Working with suppliers is core to any business activities, whether they involve finished goods, transportation, or any other aspect of the supply chain. Sourcing suppliers is part of the overall procurement process. Like paying out invoices, providing health and life insurance for employees, and covering overhead costs, contracts are an integral part of running a business. We’ll kick off the proceedings with a quick introduction as to what source to contract actually means. In business, it refers to the procurement department finding, identifying, and eventually creating value for the organization. Through negotiation and realization of contracts, working relationships with suppliers are created. Here are five reasons you should have a source-to-contract system in place at your organization right now.
A contract, at its most basic definition, is a binding agreement between two parties. It’s a legal document and they’re crucial to fostering an environment of accountability and ensuring that organizations are receiving the value from their suppliers that were negotiated. Contracting can be a bit arduous and convoluted. The steps involved include defining the contract terms, setting up a timeframe, accounting for what to do in case of a breach, and acceptance of the contract by both parties. Contracts need to state precisely what the parties want from each other. Is the supplier going to be providing certain goods at an agreed price for a certain amount of time? What are their delivery methods? Is there are right to cure clause if they fail to meet their obligations? How will payment be managed? Will there be early payment discounts available? Questions like these all come up in sourcing and contracting. Having a partially automated, comprehensive software solution to work in tandem with your contract management team can help set up contracts without headaches or excessive time-wasting processes.
In the purchasing stage of procurement, there are quite a few distinct variables at play. Where can you can really streamline things is in the requisition and purchase order stage. In traditional requisitions and pos, everything has to be done manually. This can take days or weeks. With a technology solution, it can happen in minutes or hours. Simply requisition what you need, use the software to craft a PO for your requisition form then send it off to the vendor. After that, you can track the purchase order in real time, effectively getting results from your suppliers quickly and easily.
Approval processes take a long time. Finding errors and avoiding issues with payment—all while routing everything properly and accounting for it in the correct expense accounts—is a complex job. Further compounding the issue is the simple fact that there’s a 10% margin of error with most invoices. Part of an accounts payable department’s job is to help find these errors and correct them. But doing so takes quite some time and extra payroll. Plugging everything into an enterprise management system gives you a little bit more leeway with spotting errors than traditional methods. Therefore, technology helps to a large degree here. Electronic invoicing helps avoid late payments, missed payments, supplier inquiries, and leaking of profits due to mishandling of invoices.
The sad truth of the matter is that risk is inherent to any business proposition. Risks in sourcing and contracting are likely not going to be spotted right away. That’s why you need to vet your suppliers thoroughly before bringing them into your management system. Powerful source to contract software lets you do exactly that, set requirements for the business, and assess risks in real-time. It also helps keep spending strictly relegated to the contract instead of allowing unauthorized purchases or expenditures. Ultimately, a good software solution is going to help you assess risk, work well and a great spend analysis tools, and eventually create a strong base of reliable suppliers that have been thoroughly vetted before doing business with them.
Sometimes, the key to successful source-to-contract relationships hinges on supplier management. Building a base of repeatable suppliers is a big part of sourcing. Managers and teams need to be able to accurately assess a product and its supplier. Once sourcing is complete, it comes down to gathering additional information about the suppliers and whether or not they will be a worthwhile partner for the business or if they’ll end up becoming a risk. At that point, it’s a matter of building relationships with those suppliers after the contracting stage. Avoid boilerplate contracts and work with them on an individual basis. Contract should specify the terms of the relationship with the supplier and using software can help you keep track of and enforce that contract. Software solutions let vendors know what’s going on in real-time while helping the organization get the most out of the contract. Ultimately, supplier management is an integral part of sourcing that should not be overlooked.
Also Read: 5 Reasons Why You Should Have A Contract Management System