When you negotiate a contract, there's someone on the other side of the table that's looking out for their best interests. Sure, you try to negotiate in good faith. You try to create win-win scenarios for both parties. But in the end, your primary concern is increasing value and minimizing risk for your side.
Risk is unavoidable. There's no such thing as the perfect deal. Every contract you sign is going to have some element of risk.
Now you may decide the risk you took on in a particular contract was justified to get the terms you wanted.
But what if you multiply that risk out across hundreds or thousands of contracts? Suddenly, the supplier risk facing your organization just went up exponentially.
In this week's video, I'm going to show you the simplest way to decrease supplier risk across all your contracts.
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Welcome back to our video series on the challenges of a decentralized contract management process.
In the last video, we talked about the lack of ownership that’s inherent in a decentralized environment.
Today, we’ll look at the second core issue, and that’s the risk of exposure to your supplier agreements.
Now everyone understands that contracts are negotiated in good faith and for the mutual benefit of both parties.
But the reality is, when you’re negotiating for the purchase of goods and services, whether you’re on the buy side or the sell side, your core concern is increasing your value and decreasing your risk in the deal.
So every loophole, limitation, trigger, or “gotcha!” that’s going to get you in the deal, is written into the contract.
Now, multiply that out by every supplier agreement you’ve executed, and you start to get a picture of how big this exposure could actually be.
But there’s also a huge opportunity that organizations miss out on when they decentralize their environment: the ability to leverage favorable terms and conditions across your entire supply base.
See, if I know that 80% of my suppliers give me net 60 payment terms, yet 20% give me net 45 or net 30, or worse — I know exactly what I’m bringing up the next time I have to do a renewal with that 20%.
Which makes it that much more important to have all of your supplier agreements in one central location and have a really good understanding of what’s in them.
Now there are some good tools out there — like OneView — that can help you do that.
But if you’re not quite there yet, at least take the first step of getting all of your contracts into one place.
You’ll exponentially decrease the risk in your supplier agreements, and you’ll set up a really good foundational piece to build your contract management process on going forward.
That’s it for now.
Keep an eye out for the next video, where we’ll talk about the lack of adherence to the terms and conditions in your contract.