Johannesburg, 18 Feb 2003
"The cost of poor contract management is expensive and impacts the bottom line in numerous ways, costing organisation millions of rands," says Tony Maddison, a director of Realyst.
Over 80% of corporate transactions are governed by contractual agreements. Not managing these agreements or contracts effectively is costing business millions of rands per annum. Significant costs are incurred through:
* missed opportunities for volume discounting
* redundant payment for services
* unexpected rollover
* renewals and cancellations missed opportunities for service level agreements and other discounts
* negotiation of contracts that do not fit business goals
* reduced information flow and time wasted in research.
Research has shown that through implementing proper internal processes, underpinned by technology, organisations can realise savings of as much as 0.4% of turnover in hard and soft costs.
"It is not uncommon to reduce renewal leakage (unwanted contract renewals) by as much as 2% of the procurement spend as well as savings of between 5% and 10% by consolidating supplier contracts and negotiating improved terms and conditions. Distributed decision-making, including independent negotiation of contracts, is counterproductive to cost savings because it only takes advantage of the buying power of a small portion of the organisation," says Maddison.
The first step in cutting costs is to obtain an accurate picture of current contracts in order to analyse where savings can be realised.
Implementing a central repository for contractual agreements enables access to the entire organisations contractual agreements, both locally and internationally, and facilitates a convenient review of existing agreements to better enforce terms and eliminate duplication of payment for services.
"In the current economy, it is more important than ever for business to take control of their customer and supplier relationships, to reduce costs, increase revenues and improve the management of business risk through enhanced contract management," says Maddison.
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