Contract Optimization: A Recession-Proof Strategy for Maximizing Performance and Minimizing Risks

With 80% of business-to-business transactions governed by contractual agreements, contracts are the foundation of nearly every business relationship. Contracts dictate the price, terms, and service levels of buyer and seller interactions, and, therefore, are a key determinant of the value of any business relationship. Contracts also provide the basis by which companies ensure compliance with regulatory and financial accountability requirements.

Contract optimization is the process of systematically and efficiently managing contract creation, execution, and analysis for maximizing operational and financial performance and minimizing risk. Unfortunately, many businesses lack the processes or systems required to optimally manage customer or supplier contracts. Specifically, companies continue to manage contracts with a mix of manual, paper-laden, and informal processes; fragmented business systems; and ex post facto audits and analyses. The resulting hodgepodge "strategy" limits visibility into corporate contracts and performance, exposing enterprises to inflated costs, diminished negotiation leverage, missed revenue opportunities, poor compliance, and regulatory backlash.

Aberdeen Group research suggests that companies can overcome these challenges by adopting Web-based solutions to centralize and activate corporate contract information, automate and streamline processes across the contract life cycle, and support enhanced contract monitoring and analysis. The most advanced contract management systems are transparent to the organization, providing interoperation and integration with existing productivity tools — e.g., Microsoft Word — and transactional business systems, such as enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM) systems.

Companies using contract management solutions to enforce systematic and efficient procedures for creating, executing, and managing corporate contracts have been able reduce material and services costs by 2% to 7%, cut process cycles in half, reduce contract administration costs, improve contract compliance 50% to 55%, diminish operational and regulatory risk, and increase revenues and profits.

This Aberdeen Group Executive White Paper examines the growing importance of contract management in today's challenging economic and regulatory environment. This research document uncovers the benefits and pitfalls of early enterprise contract management strategies and defines a framework for an effective contract management solution. It concludes with an evaluation of diCarta, a veteran of Web-based contract management solutions.

The Business Dilemma

We live in uncertain times. Regardless of size, industry, or geography, businesses are burdened with the following similar underlying challenges:

Economic instability — the global economy is mired in the worst recession in decades, making it difficult (if not impossible) for companies to grow revenues and increasing pressures on companies to reduce costs. Regulatory requirements — investor outrage following recent business and accounting scandals has legislators stepping up demands for detailed financial reporting and regulatory compliance. New rules, such as the Sarbanes-Oxley Act, require companies to shore-up business controls, procedures for tracking and reporting material business information, and audit mechanisms. Similarly, industry-specific regulations, such as the Health Insurance Portability and Accountability Act(HIPPA), are demanding increased visibility, control, and compliance across entire supply-chains and business sectors. Geopolitical uncertainty — fallout from September 11, 2001, coupled with the SARS epidemic, has put the geopolitical landscape in as state of flux that is continually shifting access to both customers and supply lines. Controlling such variables requires companies to have visibility into supply chain processes, obligations, and alternatives.

In response to these challenges, businesses are testing a myriad of tactics and strategies for operational success, ranging from multichannel sales initiatives to drive top-line revenues to cost-cutting measures to squeeze inefficiencies from the supply chain. Successful execution of these strategies is dependent on the planning and execution capabilities of an enterprise and its partners, as well as global economic and market conditions. The uncertainty of these variables — particularly external factors — has caused many well-intended and seemingly sound business strategies to deliver unpredictable and generally sub-par results.

These factors are forcing businesses to grapple with a catch-22: continue business as usual and risk being outmaneuvered by aggressive competitors; develop growth risk over investing in a market that is fighting against a rebound; or employ aggressive cost-cutting measures and risk not having sufficient resources to take advantage of an eventual economic upturn. None of these avenues is preferable for both short-term viability and long-term growth.

Contract Optimization: Sound Strategy for Near- and Long-Term Growth

What can a business do to both sustain profitability in the near-term and position itself to drive growth and prosperity over the long haul?

Aberdeen Group's ongoing research into business-to-business processes and technologies clearly indicates that the optimal management of customer and supplier contracts is among the most pragmatic and immutable strategies businesses can employ to drive cost and performance benefits and mitigate risks — regardless of the economic cycle.

