Sourcing has long been a way for organizations to save costs and increase innovation and scalability. Finding the right service provider to meet an enterprise’s specific business requirements is no small task: most enterprises spend a significant amount of energy and investment selecting and negotiating a sourcing partner. But, the truth is, the amount of time and effort spent on selecting the right supplier should amount to only 25 percent of the sourcing journey. The other 75 percent of the investment and effort should be dedicated to ensuring the relationship works – doing what needs to be done to ensure the promised business value.
What most sourcing buyers don’t realize is that up to 10 percent of contract value is typically lost on either side of the supplier-buyer relationship due to lack of compliance and deficient supplier governance. In addition, when an enterprise suffers noncompliance with statutory commitments, it can experience an adverse impact to its business credibility and market value.
Meanwhile, sourcing engagements are growing increasingly complicated due to federated sourcing models, complex terms, evolving statutory reporting requirements and the need to safeguard intellectual property. Establishing a method to ensure that deliverables and obligations reflect the latest contract changes is critical to contract compliance.
The four key challenges to establishing contract compliance are:
- Organizing deliverables and obligations: Interpreting contract commitments once the ink has dried – exposing key commitments, deadlines, impacts of non-delivery and associated business implications – is an arduous undertaking. If a contract changes, it spurs changes to the statement of work, and a buyer must perform careful due diligence to track the impact to deliverables and obligations. If not done immediately, this can lead to misalignments during transition and threaten milestones, credible outcomes and timeliness of key deliverables.
- Assigning roles and responsibilities: Once transparency has been established, both buyer and supplier should clearly understand contractual commitments in absolute terms. They need to know the specific deliverables, timelines, cost of noncompliance, remedies, process framework, communication and ownership. Remember that responsibility shifts from a controlled group of procurement, leadership and sales people during selection and negotiations to service delivery teams who must assign roles and responsibilities to ensure outcomes.
- Establishing a single source of truth and an audit trail: Contract compliance is a recurring activity throughout the lifecycle of a contract. It impacts services, statutory reporting and organizational policies. It is important to establish a single source of truth to capture and maintain all relevant artifact submissions with time and date stamps, historical approval and exception trails throughout the life of the agreement.
- Relying on compliance reporting and insights: Keeping track of compliance trends, service issues and missed deadlines is the only way to position yourself for timely corrective action and informed decision-making. Compliance dashboards need to be updated in real time and include easy-to-access information regarding individual transactions and the need for action on either the buyer or the supplier’s side. The complexity of reporting only increases with multiple supplier portfolios, disparate business units, various spend category levels and other metrics related to performance and operations.
Because maintaining contract compliance involves significant effort, best practices can at times get sidelined in the heat of service delivery deadlines and issues. In the end, lapses in contract compliance can result in increased service deficiencies, value leakage, strained relations and reactive issue management.
Automated Contract Compliance powered by ISG GovernX® simplifies contract compliance through the use of cognitive data extraction, an industry-leading knowledge base, a document repository, alerts, workflows and intelligent dashboards. You can quickly scale from one to many contracts so that you can proactively manage relationships, commitments and accountability. Contact us to discuss how ISG GovernX® can help you.