Category Archives: contract management

EC Sourcing Makes Sourcing Easy and Affordable

Today I’m going to briefly introduce you to yet another e-Sourcing company that you just might want to consider if you’re a mid-market company who has yet to adopt a sourcing solution and wants to get started with something that’s easy to use, easier to manage, and easier still on the budget. With pricing starting around 3K a month (depending on the size of your company and the number of licenses you need), you can get full access to a basic e-Negotiation suite with RFX, Auctions, Project Management, a Contract Repository, and Corrective Action Reporting with the EC Sourcing Group solution. And while it may not have as many features as some of the other platforms on the market, it doesn’t have the price tag either. (A number of companies quote twice as much for fundamentally the same functionality.)

In fact, EC Sourcing made a conscious decision to keep the platform as lightweight, straight-forward, and obvious as possible. Designed by sourcing consultants, they wanted a no-fuss, no muss, no training required platform that was comfortable to people familiar with Microsoft Office and Microsoft Project. They studied the process, did their research, and decided to build the 80% solution which would include everything you need and everything you would want 80% of the time. Rarely used, complex features that only cluttered the screen or confused the average user were purposely not included. As a result it’s smooth, slick, and surprisingly effective in their target market.

RFX allows you to create the RFI, RFP, or RFQ you need on a section-by-section basis, from scratch or from a template, define scoring, customize supplier views, add attachments, collectively score responses as a group, view supplier attachments, re-calculate scores based on alternate weightings, generate supplier scorecards, and view a number of different response and/or scoring based reports. As with your standard RFX, each section and question can be weighted independently, and it will even generate the weights dynamically if you would rather define priorities than try to insure that all of the weights add up to 100. You can define auto-scoring rules for questions based on predefined response selections, score manually, or score based upon the weighted average score assigned by the RFX team. You can also use formulas. With respect to RFQs, it has a number of built-in features to make bid collection and validation simple. You can define pricing formats, which can be based on custom formulas, bid validation rules, and bid tables for complex bids that involve multiple plants, currencies, or volume breaks. You can then view the bids using a number of built in reports and formats that let you see just what you need to see the way you want to see it. With all of your standard capabilities, it gets the job done.

In addition, RFXs can be multi-round and you can create custom feedback reports that each supplier can view between rounds which can let the supplier know their rank, quartile, and variance range with respect to each item or lot. And everything can be exported to and imported from Excel. Auction is built on top of RFX and includes the ability to define custom baskets (lots), sessions (for each basket), and settings (time limits, time extension rules, stopping rules, etc.). You can also configure what the supplier sees or doesn’t see. Reporting can be table based or graphical.

Project Management includes the ability to define projects — which include suppliers, users, RFX’s and/or Auctions; message with users and suppliers — through integrated message boxes and e-mails; and define notifications in addition to standard project management features — such as timelines, state tracking, and document management. And the platform includes all of your standard RFI (comparison and scorecards), administrative (suppliers, users, statutes, etc.), and bid analysis (baseline spend, pricing summary, item level comparisons, round comparisons, etc.) reports and most of the reports allow filtering on any entity row or column.

And even though they are primarily serving the US market at this point, they are expanding into Europe, currently support 4 languages, are almost finished translating languages 5 and 6, and will support 10 languages in the near future (including Unicode languages). They are also in the process of updating and streamlining the UI to keep it as simple and easy to use as possible (and beginning R&D on a brand new module).

In summary, there’s nothing you haven’t read about before on SI, except the price tag. I’ve only demoed one other solution in the last year with the same breadth of capability in a self-service SaaS model that starts in their quoted price range. And while it might not have the same depth as many other solutions, or include more advanced sourcing modules, for many mid-sized companies just starting on their sourcing journey (and many more without complex categories), it will meet their needs.

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Simplified Contracts, Part 3

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Back in August I posted a blog suggesting that contract language should be tested for readability. I pointed out that it’s especially important for international contracts, because the chances for confusion are higher than when both parties are in the same country. (The original post Blogging on International Contracting, is in the archives). I suggested using your word processor’s grammar checker with “show readability statistics” turned on. The Microsoft Word grammar checker gives two figures: Readability (high scores are good) and required grade level (low scores are good). I suggested shooting for an 11th grade education level.

Then, in the same month, the State of Rhode Island said the same thing in a different context. The state is requiring health insurance policies to be written at an 8th grade level or lower. They suggested using the same readability checking tools, as I discussed in my post on how It’s Good to Have an Entire State on My Side.

Since then a couple more things happened.

On a personal level, my homeowner’s association asked me to sign a liability release that scored a perfect zero on readability. I balked, and in preparation for discussions with the association’s attorney I found an archive of Plain English columns from the State Bar of Michigan.

