Category Archives: contract management

The e-Sourcing Handbook (Free e-Book)

The e-book edition of the e-Sourcing Handbook, co-authored and edited by yours truly, and sponsored by Iasta [acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric] (an e-Sourcing solution provider), is now available on request (through e-mail).

The e-Sourcing Handbook is your modern guide to Supply and Spend Management Success which utilizes and enhances strategic sourcing technology and best practices. Covering the full spectrum of the e-Sourcing cycle, the handbook helps you understand not only what spend analysis, e-RFx, e-Auction, decision optimization, and contract management are, but where and when to apply these technologies for maximum benefit.

Building on the resounding success of the e-Sourcing Wiki [WayBackMachine] and the e-Sourcing Forum [WayBackMachine] and Sourcing Innovation blogs, the handbook takes the concept of open access to knowledge and best practices one step further by compiling the best information on e-Sourcing to appear on all three public information sources into one definitive source. Furthermore, by mixing content from factual and informative wiki articles with blog postings that are both controversial and opinionated in an innovative manner, the juxtaposition of the two in the handbook allows the reader to see where the boundary lies between information and advocacy. It is the goal of the authors that, through this ground-breaking effort, the reader will gain a better understanding of e-Sourcing and how to take their supply and spend management efforts to the next level.

And, most importantly, unlike some of the recent e-books to pop-up, this is a real book – not a glorified marketing white paper doubled (or tripled) in size with a fancy (spaced-out) layout that contains dozens of colorful, yet useless, images. An exact mirror of the forthcoming print-book, it’s 220 pages of solid content backed up by a 4 page resource section, 8 page glossary, and 22 page bibliography for those who thirst for knowledge. The full table of contents and index are also included to help the reader quickly find what she is looking for.

But perhaps the foreward by co-author Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI) says it best.

The e-Sourcing space has undergone a major transformation since 2000. Vendors who were once dominant or cutting-edge have failed. Many have undergone asset fire sales, become part of the walking-dead, or been absorbed into larger companies; and still others have been forced by their investors into mergers that make little sense to the outside observer.

 

These consolidations have brought about a dangerous commoditization of ideas, along with a slowdown of innovation. Even worse has been the obscuring – by over-enthusiastic and under-educated vendor marketing departments – of deeply important issues that sourcing practitioners must consider and understand in order to be successful.

In response to this, my co-author, Dr. Michael Lamoureux, launched the Sourcing Innovation blog with the specific purpose of educating practitioners and cutting through the marketing babble that had begun to dominate the discussion. Another co-author, David Bush, started the e-Sourcing Wiki (from which the bulk of this Handbook is taken) in a similar attempt to put fundamental e-Sourcing ideas and concepts into a publicly accessible forum. Over the years, David has also built Iasta’s e-Sourcing Forum blog into a credible and useful resource.

These efforts are laudable, but blogs and wikis are sometimes hard to navigate, and effort is often required to extract related information in a useful way. This Handbook is an effort to draw together the knowledge base of the Wiki, along with relevant blog postings, into a coherent and readable framework. Of course, one might argue that none of the authors are readable or coherent – and that may be a fair criticism – but we’ve made a best effort.

Because Michael is a strong and independent voice in the space, it’s appropriate that he is the editor of this Handbook. He has taken an interesting and unorthodox approach, choosing to mix factual and informative wiki articles with blog postings that are both controversial and opinionated. The juxtaposition of the two allows the reader to see where the boundary lies between information and advocacy. This is perhaps the first effort of its kind where two very different resources are interlinked in a constructive, and hopefully interesting, way.

 

I trust that this edition of the Handbook will be the first of many similar efforts, and that together we can collectively energize our space with accurate information and useful insights. Remember, the e-Sourcing Wiki is a public resource – anyone can contribute – so everyone should consider “sharing the wealth” and do so.

SourceOne scores a Grand Slam with WhyAbe

Gartner recently named Source One’s (acquired by Corcentric) free WhyAbe.com (sunset) platform as a Cool Vendor in Procurement and Finance for 2008. This is a big score for the sourcing and contract management toolset, when you consider that not many sourcing providers get this recognition from Gartner and that previous winners have included FreeFlow, Vinimaya (rebranded Aquiire, acquired by Coupa), and BIQ (acquired by Opera Solutions, rebranded ElectrifAI) – the latter of which are really cool vendors.