Our reasoning for such advisement is straightforward: Between 60% and 80% of all business-to-business transactions are governed by a formal trade agreement. As such, it is not hyperbole to say that contracts are the foundation of business relationships. In fact, the typical Fortune 1000 company maintains 20,000 to 40,000 active contracts at any given time [1] . These contracts dictate the terms, pricing, and service levels of a company's customer and supplier relationships. Contracts also provide a baseline by which a company must measures its compliance with business obligations and regulatory requirements.

Contract optimization is the process of systematically and efficiently managing contract creation, execution, compliance, and analysis for the purposes of maximizing operational and financial performance and minimizing risk.

Contract Life Cycle Examined

Before delving into enterprise strategies for contract optimization, it is appropriate to establish a basic understanding of the contract management life cycle. An examination of corporate contracting practices across multiple industries and geographies has led Aberdeen to identify the following phases of the contract life cycle:

Creation, including final negotiations and collaboration; document redlining and markup, and signatures; ensuring use of standardized contract templates and clauses; and enforcing business oversight and controls. Publication and activation, including establishing a central repository of all contract information. This repository should be searchable and integrate directly with key transactional systems in order to make contracts "active." Compliance, including proactive tracking of internal usage of preferred suppliers and contracted pricing; tracking of term, pricing, rebate, and service-level compliance for customer and supplier agreements; and monitoring and auditing of contract terms, changes, and performance to ensure regulatory compliance. Analysis, including the active enforcement of spending against budgets; balancing orders between preferred suppliers to optimize usage and returns; and assigning resources for the optimal management of the most profitable products and customers. Also, term analysis of contract performance and attributes to determine future sales, budgeting, sourcing, supplier management, and risk strategies.

Companies that utilize such standardized processes and controls across the contract management life cycle have realized reduced procurement expenses and operation costs, increased responsiveness and customer satisfaction, improved cash flow, and enhanced compliance. These benefits can help a company sustain profitability (or, at least, minimize losses) in times of economic uncertainty and gain competitive advantage in a more stable economic environment.

Managing Contracts a Priority and Concern for Most

Not surprisingly, enterprises view contract management as a priority. Preliminary findings from a joint Aberdeen Group-Penton Media study on corporate contract management practices indicates that nearly 90% of enterprises view the effective creation, monitoring, and management of contracts as either "very important" or "critical" to their organizations' overall success. However, our study also suggests that the majority of enterprises are only marginally satisfied or outright dissatisfied with their current contract management procedures.

Though alarming, these findings are not surprising. At most companies, contracts have increased both in number and complexity, involving thousands of products and intricate terms and legal clauses that govern a myriad of factors, including price, service level requirements, warranties, payments, incentives, and penalties.

For example, it is not uncommon for customer contracts to span multiple types of organizations and involve hundreds if not thousands of terms articulating complex pricing and service commitments, ranging from rebates and charge backs to lead times and delivery schedules. Supplier contracts are equally complex, and, with the trend toward outsourcing, often include intricate terms for inventory and facility ownership as well as gain sharing. Some companies are now utilizing intricate co-sourcing or contract sharing arrangements with certain suppliers, such as contract manufacturers, in an effort to use contracts to drive cost efficiency across the extended supply chain.

Unfortunately, Aberdeen research suggests that most companies are ill equipped to effectively create, execute, or manage contracts in an optimal manner. In fact, contract management remains a largely fragmented activity at most companies. Chief barriers to effective contract management include the following:

Lack of formalized contract management procedures

Inefficient, labor-intensive processes

Limited visibility into corporate contracts

Ineffective monitoring and management of contract compliance

Inadequate analysis of contract performance

Lack of Formalized Contract-Management Procedures

Few companies have sufficient processes and controls for creating and managing corporate trade agreements across the complete contract life cycle. Preliminary findings from the Aberdeen-Penton study revealed that fewer than half of companies have formalized, enterprise-wide procedures for managing supply contracts.

Instead, most companies continue to rely on an ad-hoc mix of procedures and tools for creating, executing, and analyzing customer and supply contracts. The result is insufficient intra- and inter-enterprise collaboration during the contract-creation process and limited visibility to active contracts.

Inefficient, Labor-Intensive Processes

Aberdeen's ongoing research into supply management operations finds that the typical company takes 20 to 30 days, on average, to create, negotiate, and finalize a contract. It is important to note that these activities typically occur after the initial sourcing or sales cycle is closed.

