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Locking in contract benefits

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While negotiating contracts and getting the deal sealed can feel like the most challenging part of a procurement exercise - the real challenge is often still ahead, as many organisations find it difficult to actually capture and lock in the benefits of negotiated deals.

While negotiating contracts and getting the deal sealed can feel like the most challenging part of a procurement exercise - the real challenge is often still ahead, as many organisations find it difficult to actually capture and lock in the benefits of negotiated deals. To ensure these savings are realised and traceable to your bottom line, the interface between procurement, suppliers and end users needs to be closely managed.

Why does ‘leakage’ occur?

So often we see a procurement team proudly declare victory by renegotiating a contract - only for the finance team to flag that these savings aren’t hitting profit reports. This ‘leakage’ can have multiple causes, but most often it happens because end users just keep doing what they normally do (so don’t benefit from the new contract), and suppliers continue observing previous contract conditions (which don’t comply with newly renegotiated contracts).

Capturing all the savings

To ensure that the benefits of the renegotiated contract are fully achieved, we focus on three key areas across Procurement, suppliers and end-users to realise savings.

  • Manage the contract: Ensure internal disciplines and processes are in place to capture full value from current contracts. e.g. strictly monitoring and addressing off-contract spend and reporting on actual savings realised and lost due to non-compliance.
  • Collaborate with suppliers: Drive improved supplier performance on cost, quality and supply. e.g. conducting regular supplier reviews to monitor agreed KPIs and jointly working to identify and implement initiatives which are mutually beneficial for both suppliers and the buyer.
  • Engage stakeholders: Maintain relationships with users in the business to address their needs and adapt to changes in the market. e.g. coaching end-users on limiting discretionary usage.

A process of continuous improvement

Remember, the work doesn’t stop once a deal is done. Capturing maximum value from a sourcing exercise is a continuous improvement process involving procurement, suppliers and end-users. Its success is dependent on your organisation’s commitment to instilling disciplines and processes across each stage in the life of a contract. Building these capabilities will ensure negotiated savings are captured as bottom-line financial results and will allow your organisation to identify and deliver further savings opportunities in future.

By working closely with your team, we help improve your processes and establish new behaviours, transferring our industry and category knowledge through coaching and training to build capability. By using these approaches, we help our clients to lock in and sustain typical procurement savings of 8-12%, and in some categories, up to 40%.

Find out more about our approach on generating and locking in procurement savings

About the authors

Edwina Ring