Can better vendor contract management save Air Canada?

air-canada-logoThat’s what new Air Canada CEO Calin Rovinescu and an independently commissioned report on cost saving initiatives at Air Canada hopes to achieve, according to the company’s recently published trading statement.

Air Canada, like many airlines, is witnessing one of the worst downturns in business in its corporate history, with the economic situation and more recently, the threat of the (H1N1) Swine Flu pandemic making travellers less able or less eager to fly. 

Calin Rovinescu, who has only been in the job for five weeks, has a tough battle to prevent Air Canada from its second bankruptcy filing in the last ten years.  He recently commissioned an independent review of cost saving initiatives within Air Canada, which concluded that along side more effective manpower planning, better vendor contract management should save the company over $250 million over the next 18 months.

Lots of product and service providers use the economic downturn to sell their solutions as ‘recession-busters’, so what is it exactly that Air Canada and leading management consultants believe that Contract Management can deliver an organisation in tough trading conditions?

Here are five key areas where Contract Lifecycle Management software solutions can have a direct impact on the bottom line:

1.  Eliminating unnecessary cost
Auto-renewing (or evergreen) supplier contracts are often one of the key sources of unnecessary costs.  These occur when critical dates in a contract, like an expiry date or renewal date, are missed or not acted on in a timely manner, and can result in significant financial cost to an organisation that ends up having to pay an unwanted supplier out of a contract.

In any case, it could be argued in the current economic climate that if buyers are not reviewing the performance and costs of vendor contracts towards the end of the contract term, they are probably not taking advantage of the current ‘buyer’s market’ to seek greater cost savings and value for their organisations. 

2.  Streamlining and automating manual processes
Few organisations have standard operating procedures around contracting and contract management.  This means that the contracting process is often slow, cumbersome and manual – involving many (high cost) people.

Contract Lifecycle Management systems support the contract process, by helping organisations to streamline the creation of new contracts, the internal review and external negotiation process; in addition to providing alerts, reports and analytics on key contract milestones, obligations and commitments.

3.  Reducing contract-related risks and liabilities
Being able to manage the minute detail held within contracts on a macro level is the nirvana of many Legal and Finance teams.

Hand on heart, how many legal counsel are able to categorically state how many contracts make use of a particular payment terms clause, or how many contract contain non-compete or non-solicit clauses?

It is often the threat or actual cost of litigation that can have a greater impact on the bottom line if an organisation is not able to manage its contracts in an efficient and cost effective manner.  Contract Management software solutions should be able to provide this back-up service to keep an organisation out of court, or to reduce the cost overhead if the worst case sceario should play out.

4.  Better contract obligation and service level agreement management
How many contracts, once negotiated and signed by both parties, are archived away in paper filing cabinets or electronic storage systems, never to be seen again by the business until something bad happens?

How many obligations and commitments agreed to in contracts are actually distributed to the key people throughout an organisation (like Accounts Payable, Customer Service, Maintenance, Sales, Legal, etc) and is employee performance ever measured against how contract obligations are managed and dealt with?  Unlikely.

However, these are some of the key benefits of delploying Contract Management software.  Companies like Dolphin Software believe that contract managment should not be the sole responsibility of a small group of specialists in legal or procurement, but that managers throughout a business who can affect or ‘touch’ elements of a contract, should be given the tools to be able to keep on top of their responsibilities and obligations. 

Only when this happens can a contract be truly managed to its full potential and in the way that was originally intended when the terms and conditions of the contract were negotiated.

5.  Compliance to corporate governance legislation and industry regulations
If you operate in a highly regulated industry, or you work for a publicly traded company, it is likely that you or your colleagues will have to produce regular management reports to prove to audiors or regulators that your organisation has well defined and controlled business processes and that you are in control of key risks, costs and commitments.  The production of this management information can often be a cumbersome and lengthy exercise that can divert managers away from their core roles.

A contract management process that is managed and controlled by Contract Management software throughout the lifecycle of the contract process, should be able to produce corporate governance or statutory reports for regulators that relate to contracts, in a fraction of the time.

The cost of non-compliance may be a hefty fine, reputational damage or the withdrawl of trading licences in extreme cases.

As always, it is unlikely that technology alone will deliver these kind of benefits, but the application of software solutions like Contract Lifecycle Management in conjunction with business process change, and no doubt cultural change, will put an organisation, like Air Canada, on the best footing to permanently eliminate unnecessary contract-related costs.

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