It’s a series of columns in a magazine aimed at lawyers that teaches the rudiments of good (and plain) English writing. The articles cover everything from the nuts and bolts of using Word’s grammar checker to examples of good and bad writing to suggesting a 10th grade standard. I’m glad to see that at least one state’s bar association is getting on board. It’s good ammunition if your attorneys balk at simplifying their writing.

Then I ran across this article on how to “Test Your Procurement Skills (By) Find(ing) the One Word Death Trap” over on The Vendor Management Office Blog (Dec 31, 2009). In it, Stephen Guth challenged readers to find the one word in a contract clause that made it useless. Full disclosure: I didn’t find it.*1 I was so irritated by the writing that I had trouble focusing on the content. The average sentence was 73 words long. It scored a 12 on reading ease and requires an astronomical 23 years of education.

Two thoughts: First, was this written by a supplier? It looks like it. Purchasing people should not be working from a supplier-written contract. Of course it does happen occasionally, but the buying company should be writing the contract for anything that it purchases frequently. Second, why should someone have to read this material? Shouldn’t a procurement department require contracts to be written in plain English?

I expressed these thoughts to Stephen Guth, the author of the blog, and he disagreed with me. He thought that a buyer who insisted on plain English would be whispered about, laughed at and/or fired.

Of course that is possible in some companies. But it’s all a matter of leverage and negotiating power. Certainly if high level purchasing execs are not supportive of a plain English effort, a buyer will have a difficult time. Certainly a purchasing department will have more leverage in some circumstances than others. The chances of success depend on the relative strength of the parties in the negotiation.

What to you think? Have any of you started to insist on clarity in your contracts?

Dick Locke, Global Procurement Group and Global Supply Training.

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*1 Editor’s Note: the doctor couldn’t find it either, which is to be expected since a PhD is only equivalent to 21 years of education. (12+4+2+3=21).

Bravo: Analysis and Supplier Performance Management for Contract Compliance

Last month, I told you how BravoSolution Collaboratively Optimized Its Way onto the doctor‘s Short List. Today, I’m going to discuss their (Spend) Analysis, Supplier Performance Management, and Contract Compliance Solutions to give you a broader view of their solution suite.

To get straight to the point, their spend analysis (console) solution, which takes a standard reporting-based approach, and which includes over 60 standard report templates, is nothing special, but their analysis administration tool, the Transformation Designer, is one of the most powerful administration interfaces I’ve seen in a web-based analysis solution. Most providers tout their “leading auto-cleansing, auto-classification, and auto-enrichment” solutions as if they’re the be-all-and-end-all, but those who truly understand spend analysis realize that you can’t auto-cleanse, auto-classify, and auto-enrich everything, no matter how many rules are in your repository or how many billions of transactions your provider has classified. (And those who fall for that line are lucky if mapping accuracy even approaches 80%.)

Every company is different, every department is different, every employee is different, and every transaction is different. That’s why you have 19 different representations of IBM in your supplier master. Furthermore, you don’t buy the same SKUs from the same suppliers with every order. So even if you had a “perfect” set of automatic mapping rules today, they’d be broken tomorrow. You have to continually manage and maintain your data or your reports will be useless. And Bravo’s Transformation Designer allows your data administrator(s) to do all that.

Bravo’s Transformation Designer allows you to select your data sources, define the raw data tables, capture the raw data fields, profile the data, and define custom mapping and transformation rules on the data before it populates your repository. You can also define a bevy of checks (null, range, date, acceptable values, duplicate, etc) and define your rules based on transformations (that can use substrings, calculations, and lookups). The rules can be layered, with higher priority rules taking precedence and lower priority rules kicking in when there are no higher priority rules. (So you can start with the classic “secret sauce” of map the vendors, map the GL codes, map the vendors + GL codes, and map the exceptions and have the rules applied in reverse order.)

In addition to supporting your standard “knowledge base” of auto-classification rules (which includes mappings, and families, for tens of millions of suppliers and even more standard items), which you can use to start your mapping journey, it also supports automated text classification methods based on advanced statistical algorithms. A proper combination of all three rule types — knowledge base for standard vendor and GL code mappings, statistical rules for automated mapping of unrecognized transactions (that can be mapped with high statistical accuracy), and custom hand-coded direct mapping rules for the exceptions — will get you very high classification accuracy with very little work. Especially since you can use their rules engine to quickly identify exceptions and define direct mapping rules that take care of them. And any time you identify a mis-mapping, you can define a new rule to re-map it. (New rules are immediately added to an asynchronous mapping queue and the queue is processed continuously, which allows for near real-time updates. No waiting for the monthly refresh.)

The Analysis Console also works on their supplier performance data. Bravo Solution is a mature provider of SPM, having been offering a solution since 2001. While it might not be broader or deeper than any of the newer pure SPM solution plays (SupplierSoft, Aravo, Hiperos, etc.), they have a history of successful implementations. (And more importantly, how deep is a SPM solution anyway? As long as it captures data, calculates metrics, allows you to create month-over-month, quarter-over-quarter, year-over-year, and trend reports on the metrics, allows you to share that data with your supplier(s), and allows you to collaborate on action plans in a virtual collaboration environment, what else is critical to your average organization just starting on an SPM journey?) With regards to SPM, Bravo has your bases covered. It’s nothing fancy, but it will more than get the job done.

