Do you understand where it comes from and how can you stop it?
The answer is probably not or you would not have any and 80% of all companies not only have contract leakage, but because of it they often do not realize the hard earned savings the negotiated with their new e-procurement tools.
However congratulations are in order, you have used your new e-procurement tools effectively and awarded the business to a new supplier. You may have also offer a Letter of Intent or LOI to get things moving while the contract is being completed. With that assumption in place, how does your organization ensure that the award of business is implemented or delivered as awarded so that you indeed receive all of your savings?
This is probably the most difficult part of the entire procurement lifecycle. The first step is to understand your data and where it is kept, that includes understanding what constitutes contract leakage so that you know what you are looking for. This data needs to be looked at on a regular basis in order to insure leakage is not occurring. This should be at least monthly depending on specific contract language (Meta data). Most contract management systems have alerts that can be triggered as frequently as required against this data.
The following list although not all inclusive speaks too many of areas in which contract leakage can occur. This happens in all companies large and small. If you are aware of them, capture them and report on them regularly there is a good possibility of controlling them.
1. Award Date
2. LOI Date
3. Contract Date
4. Delivery Dates
5. Quality specifications variances
6. Making payments at a prices different from the contract
7. SOW creep
8. Rebate misses
9. Escalator Misses
10. Invoice discrepancies
11. Missed volume discounts
12. Insurance discrepancies
13. Shipping discrepancies
14. Expiration dates
15. Expiration Notification Dates
16. Auto Renewals & Evergreening
Don’t work hard to drive benefits from your procurement organization and then lose much of what you have gained to contract leakage. If you’d like to learn more about SaaS based Contract Management offerings, contact your SafeSourcing customer services representative and ask how they can help.
We look forward to and appreciate your comments.