4 Trends in Contract and Supplier Management

Enterprises today depend on complex arrangements with many various third-party suppliers. The highest objectives for a strong supplier ecosystem are to improve effectiveness, drive innovation and reduce cost.

Vendor management teams are at the core of driving value from these relationships. Looming recession, the war in Ukraine, supply chain issues exposed by Covid, increasingly stringent regulations and other macro events are changing how organizations do business, buy products and services and evolve. And vendor management teams need to keep up.

The key trends for enterprises to watch out for and invest in include the following:

1. Recession proofing. Preparing for a recession is often seen as a cost-optimization move, but it can also be about right-sizing costs, plugging leakages and re-investing in certain areas of growth for the future. A strong contract and supplier management practice will ensure:
   • Right decisions through data analytics that give you a snapshot of spend, contract terms, potential early renewals and consolidation opportunities to find savings, reduce costs and improve profitability.
   • Due diligence and commensurate risk management to scrutinize new suppliers, ensure financial viability and optimize the supplier portfolio for better terms and discounts.
   • Tools to automate manual tasks, improve efficiency and release procurement, vendor management and risk teams to focus on strategic initiatives.
2. Regulatory compliance. Regulators continue to enforce stringent controls around data privacy, operational resiliency, cybersecurity, etc. with hefty financial implications. Schrems II, DORA, GDPR in Europe, modern slavery regulations across Australia and Europe, OCC regulations and California Data Privacy laws and more in the U.S. are some of the key legislations in the ever-growing list. Enterprises need a strong contract and supplier management practice that ensures:
   • Upfront review and risk assessment of engagements to assess all relevant risk domains (ESG, cybersecurity, regulatory, etc.), perform compliance tasks, create risk profiles and assess control gaps prior to contracting to enable procurement teams to negotiate from a position of strength and drive risk-adjusted contracting.
   • Continuous monitoring to measure supplier compliance with ESG goals, ensure data privacy and prevent enterprise compliance issues.
   • Compliance measures to combine discrete external intelligence for financial viability, cybersecurity, location intelligence with performance metrics like service levels, obligation management, milestones and customer satisfaction scores.
3. Connected enterprise. Creating connected workflows, process controls and dashboards across procurement, finance, risk, legal, vendor management, service delivery will make huge gains in managing the supplier lifecycle and driving value. Real-time supplier profiles help continuously assess the impact to the business even at the contract-change level
   • Notifying all impacted parties of onboard and exit of suppliers to perform their due diligence and contribute to efficient and timely decisions
   • Optimizing spend in current technologies with connectors, APIs and others without the need to replace or manage change with new technology implementations
   • Centralizing an audit trail of information to improve audit readiness (external and regulatory)
4. Standardized/ rules-based contracting. Instead of the typical timeline of four to eight weeks to setup a non-disclosure agreement (NDA) or statement of work (SOW) and 14-16 weeks for a well-negotiated managed services agreement (MSA) – standardized contracts cut the time and effort significantly. Standard contracting offers template and clause libraries that can flag significant deviations and facilitate the administrative exercise of cleaning the documents and routing between teams and systems. A strong contract and supplier management function should ensure:
   • Clear contract playbook with directions on usage, clauses, flexibility and fallback positions to drive smooth negotiations
   • Clause library classified by risk, spend and location of business to generate draft a contract in minutes
   • Workflow to create the document, invite participants to an online deal room and redline and manage all edits reducing the need for administration overhaul
   • E-signatures and API information to downstream systems for automated onboarding

If you want to know more about these trends, ISG best practices and supplier contract management solutions that will change your supplier ecosystem, reach out to me. I’d love to tell you more.