Source One, a Procurement Service Provider (PSP), is a fairly major player in the strategic sourcing & cost reduction consulting marketplace, having been incorporated back in 1993 – well before companies like FreeMarkets (now part of Ariba) made strategic sourcing vogue, and many of their consultants have over 20 years of experience in the field. They take the traditional approach to sourcing projects with a two part project team (consisting of Source One personnel who do the project and Client personnel who sponsor and manage the project on the client site), as compared to the resource augmentation approach some of the newer consultancies take. The approach may seem heavy to a smaller organization, but the results speak for themselves. With an average savings of 18% across 60+ categories (whose average savings range from 5% to 25%, while some outliers, like cash management, are as high as 90%), when they say their aggregated purchasing power allows them to secure exceptionally competitive pricing, they mean it. And from what I hear, they’re doing so well that it’s a daily struggle to keep up with a constantly increasing demand for their services. (P.S. They’ll be making a big announcement at ISM next month. You might want to watch for it.)

But let’s talk about WhyAbe.com. From a technology perspective, RFX, Reverse Auction, and basic Contract Management is nothing new … basic solutions for the former has been available for over ten years and a basic solution for the latter for at least seven years. There’s nothing new about cookie-cutter on-line stores or stripped down supplier networks either. What is new is the fact that it’s totally free.  WhyAbe.com is cracking the sourcing mold and offering a free solution that companies new to sourcing and sourcing technology can use and experiment to find out what works for them, what doesn’t, and what they need help on. It’s a great way for a company to test the water as it provides a quick start to e-Sourcing with a price that can’t be beat. Then, when an organization has identified it’s needs, and, more importantly, identified what it can do well in house – and what it can not, it can always upgrade to a more extensive e-Sourcing platform and retain a PSP, like Source One, to help it with those categories that it doesn’t have the experience, or the leverage, to get savings on. Furthermore, should it retain Source One, it can still use the tool as a way to work with the PSP. In other words, even though there’s nothing new from a technology perspective, the model is very cool and I think they deserve the Cool Vendor award for it. If nothing else, it will force some of the stagnant providers in the e-Sourcing space that haven’t done much with their solution for 2, 3, 5, and in some cases, 7 years to update their offering to provide real value for the $$s they’re charging, or fall by the wayside to make room for the new innovators. And that’s a win for the space you can’t argue with!

The 6 Days of X-asperation: Day 5 – Questions to ask your Contract Management Vendor

Just like we did in the X-emplification series, we’re going to continue with Contract Management as we tackle the generic questions that you should be asking every vendor, and the types of answers you should be expecting.

1. What do I have to do to get a good handle on how to make effective use of this technology, and for an organization of my size, how long is it going to take?

You need to figure out how many contracts you have, where they are located, and how many are in electronic form. Although this question might sound easy, in your average large organization, this question is a lot harder to answer than you think it would be – and should be. You’ll probably have to canvas dozens, if not dozens of dozens, of individuals to find out how many contracts you should have, only to find out that you don’t know where half of them are. In some cases, you’ll have to go back, a bit embarrassed, to your supplier and ask for a copy.

If the contracts are in electronic form, then it’s simply a matter of identifying the formats, running them through conversion software to get them to a common format, and tagging them. But if they are mostly in paper form, then you’ll have to do a lot of scanning and manual correction of the OCR errors before you can start tagging them.

Depending on the length and complexity of the contracts, it could take anywhere from 15 minutes to an hour or two to get a contract properly loaded and tagged, with alerts and expirations, into an enterprise contract management system. If you have a thousand contracts, you need to allow at least five hundred man hours, or 3 man months, of resources to get this done, once the contracts are in electronic form. Finding and scanning them could take another 3 man months (or more). It’s true that you can deploy a number of resource simultaneously to get this done faster, but, in real time, I’d allow at least 3 weeks to identify, find, and scan the contracts and 2 more weeks to get them in the system, tagged, indexed, and verified.

