What is Contract Opportunity?
Developing a robust contract, capitalizing on every term, and ensuring it performs to the highest potential can be nearly impossible for companies, often leading them to reduce expectations and limit themselves when developing a contract. However, contracts and relationships with suppliers can often provide more than companies know, if efficiently leveraged. Contract management helps companies make the most of their terms and deals, while identifying contract opportunity can enable identifying and leveraging the maximum potential within a deal. Once a contract is drafted, negotiated, and agreed upon, operations follow the terms determined, and must meet certain specified targets. With the support of contract management, companies can identify opportunities to achieve more value than what is stipulated in the limited phrasing of the terms. Accessing contract opportunity and the full potential of deal can lead to improved supplier relationships, higher compliance rates, improved costs, efficiency, and higher quality of product. Understanding the role of contract management in identifying and leveraging contract opportunity is crucial to success.
How Do Contract Opportunity and Contract Management Interact?
Supplier Compliance: Fostering a positive and reliable relationship through the terms of a contract can be challenging, and may often lead to error, inability to fully comply, and other potential challenges. Companies often view supplier compliance as a potential risk, overlooking contract opportunity and the benefits of an efficiently managed contract. Suppliers often provide companies with various terms and offers, including free trial periods, cost reductions at certain production volumes, potential targets and impact on prices, or other time-period bound changes. Inefficient management can lead companies to overlook these terms over time and miss opportunities to reduce costs, improve performance, or increase quality through supplier compliance.
Cost Improvement: The detailed and complex nature of contracts can seem cumbersome to companies and suppliers at first, but they often hold various opportunities and improvements that can apply to the relationships over time. In certain cases, the contract may stipulate costing changes in tandem with inflation or other continually evolving factors. If overlooked, these factors may cause losses for the company; however, these factors can be easily controlled, and fairly negotiated with strict and efficient contract management. This process can also help companies identify the need for amendments, costing changes, service or quality differences, if efficiently leveraged to find contract opportunity.
Supplier Relationships: The value of positive supplier relationships is undebatable and unequivocal, requiring companies to invest capital, labor, and time in developing and maintaining them. Finding contract opportunity and leveraging contract management can help companies determine clear terms, maintain transparency, assist partners in various decision-making and ideation processes, and encourage a robust partnership. A well-drafted contract relies on a strong business relationship and the ability to identify and leverage opportunity for improvement and change that is mutually beneficial and serves long-term benefits for both parties. Strong supplier relationships can lead to reduced costs, better opportunities, high quality products, and a more resilient supply chain.
Higher Efficiency: A supply chain is as robust as it is efficient, cost-effective, sustainable, and resilient. As businesses expand, they are required to maintain and ensure a certain level of operational efficiency as is stipulated by contract terms regarding delivery times, logistical terms, monetary details, and other major facets of supply chain processes. Contract management ensures that all terms of contract are complied with, standards are matched, and stakeholders’ expectations are met. Additionally, if effectively conducted, managers can leverage this process to identify contract opportunity for improved efficiency, higher productivity, and increased quality of delivery. For instance, potential for increased visibility, communication, and data analysis stipulated but overlooked within the contract terms, which can help operations improve substantially.
Quality and Delivery: Across industries, consumers determine the desirability of a business by the quality of products and speed of delivery, particularly in an increasingly competitive market. Companies often tend to overlook the importance of customer input during the procurement stage, potentially leading to exclusive or narrow perspective towards major factors in the contract development process. Identifying a contract opportunity to improve product quality and delivery, or finding that certain standards, expectations, and goals are being overlooked due to vague or inconclusive phrasing in the contract, can help companies significantly improve their offerings, and in turn, customer satisfaction.
The pharmaceutical manufacturing industry has changed dramatically in recent years due to the rising prevalence of chronic diseases, surging demand for generic medication and medical devices, significant increase in number of patent cliffs, and higher government investment in research. A generic medicine manufacturer sought to increase production, improve quality of product and delivery, and stay ahead of the rising competition as government funding rose significantly in their geographical region. Unsure of how to meet their maximized potential, the company approached SpendEdge, and sought to gain more from their established and well-drafted contracts, while maintaining a transparent and reliable relationship with suppliers. Their contract management team worked closely with our experts and identified various shortcomings in the management process, and ability to identify contract opportunity for improvement or growth. With the help of the experts, the company identified various terms and agreements within the contract that could achieve more value than the determined phrasing. By studying all relevant contracts, the company identified various contract opportunities that enabled higher efficiency, lower costs, increased supplier compliance, and high-quality product, while maintaining a robust relationship with partners and offering complete transparency.