Maximising contract value is important for public and private organisations across all industries. To support contract management ROI in 2020 and beyond, contract management professionals like you will benefit from a baseline of contract administration, procurement and data sourcing via contract management benchmarking.
What is contract management benchmarking?
Benchmarking is an approach that requires stakeholder support to dedicate an organisation’s people, process and technology to the ongoing evaluation of process – strength, results and integration – leadership support, products and services, operations and industry peers.
The overarching goal of benchmarking is to effect change and improve performance. Once a baseline of data is substantiated, your business can regularly review and compare performance to these established benchmarks, and you can leverage these to find areas for improvement and define contract management KPIs.
The benefits of benchmarking in contract management
Organisations committed to progress and improvement can reap the reward of benchmarking benefits including:
- savings and increased revenue from contract process and workflow improvement
- contract lifecycle management (CLM) quality and efficiency through reduced cycle times
- reducing risk through the creation of audit trails and accurate benchmarking data
- sharpening workload distribution based on contract value, contract complexity and contract type
- aligning organisational needs with contract management best practice
- leveraging baseline data and peer and industry leader performance comparisons to build the case for ongoing CLM improvement initiatives
- establishing goals including cost reduction, entering new markets, or expanding customer reach
- setting the tone of new contracts based on client feedback, supplier pricing and milestone benchmarks.
Get started with contract management benchmarking
To begin a dynamic benchmarking practice, the first steps are to:
- identify how contracts drive performance and create value
- analyse internal processes and outcome gaps
- define essential processes to improve.
Next, select and benchmark business partners and competitors based on data compiled from internal and external resources and research. Benchmarking data can be used to identify contract performance gaps and the reasons behind them.
Finally, implement an ongoing contract administration benchmarking practice with the necessary level of senior management support to monitor standards, take any necessary corrective action and establish new contract management processes and controls.
Contract management benchmarking best practice
Benchmarking best practices include measuring performance, identifying primary areas of activity and establishing contract management’s value proposition. To align with best practice in these core areas, businesses should focus on contract complexity and individual and functional contract administration performance.
#1 – Contract management internal process review
- Measure internals strengths and weaknesses pertaining to CLM oversight, results and process integration.
- Establish and monitor base contract management KPIs around cycle times, approval delays, duration of bids, missed milestones, legacy contract trends, clause variance, annual contract value and disputes.
- Obtain internal organisational feedback to ascertain areas of CLM success and areas in need of improvement.
- Track issues for future reference to reveal recurring challenges so that you can establish a mitigation plan that includes key stakeholders.
- Incorporate contract management software into your company’s benchmarking strategy to increase visibility and transparency while reducing risk.
#2 – Supplier performance evaluation
- Review supplier SLAs and compare to contract performance data and self-reported supplier performance.
- Establish regular, recurring supplier meetings to discuss contract renewals, continuous cost reduction, and contract performance improvement plans.
- Ask suppliers to provide pricing data for benchmarking, as well as feedback around how your organisation can improve product and service offerings.
#3 – Market analysis
- Be mindful of looming supply chain price changes due to supply shortages, changes in laws and regulations, and commodity cost reductions or increases.
- Compare performance, strengths, weaknesses and opportunities against direct competitors as well as top-performing non-competitive organisations and industries to create new benchmarks that support contract lifecycle management improvement.
Contract Insight from Four Business Solutions
Contract Insight can help you manage an entire contract portfolio with intelligent workflow, automated alerts, AI-based contract management, data extraction, audit trails, contract reporting and analytics.
Four helps small and multi-national organisations enrich the way they work. From supply chain to procurement and contract management, we have decades of experience helping companies forge ahead in the global market. If you’d like a demo of Contract Insight or simply to find out more about what we do, please call John O’Brien at Four Business Solutions on 0800 6250 025.
John O’Brien is the CEO at Four Business Solutions, global business consultants and software integrators providing business processes improvements in Finance, Supply Chain and Operations, across a broad range of industries.