So, if a vendor tells you, as a large organization, “no problem – we can have you up and running next week”, either they don’t really understand the complexity of an average large organization undertaking this project for the first time or they’re trying to pull the wool over your eyes. Either way, I’d be wary.

2a. How much functionality is my organization realistically going to be using in 12 months?

All of the core functionality around contract storage, retrieval, and, if supported, construction. This means that you’ll be using the repository, search, meta-data, alerts, import, export, and contract authoring features. Any features beyond that will probably not be used, or at least not on a regular basis.

2b. How much functionality do I really need?

When it comes to bells and whistles, contract management is like the Microsoft Office of the e-Sourcing world. Some of these tools have so many “features” that it makes your head spin. But we already know it’s not “features” that you are looking for when you are shopping for enterprise software, it’s “functionality” and, in particular, the functionality that you need to do your jobs, and do them well.

To this end, the following “functionality” is critical when you are evaluating enterprise contract management technology:

  • A solid, robust, scalable contract repository,
  • User-definable and extensible meta-data support,
  • Alert and expiration definitions, and
  • if you are going to be using the tool to help you generate contracts,
    Contract templating capabilities.

Just remember that, in contract management, the ability to author a contract in the tool isn’t that important. After all, Microsoft Word is quite cheap compared to the cost of some of the Enterprise Contract Management solutions on the market and Open Office is free – and both are probably much more powerful than any editor the tool is going to provide (unless it integrates with these tools). In-tool editors are nice, but don’t sacrifice powerful metadata and tagging capabilities, or a big wad of cash, for a gee-whiz editor.

Finally, remember (as with most e-sourcing tools), you may someday be moving on from whatever tool you select today. Nothing is “forever.” There will come a time when you want to pull the data from this tool into another tool, such as a spreadsheet or relational database or different contract management system. The contract management tool should allow you to pull all of the information out, preferably in flat file format (not some complex XML format) such that desktop tools (and other applications) can trivially import it. You may be surprised to find that some major vendors cannot provide this functionality, so make sure to ask for it.

2c. And how does this functionality solve my #1 pain today, which is X?

If you’re looking at a contract management solution, your biggest pain is that you are having difficulty keeping track of all of your contracts with respect to terms, conditions, and (evergreen) renewal dates and need an easier way to not only track this information, but to access previous contracts and standard templates for standard terms and conditions when negotiating a new contract. If you’re looking for savings, you’re looking at the wrong tool. A contract management tool gives you efficiency, consistency, and helps you with your compliance initiatives (but does not solve all of the problems). It doesn’t deliver up-front savings like e-Auctions, spend analysis, and decision optimization. It supports your efforts to insure that negotiated savings are realized. It’s important, but it won’t save you big bucks on it’s own.

3. How much training is my team going to require to effectively use the software? How long is it going to take them to absorb this training?

A few days. Make sure your team is appropriately trained on the process to load a contract, create the meta-data, create alerts, run status reports, search the repository, and, if the functionality is included, create templates.

4. How much is this software REALLY going to cost me in the first year and each subsequent year?

Basic contract management is not much more than document & content management, which is a commodity – especially given the number of free open source systems out there. Best-of-Breed enterprise contract management is also becoming mature, with a number of players offering reasonable, and reasonably equivalent, functionality. Therefore the cost for a basic system should not be more than for an e-RFX / e-Auction system, and the cost for a true enterprise system somewhere between the cost of an e-RFX / e-Auction system and a spend analysis system.

The maintenance fee for a basic contract management system should be on par with that of a basic e-RFX / e-Auction system while the maintenance fee for an enterprise contract management system should be midway between the fee for the basic system and the fee for a spend analysis system – around 10% to 15% per year.

On-demand installation should be free. On premise should cost no more than a day of consulting. However, you should consider retaining a project manager to help you get your contracts scanned, tagged, and loaded, with appropriate alerts, in a correct and efficient manner. The rates should be comparable with third party consulting rates.

5. You say you care about your customers and that you are going to provide great service. Prove it!

Ask for references. Talk to them. If the vendor has an upcoming user meeting or conference, ask to go to it. Ask for how long it has taken some recent customers to get the platform up and running with the majority (80% +) of their contracts and how much penetration they have achieved throughout the organization with the system. Verify this with the references.