Chief reasons for lengthy contracting cycles include the number of people involved in the process, labor-intensive contracting procedures, and the use of inadequate contracting "technologies." Negotiation and management of customer contracts requires collaboration between sales, marketing, finance, legal, operations, customer service, and contract administration. Internal stakeholders involved in creating and executing supplier contracts often include sourcing/procurement, finance, operations/manufacturing, and legal.

An overwhelming majority of companies continue to manage the contracting process by shuffling a series of draft proposals, counteroffers, amendments, and other changes between contracting stakeholders using a myriad of online and offline technologies. In fact, early returns from the Aberdeen-Penton study indicate that nearly all companies continue to use face-to-face and phone-based discussions as their primary methods of contract negotiations, followed closely by e-mail. Three-quarters of respondents also reported negotiating contract details via fax. (These findings echo related Aberdeen research into the sourcing practices of global enterprises.)

The use of such rudimentary tools lengthens contract finalization cycles, limits collaboration, and introduces the high risk of errors by requiring companies to aggregate and re-key information. The disconnected nature of the contracting process also introduces increased risks into trading relationships, by limiting a company's ability to use standard contract clauses, amendments, and terms. Such fragmented procedures are also in direct opposition to the "controls environment" that CFOs will be required to certify is in place under the Sarbanes-Oxley Act.

Using standard contracting language can help companies ensure that all agreements are both in compliance with company and regulatory policies and do not expose the company to undue risks, such as agreeing to a non-profitable deal.

Limited Visibility into Corporate Contracts

The effectiveness of any contract can only be determined by measuring and analyzing individual clauses and terms to ensure both compliance and optimal usage of trading agreements. Unfortunately, early findings from the joint Aberdeen-Penton study suggest that many companies still struggle with finding a contract, let alone ensuring compliance and maximizing return from a contract.

In fact, only about a third of enterprises currently have a central contract repository that allows them to search for contract information by partner name or product/part number. Even fewer companies can locate contracts by product category or contract attributes — e.g., all the contracts with a particular volume break discount.

Even more alarming is that many customer and supplier contracts remain locked away in filing cabinets or stored on the hard drives of individual (and often inaccessible) PCs across the enterprise. Certain subsets of contract information — such as pricing, sales, purchase orders (PO), or payment data — are located in various business systems within and outside the enterprise, from internal ERP systems to the accounting systems of various trading partners. The segregation of contract information makes it difficult to drive compliance, maximize contract usage and fulfillment, and conduct thorough analyses of contract performance.

Ineffective Contract Compliance

If the contract is the foundation of business, then the most successful companies will best utilize and comply with corporate trade agreements. Specifically, companies must enforce the following three chief types of contract compliance:

1. Operational compliance — an enterprise must meet (and, hopefully, exceed) pricing and service level terms of both customer and supplier agreements. Enterprises must also ensure that employees comply with internal policies and business objectives in order to minimize both costs and risks.

2. Supplier compliance — in order to minimize supply costs and risks and to maximize performance, a company must effectively monitor and manage the pricing and service-level agreements of its supply contracts.

3. Regulatory compliance — the September 11, 2001 tragedy and a series of accounting and business scandals have sparked new government regulations. Both federal and industry-specific regulations seek to mandate fiscal disclosure and accountability, consumer protection, and security. These regulations require companies to be more diligent in both documenting and executing procedures that are used to manage customer and supplier contracts.

Unfortunately, the lack of standard procedures for creating and managing contracts provides strong evidence that companies lack the visibility and controls necessary to ensure contract compliance. In fact, the large majority of companies take a "rear-view mirror" approach to contract compliance, measuring compliance and performance on a monthly, quarterly, or ad hoc basis.

Such passive reviews put companies at high risk of cost overruns, performance glitches, and regulatory violations. Consider these examples:

Maverick buying — Aberdeen research finds that 20% to 30% of a typical company's purchases occur outside of contractual agreements. For a company with $1 billion in annual contract purchases, about $200 million is spent off-contract. Considering that enterprises report a 16% price discount advantage for on-contract purchases, moving just a quarter of purchases back onto contract could return $8 million in savings.