This brings us to Contract Compliance. Their solution can automatically load cleansed GPO contract data, normalize the data based on supplier families and parent-child company organization relationships, and extract line-items and SKUs. If you integrate with your purchasing system, the solution will automatically match purchases to contracts and flag exceptions. It also supports deep embedding with your e-Procurement system and can be used to identify contracts, price levels, and exceptions before a PO is issued. But the best part is the deep integration that is currently being developed between the Analytics Console, SPM Module and Contract Compliance Modules. You’ll be able to analyze contract compliance against supplier performance at any time, over any time period, and see if you’re getting the value you expected from the contract — and then use this information at contract renewal / resourcing time.

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The Purpose of a Contract is Easy to Define

A recent post over on Contracting Excellence on “the purpose of contracts” indicated that it can be difficult to describe the “purpose” of a contract. I have to disagree. While the definition may vary slightly depending upon the role contracts play in your business and the importance placed upon them by your personnel, the fundamental purposes is unwavering: the purpose of a contract is to define both parties’ responsibilities with respect to a desired scenario outcome to the level of detail necessary to make both parties comfortable with respect to the relationship.

Now, while this may seem like a bit of a cop-out because “responsibilities”, “level of detail”, and “comfortable” are open to debate, this is the slight variance I mentioned. The fundamental, unwavering, purpose is the definition of the desired scenario outcome. This, of course, means that before you start contract negotiations you need to not only have your goals for the negotiation defined, but your goals for the relationship. Do you just want 10,000 units delivered to your warehouse in Omaha in 10 equal shipments on the 21st of every month? Or are you looking for a limited type of partnership where your supplier will partner in research initiatives to replace harmful chemicals with environmentally friendly substitutes in your product designs, to reduce packaging requirements, and to reduce the number of SKUs you need to deliver your products?

If you haven’t defined your desired end-state for the length of the relationship, then you haven’t defined the true purpose of what you want the contract to help you achieve, which means you can’t define the purpose of the contract and what you’ll end up with is a bunch of ‘legally acceptable’ words on paper that don’t please anyone, even if you manage to bring it down to an acceptable reading level.

If you figure out what you want, and get your supplier on the same page, I’m sure that you’ll find the contract will fall into place quite nicely and that you’ll have no problem achieving plain english, which is the best policy.

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The Real Reason No One’s Buying Contract Management Software

Over on Commitment Matters, Tim Cummins authored a post on The Guilty Secret of Contract Management Software where he attempted to explain the disappointing uptake in contract management software. It was pretty good, and he was right in that the uptake is not simply down to a reluctance to buy and due to a failure to achieve widespread internal adoption within many organizations that have bought. But he missed the real reason why.

According to Tim, the problem is that contract management continues to be a football, today owned by one function, tomorrow another; today centralized, tomorrow decentralized; at one moment an instrument for compliance, at the next a source of empowerment. Basically, the activities that lead to [contract] creation and management are generally fragmented. Finance, Legal, HR, Product Management, Marketing, Procurement, business unit management, Sales — all of them have an interest, yet none feels responsible.

While Tim’s observations are correct, it’s not a problem of “the buck doesn’t stop here”, it’s a problem of “where is the buck“? Even if a company appointed a head of contracts with ultimate responsibility for all contracts (which should reside in the Procurement or Supply Management department), such as a VP of contracts, you’d still have an uptake problem. Why? Because contract management systems, on their own, don’t offer much in the way of value.

But they centralize all of my contracts. So does a shared directory on the central file server. Heck, so does a filing cabinet and a little bit of diligence.

But they provide me dozens of useful contract templates. So does the CD I picked up for $5 ten years ago.

But they allow for automatic contract generation from standard clause template libraries. So does Microsoft Word.

But they allow me to query my contracts and create custom queries. So does an Access database and a high school programmer.

The simple fact of the matter is that most of what the contract management vendors sell is hot air. The real value of a contract management system materializes when you integrate it with your e-Procurement, EIPP, and/or P2P system and use it to automatically check all invoices against your contracts to make sure that

  • no off-contract purchases are accepted without appropriate management approvals, and only with good reason and
  • all charges are at contracted rates.

Then you stop maverick spending and overcharges dead in their tracks, which collectively account for the 40% to 60% of negotiated savings that are never realized in your average Procurement department. Otherwise, you’re just buying an over-priced content management system with word processing capabilities — and you might as well use Open Office and a centralized shared directory with naming conventions as the uptake will be about the same unless you can demonstrate how the software is going to result in real hard dollar savings.

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