time, Sourcing Innovation and Spend Matters have come together in a joint effort led by the prophet, the maverick, and the doctor to, once and for all, define the core Supply Management platforms, starting with CLM, the most misunderstood of the Supply Management misfits.

In our last post we asked if you knew where contract lifecycle management came from because one can’t move forward until one understands where the space is today, why existing platforms on their own (and Sourcing and Procurement platforms in particular) don’t meet all of an organization’s contract management needs on their own, and how what is out there now currently fits together.

That’s why “Part IV: The Traditional Platforms” of the landmark series over on Spend Matters Pro [membership required] by the prophet, the maverick, and the doctor examines all of the core Supply Management platforms out there today: e-Sourcing, e-Procurement, 3PM/SRM (Third Party Management / Supplier Relationship Management), GRC (Governance, Risk, and Compliance) and traditional CM; describes their core capabilities; indicates how they address different parts of the contract lifecycle; and sets the stage for our discussion of what defines the core of a(n integrated) CM platform that actually meets an organization’s contract management needs.

One might be tempted to think that just because their e-Sourcing platform (or P2P platform) contains a Contract Management module, that their contract management needs are met, but nothing could be further from the truth. This is because Contract Management (CM) is not (traditional) Sourcing, which is the process of identifying a source of supply. As a result, such platforms mainly focus on contract archival and meta-data management, and maybe contract authoring, but contract management is more than authoring and signing, it’s also execution and implementation. It’s making sure each party meets their obligations, complies with identified regulatory requirements, minimizes risk, and collaborates when issues, or disputes, arise. Remember, contracts not being executed as intended is a large reason that 30% to 40% of savings identified during the sourcing process never materialize.

The situation is similar if you have a P2P system with a CM module, a 3PM / SRM platform with a CM bolt-on, or even a first generation CM solution that was written to please the lawyers and not the day-to-day buyers and relationship managers. (But to understand why, you’ll have to check out our full post on The Traditional Platforms over on Spend Matters Pro [membership required].)

The Six Commandments, err, Philosophies of Procurement, Hindu Style

A few weeks ago, on Canada Day, while LOLCat was proactively learning the pledge of allegiance (which LOLCat will need when Canadians re-elect Harper), Mr. Smith asked on Spend Matters what were “The Ten Commandments of Procurement”  that you adhered to that were absolutely, unarguably, true under all conditions.

To get your creative juices flowing, two weeks ago, Sourcing Innovation gave you the Ten Commandments of Procurement, Christian Style. And in case that wasn’t enough, last week SI gave you the Ten Commandments, err, Precepts of Procurement, Buddhist Style and told you that SI was going to tackle at least one more style, because everyone deserves equal opportunity. Today we’re going back to the third most followed religion on the planet and give you the six commandments, err, philosophies, of Procurement, Hindu Style.

6. I will not make assumptions on prices, demands, or needs before collecting the appropriate information and market intelligence.

We all know the saying about people who make assumptions, and what they make of themselves. I know this to be true so I will always select categories for sourcing events, estimate demand, and negotiate, based upon research and fact and not upon gut feeling or inflated GPO claims.

5. I will take a holistic logical view of cost and return and use the appropriate tools to understand the true costs and build a realistic picture of the expected value of a product, service, or supplier relationship.

Cost is more than just the price. It’s the transportation. It’s the import and export duties. It’s the temporary storage. It’s the utilization. It’s the reclamation and return (under warranty). And the value of each product is not just limited to the cost I pay, but the quality, reliability, and other intrinsic value in the mind of the consumer. I will understand both before pursuing a product, service, or even a supplier relationship.

4. I will not be vain or assume that just because I am the expert, I am always right. I will listen with an open mind and continuously seek to learn and better myself.

I am the expert in Procurement process, and will generally know more than my peers, but I am not necessarily the expert in the product being bought, the market being bought from, the market being sold to, all of the transportation options available, or the intricacies of production or utilization. Moreover, I recognize that the market research I acquired may not be fully up to date or take into account unusual characteristics of the organization’s needs, the suppliers capabilities, or sub-markets. I will listen to others in the organization who have this knowledge and consider all relevant input before making any decisions.

3. I will be socially responsible and only work with suppliers who have the same views.

I am not just a lone Procurement professional in an ivory tower, I am a human being and a citizen of this planet and every decision I make will have a ramification on others that could go beyond just my coworkers, my suppliers, and my customers. Moreover, every effect I create has an effect on me as well and I will have to live with the effect I create on others and my self, so I will endeavour to create the best effects I can.

2. I will not succumb to pressure and make hasty Procurement decisions because any mistake I make will cost the organization in the long run.

All organization suffering results from mistakes made in the past that were produced by activity that was the result of insufficient knowledge or a lack of (social) responsibility. As a result, I will not rush a sourcing decision and cut a contract or make a buy without adequately considering all of the facts and options available to me in order to make sure I make the best decision for the organization that can be made at the time I make it.

1. I will not act without forethought and planning for what I do dictates what I will get.

The effect I get is pre-existent in the action I take. So not only will I make the best sourcing decision I can, but will also ensure that all of the actions I take with respect to contract management, performance management, supplier management, and risk management are carefully considered and made in line with the organizational goals and carried out with responsibility, respect, and an open mind.