In the world where business operates at the speed of light, managing contracts effectively has never been more critical.
According to a study by the International Association for Contract & Commercial Management (IACCM), companies lose an average of 9.2% of their total revenue due to sub-optimal contract management.
This stark statistic underscores the undeniable impact of contract management on a company's bottom line.
Current Contract Management Challenges:
Global businesses face the daunting task of handling millions of contracts and obligations daily, which adds a significant burden to their operational efficiency. Furthermore, the presence of teams dispersed across various geographical locations makes coordination a challenging task.
In the current scenario, contract management systems are filled with manual processes, including approvals, resulting in a lack of end-to-end process visibility. Without standardized workflows across teams, the process often involves a heavy back-and-forth, causing unnecessary delays and inefficiencies. The use of non-standard templates and manual assembly only exacerbates the issue. Additionally, disconnected and inflexible systems are unable to adapt to the ever-evolving business needs, leading to inefficiencies, revenue impact, risk exposure, and relationship deterioration.
Understanding the Anatomy of a Contract:
Contracts form the backbone of every business relationship. Understanding the structure of a contract is vital to managing and utilizing them effectively. A standard contract usually consists of several key sections:
- Contract Header Terms: This includes basic information like parties involved, contract duration, and effective date.
- Clauses: Clauses lay out the terms and conditions of the agreement. They define the rights, obligations, and remedies of the parties.
- Milestones and Deliverables: These specify the key achievements and products to be delivered under the agreement.
- Payment and Other Terms: This section outlines the terms of payment, including amount, schedule, and mode of payment.
- Obligations: These are duties that each party must perform under the agreement.
- Pricing Schedule, Payment Schedule, Incentives & Rebates: These define the financial aspects of the contract, such as pricing, payment terms, and potential discounts.
- Sub-contractors: This part details the conditions under which parties may subcontract work.
- Freight Schedule: For goods contracts, this section outlines delivery terms, shipment, and logistics.
- Regulatory Addendums: This section includes any additional legal or regulatory requirements applicable to the contract.
While the benefits of a connected contract experience are undeniable, the path to achieving it is riddled with challenges. Delivering a connected experience requires extensive integrations, running the risk of duplicate data and data extraction complexities. The customization required can also lead to inconsistent experiences across systems.
How can Connected Contract Management Experience Help Procurement & Contract Teams?
Here are some use cases that showcase the benefits of employing connected contract management in their workflows:
- Vendor Selection and Onboarding: With connected contract management, procurement managers can efficiently streamline the process of vendor selection. By integrating vendor data, contract terms, and compliance requirements, they can make more informed decisions and expedite the vendor onboarding process.
- Spend Analysis: Procurement managers can leverage contract management systems to analyze spending data. By connecting contract terms with purchase orders and invoices, they can identify spending patterns, negotiate better contracts, and optimize procurement strategies.
- Contract Renewal Automation: Contract managers can use connected contract management to automate the renewal process. By setting reminders and triggers, the system can notify the contract manager of upcoming renewals, enabling them to assess contract performance and renegotiate terms if necessary.
- Compliance Tracking: By integrating contracts with compliance tracking tools, contract managers can ensure that all parties adhere to regulatory requirements and contractual obligations. This aids in reducing legal risks and ensuring smooth contract execution.
- Obligation Management: Contract managers can effectively track and manage obligations within contracts. For instance, if a vendor is obligated to provide certain reports or meet specific service levels, the contract management system can monitor these aspects and alert managers if there are any discrepancies.
- Real-time Collaboration: A connected contract management system enables real-time collaboration among teams. This is particularly beneficial when contracts need to be reviewed and edited by multiple stakeholders, ensuring that everyone is working on the most current version of the document.
- Risk Mitigation: By integrating risk assessment tools into the contract management system, procurement managers can identify high-risk contracts or vendors. This allows them to take proactive measures in negotiating contract terms to mitigate potential risks.
- Sourcing Optimization: Procurement managers can use contract data to optimize sourcing strategies. By analyzing contract terms, pricing, and vendor performance data, they can identify opportunities for consolidating suppliers or negotiating bulk purchase discounts.
- Contract Template Standardization: Connected contract management systems often contain standardized contract templates. This helps in maintaining consistency in contracts across the organization and speeds up the contract creation process.
- Supplier Performance Tracking: Contract managers can use connected contract management systems to continuously track supplier performance against KPIs and contract terms. This information can then be used in future negotiations, contract renewals, or even in deciding to switch suppliers.
- Dynamic Negotiations: By having historical data and analytics at hand, procurement managers can engage in more dynamic and data-driven negotiations with suppliers. This can lead to better terms and conditions, ensuring a more advantageous position for the organization.
Connected contract management systems enhance the capabilities of procurement and contract managers by automating repetitive tasks, providing valuable insights, and ensuring that contracts are managed efficiently and effectively.
How to Get the Connected Experience Using ServiceNow?
ServiceNow's comprehensive suite of products can be enriched with integrated contract management. For instance:
- PSM (Project Portfolio Management): Contract milestones and deliverables can be linked to project tasks, facilitating seamless project management.
- LSD (Legal Services Delivery): Contracts can define legal services and obligations, thus enabling efficient management of legal services.
- PPM (Project Portfolio Management): Contractual obligations can be tied to project objectives and deliverables, ensuring alignment with strategic goals.
- ITSM (IT Service Management): IT service contracts can be managed effectively, with clear visibility into service levels, obligations, and penalties.
- ITAM (IT Asset Management): Contracts can govern asset usage, maintenance, and retirement, supporting comprehensive asset lifecycle management.
- GRC (Governance, Risk, and Compliance): Contract compliance can be tracked and managed effectively, reducing legal and regulatory risks.
- VRM (Vendor Risk Management): Vendor contracts can be managed and monitored for risk, enhancing vendor relationship management.
- SLM (Service Level Management): Contracts can define service level agreements, enabling efficient service level management.
ServiceNow + Aavenir: Enabling Connected Experience
Aavenir's contract management solution enables enterprises to leverage ServiceNow's robust capabilities through several key enablers:
- Zero-Integration Connectivity on Single Data Model Platform - ServiceNow: Aavenir's solution integrates seamlessly with ServiceNow, eliminating the need for complex integrations.
- Rich Structures for Metadata Capture: The solution offers robust metadata capture capabilities, ensuring comprehensive contract data collection.
- AI-enabled Extractions and Insights: Aavenir leverages AI to extract contract data and provide valuable insights, enhancing decision making.
- API and Packaged Integrations with External Solutions: Aavenir supports API and packaged integrations, enabling interoperability with other solutions.
- Rich set of Enterprise Applications on ServiceNow: Aavenir's solution leverages ServiceNow's comprehensive suite of enterprise applications.
- Configurable Widgets for Data & Insights Delivery – at the Right Time: The solution includes configurable widgets, delivering data and insights when needed.
Experience the Connected Contract Management Experience with Aavenir
Unlock the power of connected contract management with Aavenir Contractflow and other Aavenir source-to-pay products built on the ServiceNow platform. Don't let contract management challenges hold your business back. Schedule a demo today and discover how Aavenir can revolutionize your contract management process. Embrace efficiency, risk mitigation, and revenue enhancement with Aavenir's connected contract management experience.
