For large companies, procurement typically involves contracts specifying which parties do what, when and how. Costs and payment terms are part of the mix, too.
This contracting process comprises a sizable measure of work for in-house legal teams, and is rapidly migrating from its historical role as purely a cost to an area of corporate innovation with vendors and suppliers, said Jeffrey Rajamani, a senior analyst with Forrester.
“The procurement function is transitioning from cost to value and now to the customer,” Rajamani said in a webinar about how strategic contract management can yield better risk control and performance from suppliers. “It’s about being focused on a customer’s priorities. Costs and value are equally important, but a focus on priorities means a focus on innovation.”
The discussion was hosted on Dec. 10 by Ironclad, a San Francisco-based legal software company that develops contract management tools.
“Costs will not go away, value will not go away, but keeping customers at the center will be very important,” Rajamani said in the discussion with Fred Kang, an Ironclad product executive.
This focus on customers’ priorities and supply-process innovation has been driven partly by the global supply-chain disruptions that occurred during the COVID-19 pandemic, introducing new complexity, cost and regulations into supplier relationships, he said.
Rajamani highlighted five trends that are influencing procurement for large companies:
- ESG as a top business priority
- Innovation systems replacing cost-optimized direct supply chains
- Supplier risk, supply chain resilience and compliance as procurement differentiators
- The role of AI-powered automation in transforming procurement
- And the role of self-service processes in creating buyers outside the formal procurement function.
Contracts are key to the evolution of these trends, Rajamani said. “Contracts define who does what, at what price when everything goes as planned,” he said. They also define “who is liable when things do not go as planned.”
As with other areas of legal technology, artificial intelligence is becoming more important to CLM makers and their customers, Kang said.
“You can’t turn a blind eye to AI,” Rajamani said. “Procurement was perhaps a little late to the game. But it’s kind of exploded.”
When choosing a CLM system, legal executives should first separate “the hype from the substance” of vendor claims, Kang said. Secondly, in-house tech buyers should identify key tasks where AI automation can assist a company’s business processes.
“There is really great AI but it might not match in how you need it and how you’re using your products and your business processes,” Kang said.
