New research has exposed a significant gap between the value procurement teams negotiate and the value ultimately realised, with more than half of organisations (52 percent) missing at least one contractual remedy in the past year because they didn’t track or trigger it in time.
Contract lifecycle management provider Agiloft found that figure rises to 74 percent among businesses managing between 10,001 and 50,000 active contracts.
The study of 2,005 CPOs and other senior procurement leaders at organisations across the US and UK revealed 82 percent of procurement teams now own or lead the supplier contract lifecycle before legal involvement is required.
This includes 38 percent with full ownership and 44 percent that lead the process, with legal providing support or becoming involved when an issue requires escalation.
Eighty-one percent of respondents said their organisations had transferred more contract ownership or approval authority to procurement during the past two years, including 29 percent who described the shift as ‘significant’. Just one percent said authority had moved in the opposite direction towards legal.
However, Agiloft’s report, The Confidence Paradox: What Procurement Leaders Reveal About the Gap Between Negotiated and Realized Value, suggests this increased responsibility doesn’t always translate into stronger commercial outcomes.
Despite this, 97 percent of respondents said they were confident their organisations systematically captured the full value of negotiated agreements.
The rest of the data runs counter to that, with respondents estimating that at least 15 percent of supplier spend occurs outside contracted arrangements, while two in five put the figure between 16 and 30 percent.
More than four in five (81 percent) said they at least occasionally saw differences between contracted and invoiced prices, including 28 percent who encountered them frequently or always.
“Procurement teams may be confident they are capturing negotiated value, but when more than half of organisations miss contractual remedies because they are not tracked in time, and when off-contract spend and pricing discrepancies remain this common, the issue is execution quality,” said Jason Barnwell, Chief Product Officer at Agiloft.
“The value was agreed to, written down, and then too often lost somewhere between the contract, the purchase order, the invoice and the systems people actually use to run the business.
“Teams have more authority and more technology at their disposal, yet significant value is still being left on the table.”
The research identifies disconnected systems and manual processes as key contributors to the gap between negotiated and realised value.
Only 36 percent of respondents said their organisations automatically connected sourcing award terms with the resulting contract, while 57 percent said they relied on some form of manual data re-entry.
Although 94 percent used at least some automated validation of invoices against contract terms, fewer than half had fully automated the process.
Procurement orchestration is also firmly on the agenda, with 82 percent of respondents already using a procurement orchestration tool, assessing one or planning to introduce one within the next 12 months. Just two percent said they were not considering the technology.
“Contracts carry the commitments and obligations that reflect the promises of the entire enterprise, and for procurement those promises show up in spend, supplier performance, remedies, pricing and compliance,” added Barnwell.
“It’s one thing to negotiate a single agreement. It’s another to understand what those commitments mean in aggregate.”
