How To Save Money Managing Supplier Contracts
Better managing third-part supplier contracts probably isn’t high up on many companies’ finance department to-do lists. However, it’s been estimated that the average company loses about 9% of annual turnover due to poor contract management practices. With a typical company’s profit margins hovering around 10%, even halving this loss can increase profit margins by nearly 5%!
Depending on the company’s size, the amount of turnover this represents may vary, but it is not an insignificant sum to leave on the table, especially in these tough economic times.
As an example:
A company with an annual turnover of £10 million could save potentially £900,000 by better managing third-party supplier contracts.
Common Mistakes When Managing Supplier Contracts
There are still some companies that have not yet created a system for properly filing their supplier contracts. This works fine until one day an obligation is missed, a contract automatically renews, or a notice period is missed, all of which result in unwanted additional charges or a contract that’s no longer appropriate. When you miss a notice period in some countries, the contract is automatically renewed for the original terms. In fact, it’s been estimated that companies lose on average 4% of savings opportunities as a result of auto-renewing evergreen contracts.
It is hard enough to maintain profit margins under normal competitive business conditions. However, COVID has made it even tougher and companies are now less able to absorb any unexpected but easily avoidable missed contract expenses.
How To Avoid Contract Management Mistakes
These losses can be avoided by using some form of contract management system to actively manage supplier contracts.
If contracts are stored in desk drawers or filing cabinets, they work as long as they are accessible, kept up to date, and filed in a way that anyone can easily find what they are looking for. There are some obvious disadvantages to it, especially now that many people work from home.
Today, more companies store contracts in shared drive spreadsheets and document folders. This can be useful; however, they do not send automatic notifications when contracts are up for renewal or notice periods, and they don’t keep records of any changes.
In order to have the most visibility and control of their supplier contracts, companies use a contract management software. Companies benefit from having a contract repository of all supplier contract information and documents, as well as dashboards indicating the status of contracts, automatic notifications of renewals and notice periods and the ability to request and validate supplier documents.
Either standalone systems or ones that integrate with other parts of the procurement cycle can be used. An additional advantage is that a company will have greater visibility and control over the entire process, so they will be able to save even more time and money.
By offering a self-service cloud contract management software oboloo offers SMEs a solution that is an integral part of the entire procurement process. oboloo is an intuitive and simple self-service cloud procurement software solution that has Sourcing, Contract, Supplier and Savings management modules to enable companies to be supplier smart. www.oboloo.com.
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