Over the last few months I’ve written extensively about Contract Lifecycle Management, tools, transformation and other contract management issues. A client recently asked me, “What can we do now that we have the contract management issues in order?” I promptly answered, “Well, now is the time to dive deeper and manage the commercials more aggressively.”
Besides being pithy, there is a method here. Once a company has its contracts and processes in order, it is essential that a company go from just leveling the playing field to controlling it. And that next level of control comes in the form of Commercial Management. If knowledge is power, then it only follows that once a company has full visibility into its obligations and the obligations of its suppliers that it then uses that power to exercise some level of control.
So what is Commercial Management? Commercial Management can be expressed through a number of processes, but fundamentally it includes:
· Service Level bonus/penalty management;
· Pricing adjustment tracking;
· Spend pool analysis;
· Invoice validation; and
· Financial planning.
Now these terms may sound like traditional F&A or Procurement activities, but the extra dimension is that Commercial Management looks beyond the SAP feed and takes the word documents in contract, rife with opportunities and traps, and puts an extra layer of analysis and thought.
Many tools can do a fine job of reporting SLAs and milestones, but it takes an extra level of effort to translate the verbiage of an MSA and Schedules into objective criteria.
Pricing adjustments spelled out in an excel are easy to note, but contracts today often contain a more complicated level of logical, Cartesian analysis of the ebbs and flows, triggers and levels of use and effort to enforce certain price benefits. Many a software vendor will gladly audit a client to see if a license scheme is enforced, but remain strangely silent if there is duplication of licenses.
Vendors will often charge short term rate cards as a default, but it takes an extra level of monitoring to ensure that the proper rate card (if any at all) is applied to project work.
Taking all of the above and making it an easy process to follow and enforce for all invoices is where this all comes together. Mistakes are made; overbilling without malice is a reality. But companies which take an aggressive approach to management can avoid these.
Once the quirks in the system are worked out using the processes above, a proper financial modeling and planning exercise can occur.
In short, once a company has control over its contracts, it can turn that shield into a sword and make some proactive moves to not just preserve a business case, but enhance it.