I took part in a webcast this week entitled “Bringing Contract Management into the 21st Century – 5 Principles Every Procurement Executive Should Know” sponsored by Procurement Leaders.
It is quite clear that Contract Management is starting to add real value to companies. Problem is, too many are still stuck in old practices that result in a lack of visibility, control and inability to manage compliance. I thought it would be worthwhile to highlight some of the key takeaways from this hour long webcast.
What is CLM:
CLM stands for Contract Lifecycle Management and refers to a technology platform(s) that can manage the full lifecycle of a contract (i.e. All governing activities of how contracts are used) which are:
a) Contract Drafting
b) Contract Negotiation
c) Contract Storing and Repository
d) Contract Compliance and administration
e) Contract Renewal
f) Contract Optimization
What are the advantages of implementing CLM (summary of presentation given by Andrew Bartels of Aberdeen Research)
Phase 1 – Contracts reside within one single repository – making it easier to search, analyze and increase visibility into renewals. Already here, there are major cost savings to be had!
Phase 2 – Ability to generate reports and analyze current data – this helps identify duplicates, inconsistencies, and any other potential risks/issues with ongoing contracts
Phase 3 – Automatic contract creation – this helps only use legal staff for critical tasks and shorten the contract cycle times.
Phase 4 – Contract repository integrated with existing transaction systems – this clearly is the ultimate, long term goal of CLM. Where there’s a real time ability to verify that pricing is compliant & meets agreed service levels every time purchases are made – leading to greater conformity of contracts.
Key considerations for successful implementation
a) Aim for some early wins. In other words, don’t try to take on too much in one go. While the ultimate goal is to get all contracts on the system, it is best to go with a phased approach. To prioritize, the key variables to consider are: contract size and degree of activity (start with the contracts driving transactions as these are the renewals you don’t want to miss!)
b) Have a clear system & tool in place for importing existing contracts: ensure the technology you choose accounts for this and establish a system for importing the contracts. Many companies opt to have temps work on this so buyers aren’t bogged down with low value tasks. Furthermore, this step tends to take much longer than expected, so it is good to prepare the resources!
c) Develop best practices around how contracts will be set-up, structured, the verbiage that will be used and the controls that will be in place to manage the contract templates.
d) Maximize buy-in by involving all regions, relevant business units and stakeholders early on in the process. Particularly those close tot he market who are being directly impacted by the lack of visibility and compliance with contracts. Having some early wins with these groups can help serve as a “pull” for those less willing departments.
e) Consider assessing the potential cultural/attitude obstacles to adopting the tool and tackle this early on.
Some other interesting stats presented were that geographically, US appears in the lead of implementing CLM, but Europe is close behind & gaining ground. While the ultimate goal is to reach this phase 4 of integration with transaction systems, the majority of the companies currently find themselves in phase 1: Document Repository. The good news is that there is already tremendous value & ROI to be had with just implementing the first phase, as the increased visibility given will already create savings by helping to not miss renewals and minimizing other possible savings leakage from a lack of contract compliance.
