By Andrew K. Reese, Editor, Supply & Demand Chain Executive
Tim Cummins, the highly regarded president and CEO of the influential nonprofit International Association for Contract & Commercial Management (IACCM, www.iaccm.com), believes that contract management remains one of the most manual, under-systematized and ill-defined areas of business operations. "In most business and public sector organizations, contract management remains one of the last undefined areas of activity," he writes.
That's a shame, because globalization today is challenging procurement and contract professionals to manage growing numbers of increasingly complex agreements with suppliers and partners across lengthening multinational supply networks. And yet contract managers continue to be hampered by disparate, inconsistent processes, resulting not only in poor contract compliance but also in challenges simply searching and retrieving contracts.
Those, at least, are the findings of a recent survey that Supply & Demand Chain Executive conducted into the complexities and risks of contracting in today's "flat world" environment. The survey questioned procurement and contract executives about the volume and complexity of the contracts they are handling. Not surprisingly, significant numbers of respondents reported that they are seeing increased contract volume in China and India, countries at the epicenter of supply chain globalization. Few companies, meanwhile, reported that they have a centralized or center-led contract management organization.
The losses from all this disorganization could be substantial. Research firm Aberdeen Group, for example, has suggested that enterprises lose some $153 billion each year due to ineffective contract management. The survey results point to an opportunity for substantial gains to be had from automating global contract management processes. Automation can institutionalize systematic process for the creation, execution, repository, compliance and analysis of contracts across geographies as well as business units, thereby helping organizations overcome the very disorganization that lies at the heart of their contract management woes. Tim Minahan, the spend management guru who helped craft the survey (and who now heads marketing at solution provider Ariba), is no disinterested party, of course, but he has a point about the potential benefits of deploying technology to automate contract management. "A common contract management software platform can enable the mix of contracting standards and compliance controls necessary to optimize trading agreements across multiple geographies," Minahan suggests.
Unfortunately, skepticism about the benefits of investing in contract management technology still abounds in the corner office and board room. "Lack of executive support for contract management and compliance initiatives" ranked high on the list of the top challenges facing contract management groups in the survey. That could be short-sighted, because, as the survey report notes: "The business environment promises to get no less complex in the years ahead, and contract management professionals must ensure that their organizations are prepared to handle the inevitable increase in volume and complexity of contracts. By making the correct investments today — in personnel, training and technology — to improve their enterprise contract operations and automation infrastructure, contracting executives can lay the groundwork for a profitable — and more risk-free — tomorrow."
Is globalization adding new complexity to your contract management processes? Are you considering investments in automation technology, or have you already seen benefits from such investments? Write me with your thoughts on the global contract management challenge, or drop me an e-mail at firstname.lastname@example.org if you'd like to receive a free PDF copy of the report. In either case, I'll look forward to hearing from you.