In our last blog, we discussed how there is more to compliance than contracts. However, contract compliance is a top Key Performance Indicator (KPI) for best-in-class Procurement organizations and a source for significant savings on mission critical products and services. Companies work for months to put the right contract in place to ensure the right price with the right supplier. The strategic sourcing effort takes great strides, typically through contract negotiations, to make sure that buying leverage (a source of comparative advantage and cost savings) is reflected in contract terms.
How do we make sure we reap the benefits of that effort?
The catalog as a central repository can be used by any system to gain visibility into the company’s contracts. Plus, the familiarity and the ease-of-use of catalogs can drive adoption and enable companies to realize contract value.
Spend Visibility Anywhere
Companies with high on-contract spend, use the catalog as the contract at the point where employees are making purchasing decisions. The catalog provides contract visibility from any process/system, including requisitioning, work orders, shopping carts, POs, contract renewals, RFx, etc. Further efficiencies are gained when a user selects a product or services from a catalog, because the item can be automatically sourced and the PO sent to the supplier (auto-PO process).
Catalogs not only provide easy access from any system, but also deliver all the information a user needs to make an informed purchase. Product descriptions, part numbers, pictures and comparisons are typical fields in the catalog that give the user needed information on products and services. For contracts, there is additional information in the product content to identify the product or service with a contract. Tiered pricing, for instance, shows the employee the order quantities needed to achieve the next level of discount. Users can also see information on suppliers to meet certain supply goals, such as sustainability objectives. For services, rate cards can be presented in the catalog for employees to determine the right price based on the resource needed. Behind the scenes, catalog data can be filtered (ie: catalog views created) so only the relevant contract pricing is displayed to the user (eg: local contract pricing or pricing for a specific purchasing organization). This filtering maintains the contract authorization – who is authorized to view or release against a contract.
Users who view their company’s content in the catalog often ask, “Why can I get this cheaper on another site?” One missing piece of information that companies often overlook in the catalogs is aggregate volume discounts. Often companies do not receive discounts or rebates until a volume or dollar threshold is met. A best practice in the catalog would be to identify the items or suppliers that need to be tracked for volume discounts for full visibility to employees. In addition, companies can use the “tagged” content to identify when spend meets thresholds. By contrast, some items could in fact be sourced cheaply outside the company’s existing agreements. This would be an opportunity for the strategic sourcing team to view existing agreements against potential new sources of supply. This is a topic in a future blog, but notice how the catalog can be used as a tool for employees to do contract price benchmarking.
With all of these contract features in the catalog, do you need an outline agreement or similar contract type in the Procurement system? I would agree that outline agreements and contract documents have applications for automated and planned items, but where employees are making product decisions, does the catalog suffice? Let me know your thoughts in the comments or reach out to me (email@example.com).