Intro:
Welcome to the Contract Lens Podcast brought to you by Malbek. In this podcast, we have conversations with contract management thought leaders and practitioners about everything contracts and its ecosystem. For today's episode, we look at how to transform contract management for procurement. The conversation is led by Karthik Rama, a contract management expert and transformation leader in the procurement space. Known as the Procurement Doctor, Karthik uses his 17+ years of experience to help organizations diagnose procurement issues and prescribe tools, methods, and technologies that will transition them to new, more efficient processes. So now, it's time to relax, grab a glass of wine, and let's talk contracts.
Anne:
Hi everyone, and welcome to the Contract Lens Podcast. Today, we're going to be talking about transforming contracting for procurement, and we're very fortunate to have with us someone who is known as the Procurement Doctor, Karthik Rama. Hi Karthik, how are you today?
Karthik:
Hey, Anne. I'm doing great. Thank you for having me on as a guest. Excited to talk to you today.
Anne:
Wonderful. Well, we're excited to learn from you. So first, let's just start with why is there a need to transform contracting for procurement, and maybe a little bit about how contracting is different for the procurement part of the business than other parts.
Karthik:
Well, that's a big question and I'll just start responding to this question with a few questions to all our listeners, or probably to you as well. And this will be more so, since I'm the Procurement Doctor, I tie it back to a lot of the procurement use cases within procurement over the years. While me being as a procurement guy, I've seen fire drills in the last minute about finding a contractor. The CFO, or the CPO, or the business head calls in and says, "I need to know more about this relationship with this supplier. And what is it that it's up for?"
Karthik:
And then you start going around like rats and you try to find the contract and look at all the different addendums, all the abuse of the amendments against that contract, look at what's the latest document. You're scrubbing through different file cabinets or your shared drive or your folders, even if you had a tool, even within the tool, if it's not structured the right way. That's what I've seen a lot of time being spent on. And it's not a useful way of spending your time. And that's where I see as one of the core reasons to transform your contract management.
Karthik:
And the contract management within procurement, it's kind of the bloodstream or the nervous system of the overall procurement piece, because contracts are placed on more so the strategic purchases of high-risk items. And if you don't have a clear visibility towards them, you're up for unhappy, you'll not feel satisfied working. And more so, as an organization, you have that liability of being sued anytime if you're missing on any of the obligations on the contract. So that's what I see as definitely very important to have a transformation within your contract management as a part of the procurement piece.
Karthik:
And it makes things easy as well for you, as overall business process. Once you have your contracts standardized, maintained in a particular manner which is easily visible to the management as such. That's on the front of why do you need to transform. And I'm sure if you allow me to talk, I can talk on this for the next three days. There's other things also, but this is a top most thing that comes to mind.
Karthik:
And how is contracting different for procurement than the other business areas? The other business areas, either you have the sales contract, either you have the interdepartmental contracts or the employee contracts, and then there's purchasing contracts or the procurement contracts. These are the different gamuts that come to my mind. What I see is, on the procurement side of things, depending on an organization, if there's heavy... Depending on what you are selling or what's your product or your services that you're delivering, the contract's management within the procurement would differ.
Karthik:
For instance, if I'm an organization who deals with radioactive waste disposal, or water treatment, or something to do with nuclear, then it's very heavy handed on the legal side even though you're purchasing, because you might get affected by it. And if I'm an organization who's into purchasing of stationary, pencils, pens, or whatever, then the legalities would be a little more lighter in nature. And if you look at it, depending on what you're purchasing as an organization, if it's for something more high complex, high risk, then there is more process, more compliance, extra steps. It's a lengthier contract signature timeline as opposed to the other, noncritical purchases.
Karthik:
Unfortunately, I've seen, being in this industry for close to 17 years, I've seen that contract management within procurement of the overall source to pay cycle is kind of a second fiddle or is given a step-child-like treatment because procurement traditionally are focused on saving money, ensuring that the invoice is paid. And they're more so held up in this daily minutia of getting those things done. And then, by the time the contract is out, it's signed, they just left it at that and there's no follow through or real execution in terms of what the contract is spelling out and how do you follow it through.