6. Can I take it for a test drive or a short term lease?

Considering that most solutions are web-based, they should be willing to set up a playground where you can load a few dozen contracts on a trial basis and get a feel for the system. They should be willing to do this at a very low fee – equal to no more than a couple of days of consulting time.

7. Can I buy it or implement it in pieces?

Just like you should buy the entire e-RFx or e-Auction tool functionality up-front, you should probably buy all of the functionality that you’re going to want up front, since it should be much more cost effective to do so.

The 12 Days of X-emplification: Day 4 – Contract Management

Contract Management is important. If you don’t acquire the goods and services at the negotiated prices, what was the point in spending all of that time coming up with the best award and negotiating the contract? However, as a colleague of mine once remarked, most of the “contract management” solutions on the market today don’t do more than what I could do with a Microsoft Access database and a high-school programmer, which is, quite frankly, not much!

Thus, in order to help you separate the wheat from the chaff, here are some basic questions that you should be asking of every vendor that tries to sell you a contract management solution, and an enterprise contract management solution in particular (where questions 3, 5, and 7 become particularly important). The fact of the matter is, if they don’t even pass this sniff test, you might just be better off downloading a free open-source document management system and using that – because a(n enterprise) contract management solution that doesn’t support a reasonable amount of inherently useful features isn’t any better than the electronic filing cabinet that you can find in at least a dozen free open-source document management solutions.

1. Does it allow you to define your own meta-data dimensions?

If the only meta-data the system supports is contract name, uniquely generated system id, supplier, effective date, and termination date – that’s not very useful. You also want to capture evergreen renewal dates, resource dates appropriate to the commodities being sourced, the goods and services covered by the contracts, the agreed upon rates, diversity information, compliance information, and a flag on any special conditions that are not standard among your contracts.

2. How easy is it to export the meta-data, or any desired subset, in a standard format recognized by any decent modern e-procurement, EIPP, or e-payment platform?

As I indicated above, the whole point of contract management is to make sure that spend is against contracts AT contracted rates. The only way this is going to happen in practice is if your e-procurement, EIPP, or e-payment system knows what the rates are and includes them as part of it’s n-way match algorithm that determines whether or not an invoice should be (automatically) paid as-is. The reality is that no one in AP is going to look-up and enter the rate for each item before an invoice is paid, because chances are they don’t even know where the contract is, or even what contract it’s covered under. In reality, if engineering or production indicates the goods were received, the invoice is marked for payment. And if the invoice is at a rate 10% over what was agreed upon, there goes another chunk of the realized savings that your bonus is based on. Therefore, it’s critical that the content management system can export, on a regular basis, current contracted rates for goods and services which can be imported into the relevant systems in an automated batch fashion, and approved by the appropriate administrators with a single click. Then the n-way match will happen against valid contract data, and you can be sure that everything bought on contract is bought at the contracted rate – allowing for significantly more realized savings (than the industry average of 30% to 40% reported by many of the analyst firms).

3. Does it support free text search? And does the free text search work?

You can’t meta-data everything, and even if you could, you wouldn’t want to. The only data that should be in meta-data is identifying information, agreed upon prices, important dates, diversity, compliance, and “special clause” flags that allow for quick identification of the right contract under targeted searches and easy export of the data needed by e-Procurement and Spend Analysis systems. Thus, when a particular question arises whether or not a certain service is covered under a contract, or a special case is covered by a 150-page contract*, you want to be able to perform a simple search on the contract text that will take you to the relevant subsection and clause. This requires a free text search – that works. It needs to be “smart”. For example, if you search for screw, you don’t want results that include “screwdriver”, and if you search for “tire”, results on “tireless” are even less useful!

Furthermore, it should work on contracts not natively created in the tool. These days, it’s going to be in a standard office document format, RTF, HTML / XML, or PDF – and since lots of free libraries exist for searching and indexing such content, there’s no excuse for the vendor not to be including this capability! (If the vendor is stoned enough to say that’s not true – that no one makes available such extensive functionality for free, just point out that Open Office is free across multiple platforms and it supports all those file formats, and many more!)

