Identify needs for new contracts quickly
A system that identifies off-contract purchasing requests quickly and automates the establishment of new contracts for spot purchases should be created. This reduces the costs associated with off-contract spot buys and give the company leverage in case of disputes that may arise regarding the price or material supplied.
Identify sources of alternative supply quickly
A comprehensive contract data repository and an analytical system should be developed in order to quickly identify suppliers of material in case of an unanticipated shortage. This leads to the reduction of both costs and time invested in identifying alternative sources of supply, as well as improving the operation of the company's supply chain as delays associated with identifying a supplier are reduced or eliminated.
Streamline procurement processes
By creating a repository with all contract information stored in digital format and the tools to quickly sort and search this data, the procurement department will no longer have to conduct time-consuming and inefficient manual searches for information regarding suppliers or current contracts. This improves the department's efficiency and effectiveness as well as reduces procurement related costs.
Enhanced Supplier Performance Visibility
Direct enterprise purchasing activities based on dynamic supplier performance metrics
By continually measuring supplier compliance to the terms of contracts, companies can identify problems at an early stage. This gives the procurement department the ability to correct problems before they become significant, as well as shift purchasing activity to suppliers that perform well, thus optimizing return on capital. By focusing on suppliers that perform best to contract, the company reduces the cost of multi-supplier maintenance and improves supplier relationships.
Dynamically check that suppliers are performing to contract
By creating a repository with all contract information, the procurement department can monitor contract compliance at the transaction level. Adherence to contract terms such as pricing breakpoints can be continuously monitored. This minimizes the costs associated with missed contract breaks.
Rationalize supplier base
By using supplier execution data generated through procurement activities and comparing this to contract data, the company can make quantitative supplier performance comparisons. As a result, these comparisons lead to lower costs by enabling companies to maintain relationships with fewer, yet higher performing suppliers.
Optimize repetitive purchase compliance
By automating contract compliance checking for frequent low to mid-value purchases, the procurement department can devote resources to more strategic activities. This helps the company realize a better return on investment in procurement and improved departmental productivity.
How To Achieve Procurement Best Practices
While achieving the procurement best practices outlined above may seem like a daunting task, the fact is they can all be approached as an integral part of a single program. Because all of the best practices discussed utilize, in some form, the information found on the company's contracts with suppliers, the creation and deployment of an integrated contract management system is a key foundation for making these best practices a reality.
The contract management system should be fully Web-enabled and be based on a sophisticated, centralized repository. This repository should maintain a complete record and audit trail of all contracts and negotiations. This data is critical for achieving the procurement best practices and must be available on a 24/7 basis.
There also needs to be a mechanism that assists the procurement department in managing the request for proposal and negotiation process as well as creating the final contracts in a format that is consistent with corporate policy. The request for proposal and negotiation processes may require collaboration with both internal and external parties and thus version control and maintenance of an audit trial are very important. Based on the information collected during the negotiation stage of the process, the creation of the finished contract can, to a large extent, be automated using pre-approved corporate standard clauses. The only aspects of the contract that would require direct intervention would be unique terms negotiated with that supplier.