Contracts 365 is the leading enterprise contract management software vendor for Microsoft customers. The emphasis of this blog is to delve into the indisputable “harmony” that lies at the intersection of contract management and supplier management. One truly goes hand-in-hand with the other; be it through one holistic system or through a combination of best-of-breed products that work harmoniously together.
Wikipedia defines Harmony as “In music, harmony is the process by which the composition of individual sounds, or superpositions of sounds, is analyzed by hearing. Usually, this means simultaneously occurring frequencies, pitches (tones, notes), or chords.”
When overlapping the musical definition of Harmony with the blended reference to Contract Management Software and Supplier Management Software, it can be observed that there is a collection of discreet business functions which must all work together to provide a powerful, elegant, and cohesive offering. Practically speaking, this mandates a deeper review of Supply Chain Management and Performance and where Contract Management Software is well-suited for complementing your supplier initiatives. In order to do so, we will segment the key “measures” of Supplier Management/Performance and overlay the contract management high notes on top of these measures.
Measure 1 | Solicitation Management & Contracting
This first Measure is focused on all of the Supplier (current or future) activity that takes place prior to the creation of a contract. This may include the automated creation of solicitation (RFP/RFQ/RFI) documents, publicly posting Solicitations, ensuring that Solicitations are properly qualified, comparisons of Supplier submissions and all of the corresponding activity that is associated with the on-boarding of a supplier.
First, when overlapping Contract Management Software (CLM) into this measure, there are a number of complementary functions that play an important role. First, many organizations, be it through regulatory mandate or corporate policy, have standard terms and conditions that are shared with potential suppliers. These are in effect contracts (or components of contracts) which should be made available as standard (and often non-negotiable – ergo regulatory mandates) templates which are accessible in the Solicitation documents.
Second, at the end of Measure 1, procurement professionals need to easily convert Solicitations and Supplier based artifacts into contracting instruments; thus allowing for transactions to take place. Often, the amount of data/information as defined in the Solicitation database is exhaustive which leads to unnecessary, erroneous and risk-laden data entry when manually creating contract records and supporting artifacts.
Measure 2 | Supplier Validation & Contract Management (CLM)
Suppliers are regularly being asked to formally attest to and provide proof of various certifications, compliance frameworks (e.g. ISO, SOC, GDPR, CIP, etc.). Be it through the formality obtaining of obtaining and adhering to these compliance frameworks, a necessary burden has been placed on suppliers to demonstrate that they have invested in the processes, security measures and people to ensure that their services and products are beyond reproach. In the context of contract management (CLM), the infusion of supplier validation processes must be strategically placed into the correct portion of supplier on-boarding processes as well as on-going validation processes.
Practically speaking, this translates into your enterprise contract management software product being enriched with a standardized set of security and compliance questions which are influenced by the characteristics of your contracts. As a result, when a contract request is initiated, this may spawn the need for the supplier to participate in an initial or secondary contract compliance process and the outcome of this process will influence if the supplier can or cannot participate in providing services and products to your organization. As part of the contracting process, non-compliance issues can be tracked and memorialized such that remediation discussions and actions can take place or your organization may understand a supplier’s deficiency and continue to do business with the supplier; a decision often dictated by a risk assessment which can be incorporated into your contracting process.
For example, suppliers providing technology solutions to public utilities in the United States must complete designated “Critical Infrastructure Protection (CIP) security questionnaires which demonstrate designated levels of compliance with a formal body of requirements as defined by the North American Electric Reliability Corporation (NERC). In order for these suppliers to go to contract with the public utilities, the CIP questionnaire process must be properly completed by the supplier, validated by the public utility and only after validation, can the contracting process continue.
When volume dictates, it may also be appropriate to have your contract management software automatically integrate with web-based supplier background check services which can influence your contracting and supplier on-boarding process. Under this circumstance, an automated workflow process can automatically perform a validation process and the results of the background check can then be incorporated directly into a contract or supplier approval activity with supporting data taken from the integrated service. The automation of this process materially reduces risks associated with the faulty data entry and increases efficiencies by having the automation supplement the contracting process.
Measure 3 | Supplier Self-Service & Contract Management (CLM)
When there is a high degree of interaction with suppliers prior to and after the execution of a contract, it may be appropriate to introduce a secured supplier portal which allows for authorized suppliers to post, update and download information with your organization (the customer). By introducing these capabilities with an enterprise contract management software platform, it reduces many of the burdens typically imposed on the contract management team as they have to regularly update supplier information, chase down Certificates of Insurance (CoI), manually send information out to suppliers and other related activities.
In order to fully support Supplier Self-Service, there are typically three different dimensions to the system, all of which directly impact the contracting management software product employed by your organization. The first dimension is to provide some form a public (“anonymous’) supplier registration portal which allows for suppliers to apply to become an authorized supplier and to also allow for the supplier to login to the second dimension; the secured supplier portal. This second dimension is where the majority of direct activity will take place for the supplier. The third dimension is the secured contracting portal used by the contracting and procurement team which is not accessible to the suppliers in either an anonymous or authenticated capacity.
In the second dimension, suppliers will be able to maintain their own corporate and contact information, review open solicitations as well as those in which they have chosen to and been approved for participation in and to also participate in contract related activities. For example, once a supplier’s staff has been authorized for access into the secured supplier portal, they can then submit additional SoWs, Certificates of Insurance, contract amendments and other related service. From a contract/procurement perspective, there may be a need to automatically notify qualified suppliers of a new solicitation that is soon to be issued. The third dimension typically represents the master repository of contracts and solicitations, along with associated workflow automation and a robust engine for automating activities around contract obligations; some of which can be automatically created in the supplier portal for proper processing by the supplier. Across the secured supplier portal and the secured contracting portal lies a high degree of data and document exchanges to keep information synchronized.
Measure 4 | Supplier Performance & Contract Management (CLM)
The last noteworthy measure between supplier and contract management is that of tracking performance. This can manifest itself in numerous ways based upon a number of variables including the type of products and/or services being purchased by the supplier, who is managing the process and what type of performance obligations have been stipulated into the contract. Three examples have been provided to provide additional insight. In the first example, we can revisit public utilities and the need to have CIP-013 compliant suppliers. Supplier performance in this example may include an automated process originated from the contract which requires the supplier to update the CIP questionnaire on an annual or bi-annual basis. The completion of the questions, coupled with the quantitative and qualitative results, would serve as key measurements in tracking the supplier’s performance. In the second example, a reseller may be providing products to your organization and there may certain delivery objectives stipulated in the contract which are tracked via performance monitoring. The third example may consist of a manufacturer who introduces contractual commitments which ensure that no child-labor laws are violated when manufacturing their products. In this case, labor compliance attestations may need to be performed on a quarterly basis and these dictate if the supplier is meeting its performance objectives.
Collectively, these four “measures” can really increase introduce a heightened level of harmony between your enterprise contract management software and your supplier management software platforms. In certain circles, this portion of the process is referred to as “procure to contract” representing a subset of the more commonly known term of “procure to pay”. Regardless of what you call it, understanding the various components that can bring these two worlds of contracting and supplier management together, can have a fundamental impact within your organization.