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Bernadette Bulacan |
August 4, 2023 |

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Contracts are the foundation of all commerce. They define the terms, obligations, and structure for all relationships between companies and their suppliers, partners, customers, and even employees. Every contract is a source of data that can help enterprises better negotiate and realize the intent of those relationships.

Contracts Are The Foundation Of All Commerce

Despite their central role in business, contracts—and the unique information contained in them—have long been neglected from a data point of view. While companies have made significant strides in structuring and connecting customer data across core systems like ERP or CRM, the relationship data found in contracts has remained scattered across the enterprise.

This has made contracts a recurring source of revenue and value leakage for many companies, be it in the form of pricing discrepancies, poor supplier performance, or unrealized entitlements. In their recent Contracting for Performance report, McKinsey & Co. noted that poor supplier performance could increase the total cost of a supplier relationship by 10-20 per cent.

In today’s uncertain economic environment, businesses increasingly recognize that this status quo is unacceptable. Gartner recently stated, “Prolonged periods of market disruption and changing regulations increase pressure on organizations to improve efficiency and scalability in their contracting processes.” That’s why companies are turning to solutions that leverage emerging technologies like AI and machine learning. These solutions can generate real-time insights into commercial relationships and realize the full value of contracts after they are signed.

Below are five proven benefits business leaders can expect when pairing contracts with advanced technology.

1. Gaining pricing visibility and payment terms

Buyers negotiate better when equipped with historical pricing data about specific goods and services from a particular vendor. Contracts streamline supplier spending by offering protection against buying the same material from the same company at different prices. Knowing exactly how particular goods and services are priced is essential in a shifting economy. A centralized, searchable contract repository helps businesses negotiate more effectively with vendors by highlighting when costs have changed across any number of contracts or surfacing negotiating strategies based on other precedents. Layering advanced technologies with contracts allows businesses to detect under-delivery or over-charges automatically, ensuring the right suppliers are paid.

2. Reducing costs by leveraging economies of scale

Technology helps business leaders leverage the economies of scale that come with consolidated purchasing. Bundling purchases from different business units or departments improves a company’s position during a negotiation while accelerating rebates, bringing dollars back into the business faster. The right solutions can aggregate data, helping identify and take advantage of the volume-based discounts agreed upon during supplier onboarding.

3. Increasing supply chain agility

As today’s supply chains face continuous disruption, it may not be enough for companies to push for better performance from their current suppliers. Procurement teams need to focus on improving contract agility to respond faster to supply chain disruptions. They may need to secure new sources of goods quickly, and a contracting process rife with delays and room for error could pile on to disruption challenges rather than helping to solve them. By leveraging technology to streamline the contracting process, businesses can create a seamless source-to-contract motion from bids to signatures, with data flowing across the process for greater speed and accuracy.

Companies like Mercedes-Benz, for example, have reduced the average contract turnaround time from six weeks to one using the right solutions. These have empowered their procurement organization to find the best vendors to meet company needs without risking any interruption in goods and services.

4. Accelerating cash flow via automation

When it comes to making a sale, timing is everything. In today’s fast and competitive business environment, every organization wants its team to close deals faster to recognize revenue earlier and quicker. Speed is another vital commercial vector impacted by contracts. When contracts are signed faster, work starts faster, and revenue is recognized more rapidly. Digitized contract content connects systems across departments and teams, empowering them to shorten contract negotiation cycles and accelerate deals. Technology improves cash flow and revenue by actively managing obligations within the contract and ensuring all contract conditions are met and entitlements are fully realized.

5. Creating new revenue opportunities with price adjustment levers

Centralized and digitized contract data gives businesses powerful levers to generate revenue. For example, many service contracts include clauses that allow prices to be increased in the case of inflation. In recent months, these clauses could determine whether a business relationship is profitable. Yet many companies struggled to find which contracts addressed inflation so they could take advantage of them. The Boston Consulting Group says organizations can expect a 2-4% uplift in their margins by improving their contracting processes.

Make Every Dollar Count

In fast-paced business environments, deviation from contract expectations—in the form of unfulfilled entitlements, purchase price discrepancies, regulatory noncompliance, or missed deliveries—are realities of business and pose a serious threat at a time when every dollar counts.

Every company has multiple commercial relationships, which is why contracts play an essential role in business. Contract data offers one of the largest untapped opportunities to increase revenue, reduce costs, improve compliance, and eliminate risk. These are outcomes that are vital in the current business environment. Since contracts govern commercial relationships, many forward-looking organizations are moving beyond Contract Lifecycle Management (CLM) into contract intelligence to shore up their balance sheets. Contract intelligence gives companies the advanced tools to structure contracts, streamline processes, and maintain the strictest adherence to regulatory compliance. Rather than waiting for new contracts to deliver value, companies use contract intelligence to drive growth by surfacing new insights from existing transactions, adding to their bottom line.

Author: Bernadette Bulacan

 

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