* I’m not saying your contracts should be 150 pages (in fact, I would say that they probably shouldn’t even be 15), but the reality is that many corporations have contracts this big (or bigger) because many lawyers appear to believe that their worth is measured on how complex and convoluted the contracts they draft are!

4. Does it support proactive alerts – on contracts NOT composed using the standard templates or built-in functionality?

Let’s face it, alerts are only useful if you can define alerts on every contract and, moreover, define them for every event you need to be alerted to. Once you install a system with “alerts”, users will quickly fall into the mindset that everything is fine unless they get an alert, so if you can’t program every event they need to monitor into the system, the installation of such a system will result in a large number of balls being dropped in the short term. Even worse, you might not notice that the ball has been dropped until something catastrophic happens. (Like an automatic evergreen renewal with a vendor who is not REACH compliant!)

5. Does it support buy-side and sell-side contracts?

From an enterprise perspective, a contract management solution that only manages half of your contracts isn’t much of a solution! This is another reason why you need flexible user defined meta-data – sales is likely going to be interested in different data than procurement is.

6. Is it easily accessible and usable by everyone in the organization?

If only a few users have access to it, it isn’t even as useful as a central filing cabinet. At least then all of the personnel could theoretically walk to the cabinet, find the contract, and if they need a copy, make a copy on the local photocopier and put the original contract back. Let’s face it – it’s not just procurement that needs access to an average contract over its life span – it’s legal, research and development, engineering and production, accounts payable, and business analytics, among others.

This means that you should be wary of any solution that is sold “per seat”, because you’re going to need a lot more seats than you have buyers in procurement.

Furthermore, it needs to be easy to use. Just because IT and Procurement might be power users, doesn’t mean accounts payable or legal is. ( After all, e-mail might still be new to them. ) If the primary navigation isn’t a dumbed-down GUI, chances are it won’t get used. (And again, I refer you to the free open source document management solutions if you want a solution that probably won’t get used.)

7. Does it support the creation and management of initiatives such as risk management and IP-based revenue generation around your contracts?

And now for the painful reality check – everything I’ve described so far can be accomplished by a high-school programmer with Microsoft Access and a few open source libraries. There’s nothing special or hard about the basic requirements that we have covered to this point. That’s why this last point is so important. If it doesn’t have built-in project management, or integrate with a project management tool, and enable you to undertake initiatives with respect to your contracts, it’s not a very sophisticated solution.

Although it is true that any solution that satisfies the requirements implied by the last six questions is useful, and probably a lot better than what many of you have today, it’s important to remember that such a solution is not a very sophisticated solution. Contract Management is another area where the vendors have been primarily selling sizzle and not steak for a long time now. Thus, even though the solution you need is a lot more than what most vendors are currently offering, it’s not a sophisticated solution and not one you should be paying more than five figures for (as you can get open source content and document management solutions that come pretty close for free).

Of course, even integration with project management isn’t that hard to do at the level I’m suggesting, but it is a step or two above trivial and hence justifies the foundations of a true enterprise contract management solution, whatever that shapes up to be.

8. How hard is it to get the data AND contracts out of the solution?

From a procurement perspective, a contract is only useful if you’re complying with it to realize the negotiated savings. If you can not easily export the data you need to check, and enforce compliance, in a format that is compatible with the ERP, e-Procurement, and / or e-Payment systems you use, it’s not that useful.

In addition, there might come a day when you have to change systems. Maybe a better system comes along, maybe it’s an equivalent system that costs significantly less, or maybe the current provider stops supporting the system. If there’s no simple way to export ALL of the data and attachments into a logical file and directory structure, chances are that the only way you’ll be able to get data into the new system is to manually enter ALL of it again. If you’re a large organization, this is one project you never want to have to undertake – especially since it should not be necessary with today’s technology!

the doctor Exposes The Elephants In The Room

This is a continuation of the doctor wonders why the elephants in the room are often so hard to see where I expose the elephants hiding behind the couch, the lamp, and the projection screen. In my last post, I exposed you to the optimization elephants, the EIPP elephants, and the spend analysis elephants that were hiding behind the blinds. In this post I’m going to expose you to the supplier enablement elephants, the contract management elephants, and the hidden cost elephants.

