Effective Contract Management

What do Alex Rodríguez, Tiger Woods and Sandra Bullock have in common?

Their lives were significantly impacted by very clever contract negotiators.

Rodríguez hit a grand slam in 2000 when he scored a ten-year, $252 million contract with the Texas Rangers—at the time, the biggest deal in sports history. Due to a negotiating position compromised by indiscretions, Woods had to pony up $100 million to ex-wife Elin Nordegren, a sum substantially greater than that defined in their prenuptial agreement. And Bullock—instead of accepting a traditional payment for her work in the 2013 hit film Gravity—chose to take a percentage of movie profits, netting her at least $70 million.

Robust negotiations and contract management brought great wins or losses to each of these public figures.

Contract lifecycle management (CLM) doesn’t exactly roll off the tongue, but it is an integral part of the supply chain’s procurement cycle. According to The Purchasing and Procurement Center, CLM “is the interaction between the vendor and the purchaser that ensures that both parties meet their respective obligations in any procurement relationship. The aim is to meet the operational, functional and business objectives required by the contract and provide a profitable interaction.”

While the CLM process has numerous steps, perhaps the most financially meaningful is supplier negotiation.

Once a buyer has requested a quote—outlining their product or service needs—the negotiations begin. And experts understand that the goal of negotiations is not necessarily the lowest possible price. The old adage holds true: when selecting between speed, quality, and cost, you can typically choose only two. Value for money, delivery time-frames, and supplier terms are key considerations.

Procurement Academy, a competency developer for corporations, outlines their recommended principles of negotiations to help procurement organizations meet financial and commodity objectives:

  • Negotiation Prep – Set targets, gather relevant information pertinent to the deal, and identify potentially critical issues.
  • Negotiation – Begin by actively listening to the supplier, ask relevant questions, and explore negotiable requirements that meet your goals.
    Closing the Negotiation – Review and summarize discussed points.

Typically, celebrities need not worry about the technology in place to empower their contract processes, but businesses do. Technology has amped up controls and efficiencies in CLM. Avoiding upside down or lopsided contracts has become much easier CLM tools such as SAP’s Ariba or IBM’s Emptoris. These applications not only automate the CLM, but also offer sizable, centralized repositories, allowing procurement professionals to quickly search and access vital information.

And what do we do when the contracts expire? We continue to engage professional, high quality negotiators who secure other expertly-contracted sources of supply.

Learn more about how SDI’s adaptable procurement solutions can help your organization.