Retail Contract Leakage. Where does it come from and how can we stop it?

June 18th, 2010

Congratulations, you have used your e-procurement tools effectively and awarded the business to a new supplier. Now, 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 part 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 at. Once you have the 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 contract language. Most contract management systems have alerts that can be triggered as frequently as required.

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 there is a good possibility of controlling them.

1. Buying without a contract. 
2. Expensing something outside of a contract
3. Having multiple contracts in place:
4. Executing a new agreement when one is already in place
5. Paying a price different from the contract
6. Delivery variances
7. Quality specifications variances
8. Making payments at a prices different from the contract
9. Scope creep
10. Invoice discrepancies
11. Missed volume discounts  
12. Insurance discrepancies
13. Shipping discrepancies 
14. Expired contracts resulting in price uplift
15. Evergreening
16. Overtime Violations
17. Material discrepancies
18. Sub Contractor discrepancies

Don’t work hard to drive benefits from your procurement organization and then lose much of what you have gained to contract leakage. Ask your e-procurement solutions provider how they can help.

We look forward to and appreciate your comments.

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