E-Procurement and Contract Management: The Yin and Yang of Digital Procurement

Those that save costs when making a purchase create financial leeway in sales. In line with this popular purchasing wisdom, companies have very successfully developed their procurement strategies in recent years. On the one hand, the wisdom “save money in purchasing” refers to negotiating skills in dealing with suppliers. On the other hand, there is an enormous profit potential in the procurement processes themselves, especially in contract management.

We don’t have to run to the example of a globally operating group to illustrate the growing complexity of the purchasing process. Even small and medium-sized companies often manage several thousand active supplier contracts. If contracts are negotiated at different locations by decentralized procurement teams, companies can quickly lose track of what they are purchasing. In this blog post, we explain how you can use digital contract management to make your procurement processes both efficient and transparent.

Perfect Timing: Global Megatrends Give Procurement a More Prominent Role

Here lies the great opportunity for procurement teams in companies. They should seek to transform themselves from being a cost-saving department to an “enabler” of strategic competitive advantages using new technologies. Given the challenges ahead, there is no time like the present:

• Global supply chains are becoming increasingly complex. Only transparent procurement processes make it possible to actively manage economic risks and effectively counter the mega-risk of climate change.
• Economic volatility is rising. After one of the longest upward trends in the past 100 years, global economic activity is becoming more and more unstable. Digital procurement strategies enable you to react to fluctuations in an agile manner.
• Digitalization pressure continues to grow. Companies that have so far been reticent about the digital transformation of procurement must jump on board. The more digital global supply chains become, the greater the pressure on each individual member.

Let’s look at the potential: What is possible in procurement in terms of digitalization – and can digital transformation fundamentally change procurement in companies? McKinsey estimates that 36% of procurement processes can be automated using technologies that are already available today.

E-Procurement Entails the Digitalization of all Purchasing Processes

Companies are making rapid progress when it comes to digitalizing purchasing activities. However, SMEs in particular run the risk of lagging behind their competitors. The BME Electronic Procurement Barometer points out that implementing digital purchasing processes is not a sure-fire success. “SMEs in particular are still struggling in this area”, says BME Managing Director, Dr. Silvius Grobosch.

Integrated electronic contract management forms the basis for successful, integrated e-procurement strategies.

The first steps towards digitalizing purchase processes were taken around two decades ago, when the term e-procurement came into existence. Initially, this was limited to communication with suppliers via electronic marketplaces, in line with the Amazon principle for the business world. The expanded concept of e-procurement, as we use it today, encompasses much more. For example, the PEPPOL project (Pan-European Public Procurement Online) was initiated in 2008 with the aim of standardizing digital procurement at a European level. In e-procurement, the focus is now on all the digital transformation of all purchasing processes – a task that presents considerable challenges, especially for smaller companies.

With the digitalization of purchasing and the standardization of procurement processes, the topic of contract management as a decisive success factor is becoming increasingly important. Integrated electronic contract management forms the basis for successful, integrated e-procurement strategies.

This way, digital contract management addresses some of the biggest purchasing challenges facing both SMEs and international corporations on a daily basis:

• Lack of standards and control mechanisms in contract management
• Cumbersome handling and media disruptions when using paper-based contracts
• Complicated monitoring of compliance and regulatory requirements
• Inefficient collaboration with suppliers and internal stakeholders
• Low potential for automating standard purchasing processes

Digital solutions for contract management promise to provide a remedy to this situation. However, what exactly can digital contract management do – and what are the benefits for procurement in your company?

Active Contract Management with an Integrated Data Foundation

Contract management is a complex task that many purchasing organizations are reluctant to undertake. Contracts are quickly filed away once they have been negotiated with suppliers. The most important information required for procurement is processed on Excel, via email or other means. If errors creep in, they often go unnoticed and can generate unexpected follow-up costs.

In turn, if individual contract components are changed at a later date, this results in an almost uncontrollable operation. In addition, numerous other departments such as controlling, legal and management are involved in contractual matters beyond purchasing. In the worst case, all parties involved do not work with the same level of information. If this were the case, would any company actually be able to keep track of everything? For this reason, it would only be a matter of time before problems and potential high follow-up costs arose.

Digital contract management covers the entire contract lifecycle from contract initiation and creation to the negotiation of amendments, contract termination and the archiving of concluded contracts. Active contract management ensures that current contracts always form the basis for all purchasing processes and that companies do not work with outdated information. Integration with SAP systems or other ERP systems guarantees that contractual information is linked to master data and transaction data. This way, the creation of parallel data worlds is avoided and you maintain an overview of both your supplier relationships and purchasing processes on the basis of a single, integrated database.

Digital Contract Management as a Component of Modern E-Procurement Strategies

With software solutions for digital contract management integrated into your ERP system, you can manage all supplier contracts throughout their entire lifecycle in a clear and tamper-proof way. This way, compliance and cost risks can be significantly reduced and are easier to control.

In light of the growing global independence of companies and supply chains, digital contract management should be an integral part of any modern e-procurement strategy. There are tangible benefits for your procurement and your entire organization:

• Lifecycle management: Support and monitoring of the entire contract process from creation to archiving
• Workflow support: Involvement and active control of all company departments involved in the contract management process
• Version control: Automatic versioning when updating and managing contract history
• Master data integration: Connection of the contract conditions with the master data of the ERP system to ensure continuous data consistency
• Compliance support: Transparency and control over contract risks such as regulatory and deadline requirements

Let’s return to the purchasing wisdom quoted above: when modernizing your procurement, don’t think of financial savings right from the outset. Don’t forget that digital contract management saves you a lot of trouble and chaos during the actual purchasing process.