Contracts Management and Analytics: The Source of Truth for Big Data

By Mauro Caputi June 25, 2011

Companies that have initiated the journey toward Contracts Management can now begin to look at their B-to-B transactions (i.e., sell-side and buy-side) holistically to achieve Contracts Management “nirvana” and maximum business value.  Since contracting is at a critical point in the business process in which transaction data becomes the source of truth once the contract is signed, data about the transaction (e.g., price, discounts, rebates, chargebacks) can be passed to both upstream and downstream systems for further processing. The information can also be delivered to a data warehouse for business intelligence and regression analysis.  As information changes through amendments or renewals, new data is captured and appended to existing data.  Therefore, Contract Analytics is not just about analyzing data for efficiency and effectiveness of the contracting process, but it also provides the focal point for analysis of the overall B-to-B cycle.  This enables companies to shift their time and effort  away from “spent” and revenue management based on historical data, and instead towards proactive management of spend and revenue.

As more companies explore the trend of establishing a shared services function for Contracts Management, the contracting function suddenly has enormous potential for transforming itself from a cost center to a significant revenue generating engine.  For example, data within the contracting system combined with transaction systems that make up the B-to-B cycle, can be extracted, enriched and dissected to measure Contract Effectiveness, Vendor Performance Management, Customer Lifetime Value, and Customer Retention.  Sample metrics that data will support include:

  1. Comparisons – (e.g.,) Comparison of projections against actual data
  2. Measuring – (e.g.,) Measure contract spend for market share gained
  3. Opportunity Identification – (e.g.,) Locate like-customer or behavior possibilities
  4. Forecasting – (e.g.,) Predict future sales and units
  5. Monitoring – (e.g.,) Monitor sales or spend (e.g., rebates) behavior over time
  6. Scenario Modeling – (e.g.,) What-if scenarios on spend against gain
  7. Regression Modeling – (e.g.,)  Increasing price while decreasing spend decreases market share by x
  8. Vendor Management – e.g., Costs, Delivery Compliance, Quality Product Service, Sustainability, Innovation, Strategic Alignment, Trust Level, Communication, Commitment & Issue Resolution
  9. Customer Effectiveness – Rate of Retention/Attrition, Response/Close Rates, Revenue, ROI

For example, one client uses contract data from its Managed Care Organization sell-side agreements to analyze the effects that discounts will have on sales for new products and national customers.  They are also able to identify additional opportunities for pull-through strategy to create a sales force campaign targeting doctors who write a lower percentage about  a particular brand.

The potential of “Contracts Analytics” can be enormous and can really make a difference in transforming an organization’s contracting function into a significant competitive advantage.  The benefits, as summarized below, can typically lead to ROI of 15- 20%:

  1. Understand cost to acquire and retain profitable vendors and customers
  2. Value all data and its ability to help predict behavior
  3. Leverage transactional and behavioral data to provide real-time business intelligence for cross-sell/up-sell vendor/customer satisfaction and cost save opportunities

Implementing a Contracts Management solution is the enabler and first key step in leveraging Analytics to measure and maximize the effectiveness of a complete business lifecycle (e.g., Procure-to-Pay or Contact-to-Cash).  Data within a contract management system combined with other transactional systems in a B2B cycle can provide invaluable insight on defining and refining models that predict customer and vendor behavior.  Armed with this insight, companies can make additional adjustments to their business strategy, as well as to their pricing and contracting policies, in order to enter future negotiations with customers and vendors with a significant advantage.

About Mauro Caputi

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