CASE STUDY

Cost Reduction Strategies – A Key Benefit in Contract Management | SpendEdge

Oct 30, 2021

The Relationship between Contract Management and Cost Reduction Strategies

A significant rise in competition, demand, innovation, and development across industries has led to a surge in research, planning, and strategizing. Supply chains have become increasingly complex and implementing the right strategies is necessary for sustainable growth, due to which companies are developing and adopting cost reduction strategies, contract management plans, procurement best practices, and various other approaches. Contract management has become imperative to maintaining successful, collaborative, and helpful business partnerships and relationships with suppliers and vendors. Since contracts and supplier relationships play a substantial role in the overall performance, costs, and spend of the procurement, sourcing, and supply departments, they provide an impeccable opportunity for cost reduction. Implementing cost reduction strategies during the contract management process can help companies develop stronger partnerships, increase the practical benefits of a business relationship, help both parties gain more, and make their contract mutually beneficial. During the contract management, companies can include and implement various cost reduction strategies, and minimize expenses significantly for both parties.

The Importance of Cost Reduction Strategies

The expected inflation of prices of various raw materials, services, and products has led to an extensive need for effective methods of cost reduction. Across industries, companies face continually rising prices, and struggle to maintain spend and budget their expenses effectively. Reducing costs, mitigating unnecessary expenses, reducing the impact of changing market dynamics, and closely studying the fluctuation of prices in the relevant market is necessary to maintain cost-effective, sustainable, and constant growth for any company. Cost reduction strategies help companies identify, evaluate, and implement the best methods to increase savings, reduce unnecessary expenses, increase profitability, mitigate various risks, and stay ahead of the fluctuating market.

How can Companies Implement Cost Reduction Strategies During Contract Management?  

Contract management entails developing and negotiating the terms of a contract when entering a deal with suppliers and vendors. The process also includes ensuring compliance after the signing of the contract, and documenting any advised or mutually decided amendments made to the contract at any point during the partnership. The process and activities persist through the lifetime of the contract, and help both parties ensure that terms are met, while continuously improving upon their partnerships and terms. During the lifetime of the contract, companies also attempt to improve their supply chain performance, reduce costs, mitigate various industry risks, address major challenges, and advance towards business targets. Companies often implement cost reduction strategies such as the ones listed below to help keep pace with the changing costs and market dynamics.

Standardization: Rapidly evolving markets, changing landscapes, and the increasing volume of partnerships has led to a rising need for standardization. Establishing templates or predetermined clauses for contracts can help reduce time-consumption, increase efficiency, and accelerate the business. Standardization can also help increase focus on pertinent parts of the deal, help reduce and manage risks, and minimize financial liability substantially by being prepared.

Risk Management: The contract management process helps companies keep pace with their evolving market, stay a step ahead of competitors, and most importantly, keep abreast of potential risks in the market, partnership, or supply chain. As the company grows, potential risks rise, and companies must stay prepared. Contract management helps closely review potential risks, evaluate and develop strategies that help mitigate unnecessary losses or expenses, enable preemptive action, and encourage the development of proactive cost-reduction strategies.

Data Visibility: Utilizing data and analytics has become the norm across industries, due to the rise in automation, the use of AI and ML, and dependency on technological advancements. Through the contract management process, companies can ensure that all relevant information pertaining to the deal and partnership is available to all concerned parties, and help avoid any delays, complexities, or challenges in the future. Using data to keep abreast of operations, potential challenges, and staying ahead of the curve can help reduce various challenges and risks, and help companies overcome potential losses and avoidable expenses.

Success Story

The sudden upsurge of demand in the growing retail sector, has led to an increasing need for cost reduction strategies and efficiently handled partnerships. A renowned retailer in the APAC region struggled to maintain high productivity and profitability due to a sudden decline in savings, rise in expenses, and failure of partnerships. To understand what factors were causing high losses and reduced savings, the company approached SpendEdge and sought to leverage our expertise in contract management and the development of cost-reduction strategies. After careful scrutinization, our experts identified the lack of efficient cost-reduction strategies and effective contract management as the major cause for their inability to maintain savings, and reduce losses. With advice from SpendEdge, the company developed a robust contract management process and included significant, effective cost-reduction strategies to enable stable, consistent, and guaranteed savings, decreased losses, increased profitability, and an overall improvement in partnerships and supply chain performance.

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