While most business trade relationships are driven by contracts and their content, few organisations have the mechanisms in place to fully leverage the total value of these arrangements.
Limited access and control over contract terms and conditions including start and end dates, renewal terms, escalations and pricing terms and conditions, result in financial `leakage` that can amount to significant sums of money.
Studies have shown that ineffective contract management results in cost `leakages` of up to 7% of the maintenance, repairs and operational expenditure and up to 1% of turnover through missed opportunities that could have resulted in increased revenues.
Some organisations have looked to enterprise resource planning (ERP) and customer relationship management (CRM) technologies to address these issues, but these technologies often fall short in providing the tools necessary to optimise contract values. In practice, these technologies may even lull businesses into an unwarranted complacency with how their contracts are being managed.
Business transactions are complex, involving long-term relationships with complex sets of buyer and seller requirements that are extremely difficult for CRM and ERP systems to handle. Trade relationships include multiple business processes and contract terms related to pricing, volume breaks, rebate policies and dispute resolution. With "old" economy methods still prevalent in trade relationships, businesses must commit considerable time, resources and staff to maintaining the terms of these complex relationships, at the risk of being overwhelmed by the sheer volume of contract terms and negotiations. This can result in lost revenues, financial exposure due to erroneous claims, damaged relationships and missed opportunities.
There is a gap between ERP and CRM systems that severely limit the effective utilisation of both systems; a gap that contract management technology can fill. Without effective contract management, organisations face huge losses of revenue through missed opportunities as well as wasted time, resources, and staff needed to manually manage contractual terms and their ramifications. Clearly, contract management can hold a highly strategic position between CRM and ERP systems within an overall commerce process flow.
The real value of contract management comes not just from supporting one system or the other, but also from supporting both systems as part of an integrated platform. For example, a CRM system may be the mechanism that engages the customer and closes the deal with terms that should be included in that contract.
From there onwards, orders are entered and tracked in the ERP system, and should be driven by the terms managed in the contract management system. Real accounting data from the ERP system can then be leveraged by the contract management system to help organisations build more favourable or attractive contract packages and terms. Finally, contract terms can be leveraged by the CRM system in promotions, personalised offers, automated campaigns, etc.
Integrating contract lifecycle management with ERP and CRM systems enables organisations to implement tight controls over transacting processes and to ensure transactions are compliant with contractual terms and conditions. This extends to ensuring contracts are maintained and remain valid during the life of the relationship. Integrated contract lifecycle management ensures that the correct contract approval processes are followed and that the contract is activated correctly within the ERP system.
By not controlling or managing contracts effectively, organisations are wasting millions of rands every year. A tool that allows for a robust contractual definition, management and analysis of the rules of trade for all trading partners will give companies the visibility and control they, and their shareholders, are looking for.
The ROI opportunities associated with effective contract management implementation are very compelling. Contract process automation will evoke major efficiencies and savings by minimising transaction problems and the effort required to resolve those issues, as well as providing additional revenue generation opportunities, such as encouraging increased purchasing volumes by offering customers special promotions that leverage their contract terms.
Overall, contract management can go a long way towards maximising the benefits of existing ERP and CRM implementations and enabling a full-scale trade relationship management system to evolve. By implementing contract management, organisations can potentially generate significant savings on transaction costs, largely due to improvements over managing complex contracts manually, and the extreme value and opportunity associated with properly managing contract terms, such as time limits and volume requirements.
Share
Realyst was established in 1998 and is the leading provider of contract lifecycle management solutions in southern Africa. Realyst provides the technology solutions as well as consulting services spanning the implementation of best practice contract management methodologies and processes, education and training. Realyst offers gain share engagements designed to optimise the organisation`s contractual relationships and to deliver quantifiable savings using the Realyst processes and supporting technologies.
The services offered by Realyst include business process mapping, programme and project management, business consulting and where required, full business process outsourcing.
Realyst has developed and markets two software applications: Premises Manager and Contract Manager.
Premises Manager, launched in 1998, is a premises management system designed for the users of property and has achieved significant success in the retail sector.
Contract Manager, launched in 2002, is designed to facilitate the management of contractual relationships across the enterprise.
The Realyst user base includes several large corporate organisations including Altron, Discovery Health, Foschini, Johnnic, Multichoice, Nike, Primedia and Woolworths.
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