8 risks of ineffective contract technology for procurement
A sophisticated contract lifecycle management (CLM) system may seem like a luxury for some procurement departments. But the perils companies face without such technologies are significant and justify the need. Managing such risks is top of mind for global chief procurement officers (CPOs). According to a survey by Deloitte, after reducing costs and developing new products and markets, managing risks ranked a top business strategy for global procurement leaders.
This comes as no surprise in a dynamic business environment characterized by increasing business model, sales, and procurement complexities and higher compliance pressures. Trying to manage growing demands in an increasingly digital world is nearly impossible without a sophisticated CLM solution. Not convinced? Here are eight critical risks your company can face unless procurement is equipped with this technology.
1. Data leakage
Without a single secure contract repository, information is very likely dispersed, managed inconsistently and ineffectively. Think contracts in shared folders, emails, and on paper. The risk is that sensitive information can fall into the wrong hands – whether through malicious acts or simple oversight – leading to possible regulatory issues and other risks.
2. Business interruption
Most procurement functions bear responsibility for ensuring that the company’s suppliers provide a steady stream of production inputs. To satisfy this requirement, the procurement team needs to call upon a system capable of monitoring its supplier feeds. If a supplier fails to deliver, what is the fallback? And can procurement detect early warning signs of imminent failure? Without the right CLM system, companies are at significant risk of breakdowns that could, at worst, shut down a factory and cost sales.
3. Compliance failure
While it’s never good to be in non-compliance with relevant laws and rules, it’s even worse when the situation could have been prevented. Without a sophisticated CLM system, you can fail to comply because you simply don’t know which regulations apply to your contracts or you are unable to perform required audits.
4. Operational delay
Procurement’s mandate is to follow the right process without creating undue delay. However, slow contracting processes that result from the use of outdated contracting technology can mean the business has to wait to get their hands on a much-needed product or service. Such a setback can materially impact a company’s growth capabilities and future earnings. In fact, it can put the business in a reactive mode when responding to operational vulnerabilities, rather than a proactive mode to capitalize on prime opportunities.
A top priority of modern CPOs is to support greater business agility: creative purchasing agreements, faster purchasing, conditional sourcing arrangements, etc. Without the right tools, this type of agility isn’t possible. In turn, the company risks being unable to introduce new products and new sales channels, enter new markets, and more. Or it simply can’t do these things as fast or as effectively as it could with a sophisticated CLM system enabling agile procurement.
6. Financial loss
When companies are purchasing hundreds of millions of dollars worth of supplies, even missing a small percentage of potential savings can add up to big dollars. Well-managed contracts ensure procurement knows about its financial obligations, including payments due, service levels, rebates and discounts. However, manual management methods inevitably lead to financial leakage in procurement.
7. Reputation risk
Remember, in the 21st century, companies must treat all parties well – even their suppliers. While it’s difficult to measure a company’s market reputation, when a company is perceived as being “hard to do business with,” it won’t attract the best suppliers, partners and employees. Contract management technology makes it possible to simplify and streamline procurement in ways visible to suppliers, so they are happier doing business with the company.
8. Talent deficiency
In a highly competitive marketplace, companies must make their brands stand apart. Using outdated processes and technology for procurement puts organizations at a disadvantage when it comes to attracting and retaining top talent. As Deloitte says in its global CPO survey report, “Top talent, especially those in the millennial generation, will not choose to work in an organization that is significantly behind the latest trends and technologies.” An investment in a sophisticated CLM system signals an investment in the future and the company’s employees.
By automating and streamlining every aspect of procurement, sophisticated contract lifecycle management technology positions organizations for success with its processes and people while dramatically reducing risk. Can your company afford to equip its procurement group with anything but the most advanced technology?