Pricing errors — a five-cent pricing error in a single customer contract for two million units of a particular product would result in a $100,000 loss. If left unchecked, a similar error across multiple customer contracts could have a negative impact totaling millions of dollars. Evergreen renewals — ineffective monitoring and management of automatic or "evergreen" renewal clauses in contracts can be extremely costly. Let's assume a conservative 3% savings could be negotiated each year on what was originally a $1 million contract. Allowing this contract to auto-renew could cost a company $90,000. Considering that the typical company often has evergreen renewals for multiple contracts, ineffective monitoring of these terms could cost millions of dollars each year in missed savings opportunities. Milestone slippage and penalties — failing to execute on a service contract deliverables — e.g. activity milestones, self-audit, document filing, etc. — can often result in harsh financial penalties for non-performance, including contract termination. Companies have similar savings opportunity and incentives for ensuring that suppliers meet their contractual milestones and service levels. Regulatory non-compliance — with heightened security and financial disclosure rules in place, the lack of proper record-keeping security and controls can result in severe penalties and legal ramifications. Such issues at Schering-Plough recently resulted in the temporary shutdown of the pharmaceutical giant's manufacturing plants in Puerto Rico and New Jersey. By failing to maintain sufficient record-keeping security and controls, the company violated the Federal Drug Administration-enforced CFR Part 11, resulting in $500 million in fines against the company. Similarly, under the new Sarbanes-Oxley Act, executives convicted of signing-off on misleading or inaccurate financial statements will be subject fines of up to $5 million and a prison sentence of up to 20 years.

New regulatory requirements will only increase a company's need to establish effective procedures and controls for managing corporate contracts. (Table 1 provides a sampling of recent regulations that require improved contract management.) Formalized procedures for creating, executing, and monitoring compliance with contracts can enable companies to comply with "timely and accurate" reporting requirements and demonstrate auditable control processes for revenue recognition and cost reporting.

Inadequate Analysis of Contract Performance

The final challenge companies face with contract management is to thoroughly analyze contract performance. First, businesses continue to struggle with gathering sufficient information to conduct contract analyses. Related Aberdeen research into enterprise procedures for spending analysis [2] and performance measurement [3] clearly indicate that the information required to effectively analyze contract performance — such as actual spending and performance data, purchase price variance information, etc. — is dispersed between multiple internal and external business systems. In addition, this information is often incomplete or insufficiently classified and is not useful for detailed analysis.

Often times, the actual contract only exists in hard copy and is locked away in a filing cabinet, further frustrating efforts to reconcile and validate contract information. Similarly, suggested spend management or revenue optimization improvements are often put in place without regard for the constraints and opportunities that exist in current contracts.

Finally, many enterprises utilize basic spreadsheet applications as their primary analysis tools, limiting the breadth and sophistication of any analysis. Companies that use sophisticated analysis tools — such as data warehouses and online analytical processing (OLAP) utilities — are often limited in the analyses they can conduct due to incomplete or insufficient information.

Automation Efforts Found Lacking

Many companies have attempted to streamline and improve contract management procedures through the use of homegrown contract management systems. However, deeper examination indicates that these "systems" are basic productivity applications and databases that are loosely tied together and only address certain

Table 1: Regulatory Compliance: How Contract Management Can Help

Regulatory Requirements

Sarbanes-Oxley

Requires full, timely, and accurate disclosure of corporate financial information; imposes accountability standards for executives; mandates continuous monitoring, auditing, and improvement of internal financial reporting control structure and processes Health Insurance Portability and Accountability Act (HIPPA)

Requires insurance and medical firms to implement auditable procedures for streamlining processing of health care claims, ensuring privacy of patient records

Gramm-Leach-Bliley ActRequires financial institutions to guard against the disclosure of personal financial information of clients and requires the distribution of privacy notices

Code of Federal Regulations 21 Part 11Requires auditable control processes, documentation, security, and accountability for electronic records

Source: Aberdeen Group, May 2003

sub-processes, such as contract authoring or term analysis, of the contract management life cycle. For example, basic word-processing applications, primarily Word, remain the chief tools used to author and edit corporate contracts. Many companies also use basic spreadsheet applications, primarily Microsoft Excel, to input and finalize pricing terms.

