NEW REPORT: The State of CLM and AI-Powered Contract Intelligence

Three Proven Ways Contract Intelligence Delivers Savings to Procurement

Contracts are the foundation of all commerce – they define the terms, obligations, and requirements and structure the relationships between contracting parties.

March 27, 2023 By Martin Mohr

Contracts are the foundation of all commerce – they define the terms, obligations, and requirements that structure the relationships between contracting parties. Every agreement is a source of data that can help your enterprise better negotiate and maintain those relationships.

Despite their central role in business, contracts—and the unique business 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 in CRM and supplier data in ERP, the relationship data found in contracts has remained scattered across the enterprise.

For procurement organizations, this has made contracts a recurring source of leakage, 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%.

In today’s uncertain economic environment, procurement organizations increasingly recognize that this status quo is unacceptable. As Gartner recently put it in their Critical Capabilities for Contract Life Cycle Management report: “Prolonged periods of market disruption and changing regulations increase pressure on organizations to improve efficiency and scalability in their contracting processes.” 

Contract intelligence software, which leverages technology like AI and natural language processing (NLP), addresses this challenge by structuring contract data and connecting it to other enterprise systems to generate real-time insights into a company’s commercial relationships. This enhanced data not only lets procurement organizations create better contracts but also ensures they can realize the full value of those contracts after they are signed.

Companies can also realize the value of the software faster than typical technology deployments because they already have the data—it’s in their contracts.

Simply put, in today’s economy, contract intelligence is a must-have for procurement organizations.

Here are three proven ways contract intelligence delivers savings to procurement organizations. 

Understand who your vendors are

Contracts streamline supplier spend by offering protection against buying from the same company at different prices. Knowing exactly how particular goods and services are currently priced is essential. A centralized and searchable contracts repository helps businesses negotiate more effectively with vendors by highlighting when costs have changed across any number of contracts.

In one case, a large pharmaceutical company consolidated data from 45,000 supplier contracts; the results were astounding: an estimated $70 million in annual savings via rationalized supplier terms.

Contract intelligence also helps you leverage the economies of scale that come with consolidated purchasing. Bundling purchases from different business units, departments or geographies unlocks rebates and improves negotiation position. 

In one case, a large pharmaceutical company consolidated data from 45,000 supplier contracts; the results were astounding: an estimated $70 million in annual savings via rationalized supplier terms.

Ensure you get what you paid for

Another avenue to savings with contract intelligence is the ability to detect under-delivery or over-charges quickly. You can ensure that every term is fulfilled correctly by fully managing the tasks and workflows associated with administering and maintaining each contract.  

Contract intelligence also plays a vital role in capturing important contract details, such as volume discounts. Often negotiated during supplier onboarding, these discounts can involve tiered pricing, thresholds, or applying specific rates to different package sizes. Yet if those benefits are not tracked after a contract is signed, organizations risk missing out on the savings they are entitled to. Contract intelligence software connects contract data into operations systems like ERPs to automate financial business processes connected to sourcing agreements. 

Furthermore, contract intelligence allows procurement organizations to complete these tasks quickly. For example, Best Buy accelerated its rebate process by 70%--meaning dollars were brought back into the business faster. 

Onboard new vendors quickly

 
Today’s global market is in constant flux. Supply chains face continuous disruption; geo-political tensions and upheaval spread uncertainty. In these conditions, it may not be enough for companies to get better performance from their current suppliers. They may need to quickly secure new sources of goods or pivot to an alternative supplier in another geography. Here again, contract intelligence is crucial.

The traditional contracting process is slow and rife with delays and room for error. Bids have to be collected, and suppliers have to be vetted. All this work happens outside the contracting process, which only starts after these prerequisites have been completed.

With contract intelligence, companies can create a seamless source-to-contract motion, with data flowing across the process for greatly improved speed and accuracy. 

Mercedes-Benz, for example, was able to reduce the average time for contract turnaround from 6 weeks to 1 week. With this agility at hand, procurement organizations are empowered to find the best vendors to meet their needs without risking interruption in supply. 

Conclusion

In today’s challenging market conditions, contracts are too critical to be managed “the old way,” and contract data are too valuable to leave uncovered in the enterprise.

From initial budgets, through sourcing, to the final delivery dates, businesses using contract intelligence can leverage AI to monitor terms, clauses, obligations, and entitlements to ensure goods are received regardless of the circumstances. 

Get Started

The Contract Value Toolkit

Contract Value Toolkit

Revenue, savings, and risk: It's in your contracts

Access insights from BCG, Forrester, and others to start finding the revenue, savings, and risk that is hiding in your commercial agreements. With contract intelligence, you can gain a 4% uplift in margin while better managing emerging risks.

Explore the Contract Value Toolkit