Karthik:
The other piece is, if you're on the sales side, it's more so your paper, which is your company accepted legal terms and conditions or the bilateral contract. But on the procurement side, depending on how strong or how big you are as an organization, you might end up signing a lot of your supplier paper or whoever you're purchasing it from. So, that's the other aspect that could potentially also take a longer timeline. So I see that there is an opportunity out here where it will be good to have procurement professionals which are a little more legal background, which would help them with sharing the load with the legal team, as opposed to going to them on every single redline.
Anne:
Sure. That's a really good point about having more of a legal background because you're always looking at third party paper that you're not familiar with and you need to know what's in there. Well, that leads me to talking about how a CLM can help procurement transform their processes. Definitely lots of great capabilities out there in the modern solutions today.
Anne:
It still surprises me every day, talking to organizations who truly are still managing things manually, struggle to locate contracts, can't manage any milestones coming up or know what they are because of these manual processes. So there's still plenty of organizations trying to do it that way. So in your experience helping organizations automate processes and put technology in place, let's hear from you a little bit about how specifically CLM technology could help in transforming that contracting process.
Karthik:
Absolutely. And I'll just add a little bit of color before I get into answering this particular question. So what I see is potentially the contract management solution, if I'm implementing a broad solution which does the end-to-end thing, so as to pay the entire cycle, sourcing to pay the entire thing and contract a subset of it. I see contract management as one of the most difficult module to sell within a procurement organization, is because either legal is ahead of time or they are reluctant to move towards technology.
Karthik:
There are very few companies where I've seen that the legal is jumping out their seat and saying, "Yeah, I want to use this contract management solution." So you've got to be very sure of what is the tool and how is it going to impact them. And it's better to take them through the journey right at the beginning, even before you select a tool, because if you're expecting them to use the tool, you need to take their buy in. And that's key critical for the success of CLM implementation within the procurement organization.
Karthik:
What I've seen, a lot of these tools way back then, around 15 years ago, and I was a category manager for radioactive waste and that's the reason I keep bringing that example back, and I've had a scenario story where cut a cake and [inaudible 00:09:17] the signature of a contract. And it took it around two years time for the contract to sign because of the back and forth for those two years on the legal language. And you can imagine how many lawyers had switched between, from the supplier side, as well as in the procurement side, even the procurement organization as well.
Karthik:
And that's the length of the overall negotiation for the contract, right from draft, to authoring, to negotiation, to get signed. That's when we came back... And I used to work with four different lawyers and each lawyer had their own style of writing the same clause. And it would be a simple standard extension of your agreement, which is extension in dates, changing it from this year to another three years. But everyone liked to call it out differently. And I asked the category manager, or the person working with those lawyers, I used to mess it up every time is because I used to forget who needed what.
Karthik:
And that's when we came up with this concept called a playbook, which is kind of a Bible of kinds. And the playbook basically gives more hands-on ownership to procurement, where legal is okay with giving some kind of a pre-approved fallback language to the procurement folks. And let me take out an example here. I sent a contract to supplier, looked at the confidentiality clause, or let's say privacy clause, and he said, "I don't like it this way." And then you go back to your playbook and the playbook suggests it should... This is the next fallback language. You just pop that in without going back to legal and the supplier is okay with it, the contract is signed.
Karthik:
Now, that's one scenario. Another scenario is where the supplier isn't happy with the fallback language and you go back and change whatever is in the contract, and your system could potentially send out a trigger to the particular lawyer within your company who looks at privacy, for instance, that particular language, and they could review it, make the changes within the system, and it comes back to you, you look at them, and you push them out to the supplier to accept those terms. So you could potentially do that. Back 15 years ago, I had to do this through, what do you say, a Word document.
Karthik:
But when that organization took up a CLM tool, we were basically able to post this within the system. The ownership of the clauses and metering of the latest templates, all of that was managed by the legal team. So they were the people who were going in and reviewing it every so often, and then keep updating that. And procurement has the access to the latest templates. And they happen with templates as well. What happens is you have a potential new request that came from your end-user and you need to send out a contract.
Karthik:
I, as a sourcing guy or the category lead, what I did is I had a contract that I negotiated three, six months ago, and it was laying in my email or someplace else. I just picked that contract and send it over to the supplier. "Here's our contract." And then the supplier happy with it. You're near to signatures. Now you involve legal, and they come back and say, "Oh boy, that's the old contract. We need to redo the entire step." So those small tweaks to the process or having a standard solution will help you with not having issues.