Although they provide ease-of-use for authoring and redlining contract documents, word-processing tools offer insufficient controls for version control and auditing purposes. Even more problematic is that word-processing tools generate only passive and static documents, making it difficult, if not impossible, for companies to proactively track and enforce contract compliance.

In an attempt to overcome these challenges, many companies have tried to leverage existing enterprise business application investments for contract management. However, these companies were quick to learn that such approaches, typically, only addressed discrete steps of the contract management life cycle.

For example, ERP systems have traditionally focused on the financial attributes of contract management, particularly pricing. CRM systems have targeted contract development and customer service. These systems rarely view the legal organization as a key stakeholder in the process, forcing companies to create ancillary and often offline contract authoring and review processes in order to pull legal into the loop. Such gaps deter from enterprise-wide adoption and use of contract management automation capabilities.

In recent years, online sourcing applications have emerged to automate negotiation aspects of buyer-supplier relationships. However, early e-sourcing systems offered little, if any, support for finalizing contract terms and driving compliance. Case in point: Aberdeen research found that60% of e-sourcing adopters have been unable to fully implement the cost savings that they negotiated online.

Online procurement systems have proven highly effective at automating requisition and order execution processes, and at driving compliance for catalog-based purchases. However, most e-procurement systems provide insufficient support for more complex purchases, such as business services.

Business services — e.g., printing, temporary labor, and consulting — comprise more than half of a typical company's spending and require a unique configuration with each purchase. Services contracts involve complex pricing and service-level terms that can be challenging both to negotiate and measure.

Turning Contracts into Competitive Advantage

These factors lead Aberdeen to conclude that enterprises must adopt new procedures and supporting infrastructure to drive the creation, negotiation, execution, and management of corporate contracts. Such contract optimization requires a holistic and systematic approach to managing corporate trading agreements — one that fosters collaboration and visibility of contracts among all stakeholders and that addresses the entire contract life cycle. Aberdeen research suggests that the quickest and most effective method for achieving contract optimization is the use of a Web-based contract management solution that offers the following:

Automate the complete contract life cycle

Ensure a high degree of usability for all stakeholders (e.g., sales, purchasing, execs, legal, etc.)

Provide an "active" repository for all contracts

Systematically integrate with other business systems

Provide tools for analysis of contract performance (Figure 1)

Automate the Complete Contract Life Cycle

The chief charter of a contract management system should be to automate and integrate what are currently discrete and manual processes of the contract life cycle: contract creation, publication and distribution, compliance monitoring and management, and performance analysis. Such integrated contract management capabilities foster collaboration between contract stakeholders, streamline process cycles, improve compliance, and reduce risks.

Ensure a High Degree of Usability

To drive adoption and collaboration across the contract life cycle, the contract management system must be non-intrusive, extending the value of existing business systems and enabling various stakeholders to operate within the environments in which they are most comfortable. For example, most companies create and edit contracts using basic word processing applications. As such, the contract management system should provide functionality that improves upon — but does not disrupt — this enterprise preference. Useful enhancements include structured version control and the automatic conversion of contract terms and clauses, such as pricing schedules or service level requirements, into parameters that can be proactively monitored and analyzed against actual transactions.

It is critical that system usability addresses the unique requirements of each stakeholder in the contract life cycle. For example, purchasing managers are interested in ensuring that negotiated pricing and terms are instituted in the final contract and complied with over the course of the contract term. Corporate lawyers want to ensure that the contract is both legally binding and does not put the company at regulatory or operational risk. Finance is concerned with the financial implications of the contract and ensuring sufficient control and process documentation.

Provide an "Active" Repository for All Contracts

The core of any effective contract management system is a central repository for all corporate contracts. This "single-point-of-truth" for a company's business relationships details obligations, expectations, and status of every trading partner.

To proactively drive compliance, information contained within this repository must be activated within transactional systems, enabling companies to ensure that appropriate pricing terms, service levels, and reporting requirements are satisfied at the point of transaction before compliance requirements are violated.

To streamline corporate contracting procedures and reduce risks, contract information should also be searchable by supplier, part number, attributes, and individual clauses or terms. This central repository must also enable the reuse of individual contract templates, clauses, and terms to ensure that standardized language is applied consistently across all trading agreements. These reusable templates and clauses should be constantly evaluated for both effectiveness and risk, enabling companies to adjust contract language and standard clauses in order to address changing market and regulatory requirements.

