Procurement departments are typically faced with the task of negotiating the most cost effective contracts from suppliers, including bulk discounts that can often result in significant savings. Obtaining these bulk discounts requires that contracts be carefully managed. However, contract management itself can prove to be a challenging undertaking, since it is not simply a function of procurement but also supplier management. This makes data quality across these different departments essential for effective management of any and all contracts. Utilising clean, quality data in an intelligent procurement analytics solution, organisations can optimise contract management, enhancing operations and customer service as well as improving both budgets and bottom line profits.
Negotiating bulk purchase discounts from preferred suppliers is a key objective of many procurement departments. In order to achieve this however it is essential to have a clear and accurate view of all purchasing contracts across the organisations. Without a global view of contracts, it is frequently the case that the volume of purchases from specific suppliers can be underestimated, which means that bulk discounts cannot effectively be leveraged.
Since contract management spans procurement and supplier management, data quality can be an issue. One of the most common problems that arises is different supplier and/or product naming conventions across different departments or geographic locations. As a highly simplistic example, black ballpoint pens may be listed by the accounts department as: pens, black ballpoint, while the marketing department may simply list: black pens, and the IT department may list: ballpoint pens, black. These items are all exactly the same, but without standardisation, any management or analytics system will see them as three separate items. It is then impossible to gather an accurate picture of exactly how many black ballpoint pens are used across the organisation, and the same goes for any other supplies.
In addition to this challenge, in many cases, regional or local procurement processes may conclude their own agreements for the same item – sometimes with the same supplier, but with a different discount structure, or sometimes with a new supplier completely. Separate account management responsibilities for these duplicate contracts create inefficiencies and can erode margins, while duplicate contracts result in an inability to benefit from improved bulk pricing. Effective contract management can help an organisation to improve its operations and customer service as well as optimise budgets and bottom line profits.
When organisations have multiple planning and procurement systems, it is often the case that they find themselves purchasing the same supplies and components from multiple different suppliers using various different part numbers. By centralising supply chain and contract management based on agreed standards for supplier and items data, a consistent view can be created that allows procurement to identify and correct duplication of suppliers and products. In addition, a global view of purchases to date can help to identify multiple purchases of the same product across different departments. Centralised contract management simplifies the process by replacing individual purchases with bulk purchases from one or more preferred suppliers.
Data quality and data governance initiatives are the key to unlocking potential value and savings with regards to contract management. Contract management is not an isolated discipline, but is closely linked with supplier and partner management. Therefore organisations need to define and govern key supplier data elements to ensure that duplicate suppliers, items and contracts can be identified and managed. These data governance decisions should then be used to drive the necessary data quality standards and checks to identify and correct existing discrepancies and duplicates and to ensure that future contracts and supplier information are in line with agreed standard and processes.
By Gary Allemann, Managing Director, Master Data Management