The supplier enablement elephants are “catalog management”, (traditional) “supplier network”, “e-Document Management”, and “supplier portal”. Despite grandiose claims, not one of these solutions is the be-all end-all supplier enablement cure … and not one is even guaranteed to “enable” your supplier at all! One definition of “enable” is “to make able”. Another is “to make possible”. My favorite is “to make easy”.

Just because you’re giving your supplier a way to interact with you, doesn’t mean you’re “enabling” them. They already have a way to interact with you – it’s called old-fashioned telephone and old-fashioned fax machine. What they need is a better way to interact with you – that works for them. A catalog management solution isn’t enabling them if they have to send all their data to a third party and then double check that the third party actually entered all the data correctly. A supplier network isn’t enabling them if it isn’t compatible with their systems. e-Document management solutions aren’t worth a can of beans if they can only be used by a few individuals or if document location and access takes just as much work as it does to walk down the hall to the filing cabinet or get a clerk to get the document for you. And “portals” aren’t very helpful if it forces the supplier to re-key in a 100 line invoice. The fact of the matter is that most of the “supplier enablement” solutions out there today are not enabling your suppliers at all – they’re enabling you. That’s a big difference between what’s promised and what’s delivered. If that’s all you care about, then go buy whatever solution tickles your fancy. Just be clear on what you’re buying!

The big contract management elephants are called “repository” and “compliance”. Simply having all of your contracts in one place is not as great as it sounds. You can do that today without a contract management system at all – it’s called “central filing”. Simply enforce that every time a contract is signed the person responsible immediately sends a copy to central filing that files it, in duplicate, on-site and off-site and you have a contract management solution that requires zero investment in software. (How do you enforce this? It’s called the “three strikes and you’re fired” policy. After every contract is signed, you call central filing three days later. If they haven’t received a copy, the employee responsible for filing gets a strike. After the third strike, they get fired. It will be surprisingly effective after a senior employee gets fired.) Of course, you could have to wait a few days every time you need to reference a contract.

A “contract management” solution with a central contract repository will thus only be useful if its accessible by everyone (and you definitely don’t want to pay by the seat) and easily searchable (with indexes on meta-data and the contracts in their entirety) – otherwise, it’s not much better than “central filing”. Furthermore, contracts are only valuable if purchases are made against them at the negotiated rates. Thus, not only should it be easy to determine if a contract exists for a specific item, but it should be easy to determine the agreed upon rate for that item, extract it, and get it into your e-Procurement system.

The hidden cost elephants come in many varieties, such as “required upgrade”, “service fees”, and “implementation consulting”, but the most dreadful is “too-good-to-be-true discount”, as he’s always accompanied by a few, close friends. There’s no such thing as a 50% + discount in enterprise software, and any vendor that comes back and says they can give you a discount of 75% off of the original quote is making the old “we’ll gouge them later” play. They know that once you’ve spent many times your initial investment getting the software installed and configured, and your user base trained, it’ll be too late to turn back and that’s when you start getting hit with “service fees” and “maintenance fees” and “upgrade fees” because you bought the starter edition, but the features and functions you really need to be efficient are in the “regular edition”. It should be obvious that this is not a vendor you want to deal with, because if the vendor really could afford to sell at a 75% discount and remain profitable, then they were trying to screw you up front.

The reality is that traditional, installed, enterprise software shops have high overheads. There’s a reason their software costs hundreds of thousands, if not millions, of dollars. It’s because they literally can’t afford to sell it for much less and stay profitable because they need large teams of people to install, maintain, and support their customers as each instance has to be upgraded and patched separately. They also need large teams of enterprise sales people to continually pound the pavement to bring in enough software and service deals to keep these large implementation and support teams busy. Then they need lots of expensive office space to house all these people. And so on. (Now I’m not saying that enterprise software isn’t worth hundreds of thousands, or millions of dollars – as long as the ROI is there, some of it is. I’m specifically saying that, whether or not their software is worth that much, chances are the traditional enterprise software vendor cannot afford to sell for less than that and remain profitable – and if they claim they can, that should set off big warning bells!)