Systematically Integrate with Other Business Systems

As noted above, proactive compliance requires that contract information and analysis be integrated with key transactional systems, such as ERP, CRM, and procurement systems. Such integration enables the system to drive compliance and optimal contract usage at the point of transaction. Integration also ensures that sales, purchase, and compliance information is captured within the contract management system, for accurate and timely financial and regulator reporting.

Support Advanced Analysis of Contract Performance

Contract management systems must also include advanced analytics to assist companies in executing performance and risk assessments of corporate trading agreements, as well as execute individual contract terms and clauses. During the contract term, such analysis tools can be used to direct transactional systems and employees toward optimal contract usage. Analysis tools can also be used to evaluate the performance of a contract that is coming to term, including a cost and risk assessment of individual clauses or terms.

Aberdeen research indicates that the adoption of such a comprehensive contract management solution can deliver the following benefits:

Reduce procurement costs 2% to 7%

Cut contract negotiation cycles in half

Reduce contract administration costs

Improve overall contract compliance 50% to 55%

Drive optimal contract usage and improved contract analysis

Institutionalize standard procedures for contract creation and management

Enhance contract performance and reduce risk exposure through the reuse of standardized contract templates, clauses, and terms

diCarta: Enabling Contracts Optimization

Founded in 1998, diCarta is a pioneer of next-generation contract management. diCarta offers a comprehensive, Web-based solution for creation, execution, ongoing administration, and analysis of customer and supplier contracts that is differentiated both by its sophistication and usability.

Currently, in Version 4.0, diCarta Contracts offers a more mature and broader footprint than many newer solutions. Built on a J2EE-compliant architecture, the solution is also non-intrusive, enabling contract creation and collaboration using common productivity tools, such as Word, and fostering contract activation and compliance with pre-built integration into core transaction systems. It also includes role-based access, alerts, and reports to approved stakeholders, ensuring contract visibility and optimal usage across the contract life cycle.

Discrete modules within the diCarta Contracts suite rest upon a common platform that includes a contract repository and a standards-based integration framework.

Contract Repository

The core of diCarta Contracts is a contract repository that is both active and intelligent. diCarta makes its contract repository active by providing direct integration into core business transaction systems, such as ERP, CRM, and procurement. This enables proactive management of contracts, ensuring compliance at the point of sale or purchase. For example, with direct integration into an ERP or other transactional system, diCarta can automatically apply the appropriate pricing terms to a particular order prior to its initial acceptance or approval.

Integration Framework

The diCarta Contracts Integration Server is built on battle-tested technologies from WebMethods, and includes pre-built adapters to rapidly integrate and activate contracts directly within a company's business transaction systems. diCarta provides more than a dozen out-of-the-box adapters for leading business applications, including SAP, PeopleSoft, Oracle, Siebel, Baan, JD Edwards, i2, Clarify, and Vantive.

diCarta Contracts automates key processes across the contract life cycle:

Create

diCarta Contracts fosters collaboration, ensures contract controls, and streamlines process cycles during contract creation using the following modules:

Authoring Workbench empowers contract managers to develop new contracts, using a central library of approved and risk-assessed contract templates, terms, and clauses. The system provides intuitive collaboration tools, such as document redlining, comment histories, and revision tracking, to enable the creation of draft contracts to be reviewed and modified by approved stakeholders within and across enterprises. The authoring workbench also automatically captures key business terms as they are entered or modified in the contract, including terms for payments, discounts, SKUs, rebates, contingent obligations, and certification schedules. Once captured, these terms are monitored by the diCarta system to ensure proactive administration and compliance downstream. diCarta enables contract authoring, editing, and review in offline mode and ensures auto-reconciliation once the user is back online. Intelligent Roundtrip capability enables users to negotiate and edit contracts in the Word format they are most comfortable using. Any contract terms, edits, and changes created in Word are automatically captured and maintained within the diCarta system. Contract Controller minimizes contract risk using pre-defined language controls and structured approval flows. The Contract Controller also includes a library of approved contract templates and alternative clauses, reducing the introduction of unapproved or risky contract language. The solution also provides an audit trail of all contract changes and approvals, as well as associated comments and documents. Contract Negotiator automates and streamlines the traditionally labor intensive and paper-based tasks of intra- and inter-enterprise contract collaboration. In addition, it institutes security and version controls while providing the flexibility to exchange contract drafts and revisions with external trading partners in online or offline format. The module also provides a full audit trail, by capturing contract changes as well as comments between contract negotiators. Final contracts can be presented online in Adobe Acrobat or Word formats.

