Where Do You Keep Your Supplier Contracts?
It is estimated that companies lose around 4% of savings opportunities because of auto-renewing evergreen contracts every year. The amount of turnover that this represents will vary by company, but it is not an insignificant amount of money to leave on the table, especially these days.
What Mistakes Are Companies Making?
There are still some businesses that have not got around to creating any system for properly filing their supplier contracts at all. This works fine until the day an obligation is missed or a contract rolls over automatically, or a notice period is missed which results in an unwanted additional cost or a contract that isn’t suitable anymore. In some countries missing a notice period can result in the contract rolling over for the original term again.
It is hard enough to maintain profit margins under normal competitive business conditions. However, Covid has made it even tougher and companies are now less able to absorb an expensive, but easily avoidable missed contract obligation, termination, or rollover.
What Can Be Done?
The solution to avoid this happening is to actively manage the supplier contracts using some form of a contract management system.
Contracts kept in desk drawers or filing cabinets work if they are accessible, kept up to date and they’re filed so that anyone can easily find what they’re looking for. However, it does have some clear disadvantages, especially now with people working from home.
Nowadays, more companies are creating records of contracts in shared drive spreadsheets and document folders. This can work well; however, they don’t send automatic notifications of upcoming contract renewals or notice periods or keep a record of any changes.
Those companies who want to benefit from having the most visibility and control of their supplier contracts use a contract management software. These companies benefit from keeping a contract repository of all the supplier contract information and documents as well as clear dashboards of contract status, automatic notifications of renewals and notice periods, and the ability to request and validate documents from the supplier.
These systems can either be stand-alone modules or ones that integrate into other parts of the procurement cycle. An additional advantage of the latter is that a company receives wider visibility and control over the whole process and will therefore be able to save even more time and money.