Activate and Comply

diCarta Contracts drives optimal contract usage, compliance, and renewal through the following modules:

Obligations Manager notifies appropriate stakeholders when contract milestones have been met or out-of-compliance actions are taken. This intelligent event-management mechanism helps companies maximize contract value and commitments by ensuring compliance with key contractual obligations, such as rebates, service-level commitments, etc. Renewals Manager proactively alerts contract managers, customers, suppliers, and other parties when contracts are coming to term and need to be evaluated and renewed. Auditor's Workbench streamlines the reporting process by providing auditors with standard reports, documentation, audit trails, and tools for executing substantive and controls testing. Such visibility into contracts and performance can help auditors identify risky terms, contract exceptions, and non-compliance, and help companies reduce audit costs.

Analyze

diCarta Contracts' advanced reporting framework provides role-based visibility and analysis across all stages of the contract life cycle:

Executive Dashboard delivers graphical snapshots of contract process and performance trends, including compliance with customer or supplier contracts; organizational productivity; contract renewals, planning, and workload scheduling; and deviation from standard contract language; and spend that is under contract. The system enables executives to drill-down on each report for further details. Professional's Dashboard provides contract managers a window into their contract language, processes, and status. Managers can easily locate contracts in the central contract repository by searching on a wide array of parameters, from basic contract types and supplier or customer names to term values and attachments. Contract Reporting incorporates a reporting server, graphical report development tools, and a series of more than 25 pre-built reports, including reports on revenue and spending under contract, operational performance, and contract expiration details.

The Proof is in the Execution

One of diCarta's greatest strengths is that its solutions have been proven in action. diCarta Contracts is used by more than 11,000 users at some of the world's most recognizable companies, including Aetna, NBC, Network Appliance, Kraft Foods North America, and Walgreen's. According to company figures, more than 4,000 contract documents are created and negotiated using diCarta Contracts each week.

For example, Kraft Foods North America uses diCarta for the creation and management of its $16 billion in annual purchasing contracts. The multinational food conglomerate has nearly 2,000 users on diCarta Contracts. Kraft promotes the management of its supply contracts via direct integration between diCarta Contracts and SCM applications from i2, as well as several proprietary back-end systems.

Aberdeen Conclusions

Companies are under increased pressures to enact strategies that can drive revenue growth and reduce costs. Aberdeen research indicates that the optimal creation, execution, and management of corporate contracts can address these issues.

Companies with formal procedures for managing contracts have been able to reduce costs, enhance compliance, shorten process cycles, diminish operational and regulatory risk, and increase revenues and profits. However, most companies lack the necessary controls, processes, and infrastructure for contract optimization. As a result, businesses are losing billions of dollars each year due to contract leakage, unredeemed rebates, and sub-optimal contract terms.

Aberdeen research suggests that the quickest and most effective method for achieving contract optimization is through the use of a Web-based contract management solution that can automate the complete contract life cycle, provide an active repository for all contracts, integrate with other business systems, and deliver tools for monitoring and analysis of contract performance.

Companies that adopt contract management solutions have reduced costs; minimized contract administration burdens; improved compliance; standardized procedures for contract management; and reduced contract risk. In short, contract optimization is an effective, recession-proof strategy for surviving current economic and regulatory hardships and driving continual operational success.

Industry veteran diCarta currently provides a proven and comprehensive solution for contract creation, execution, compliance, and analysis. The diCarta Contracts solution is differentiated by its sophistication, usability, and proven success in the marketplace.

[1] Institute for Supply Management

[2] Spending Analysis Benchmark Report: Dissecting a Corporate Epidemic (Boston: Aberdeen Group; January 2003)

[3] Supplier Performance Measurement Benchmark Report: Measuring Supply Chain Success (Boston: Aberdeen Group; January 2003)

To provide your feedback on this research, please go to www.aberdeen.com/feedback .

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