Karthik:
And even simple things such as I've had issues where I still don't know how do you spell 90 when you write it in words. So I was like, "N-I-N-E-T-Y or N-I-N-T-Y?" So my organization, way back then during the recession period, back many years ago, we were trying to push all our contract payment terms from 60 to whatever. We were trying to get all our suppliers to pay 90 days of payment terms. And I was doing this mass contract updates of 15 contracts, out of which maybe 12 of them had the wrong spelling because I just copied them over. And then, luckily I had a lady in the quality team who had hawk eye vision and she caught those mistakes. And I had messed up my KPIs for that month because of that simple mistake. And the tool can fix that piece for you. And this is how I see the importance of the CL within a procurement transformation as such.
Anne:
Sure. I mean, having those templates, clause libraries with the fallback language already pre-approved, all the spelling already checked in those options, in those fallback language choices, and not leaving things to error, or more involvement from legal than you really have to have if they've already pre-approved fallback options for the end-user.
Karthik:
And remember the old days, Anne, if you sent out the email to the wrong supplier, with the wrong contract, he gets to know the prices. Oh, boy. That's a big mess. If you're sending an email, you send it to the wrong guy, and he gets to know what the real price is. And if that's out and he's filed a lawsuit or whatever, look at the mess that you have as an organization.
Anne:
That's another really great point that I actually had not thought of. That's another reason we can add to the list of how automating and using a CLM can help. Also, you mentioned the playbook. And back when you first were coming up with this playbook idea, it was actually a book online almost, maybe an Excel spreadsheet or a Word document to refer back to. But today, a playbook can be built and leveraged with AI that we can even make that really easy for the procurement users to apply the playbook to contracts that they're getting from third parties. So another way we can really make the whole process easier.
Karthik:
I've seen such awesome use cases with AI within contracts, where I've heard of a tool recently, I won't take the name, is where it's basically a chat bot. And the chat bot is pushed out to negotiate with the supplier. And the chat bot has access to this tremendous data from the enterprise level contracts, which are digitized and the data is available in the system, and the chat bot has access to those 15,000 contracts. I, as a human, would not remember all 15,000 contracts.
Karthik:
And it's picking the best possible scenario to negotiate with the supplier. The supplier feels much more comfortable because he thinks he could fool the robot. What would the robot know? Because he's been doing this, he thinks it's a basic chat bot, just saying, "Hi, okay. Now let me assign you an agent." He's going with that precedent. But the chat bot, or the bot that's chatting and negotiating with the supplier, has much more information offhand and it can get you better deals as an organization itself. So that's another thing that I recently heard of, which was very interesting to me.
Anne:
Yeah. It's amazing the technology that we have today, and it's every day, more and more coming out, especially in legal tech. So you are referred to as the Procurement Doctor. You can help organizations fix these issues, not just with putting technology in, but there's a lot more to it that you have to do before, during, and after a transition to new and better processes. Could you talk a little bit about how you are able to help organizations that want to transform and some of the key things you need to make sure you really get right to make it successful?
Karthik:
And I think I spoke about one of the points, is to align with legal, for sure, before even the project starts, because you want to have them on your side of the coin. I've had issues with that particular scenario, where procurement was all into it, but they didn't take legal along with them. And what happened was I was going to do a user acceptance testing of whatever is this process we laid out, and legal was not ready to come in and test the system because they were not involved enough on it.
Karthik:
So we don't want that kind of a scenario. It's better to involve them right from the business case standpoint, or when you're driving through, even before you are finalizing on a tool, just so that they are completely in alignment. Similarly, other stakeholders as well, not just legal. Maybe finance or the other stakeholders that touch CLM solution. Now, that's before.
Karthik:
Now, during the contract management process, what I suggest is... And another important piece before is, if you are in a very bad state of maturity... So I, as a Procurement Doctor, what I do is I come in, I look at your current state, I diagnose all the issues. I'll first look at all the current database documents, how are they, where are they, in what state are they, then I conduct individual interviews with the key stakeholders. And then I have where your organization needs to get to, in terms of maturity. So it's basically people, process, data, and technology. These five elements is where I do the diagnosis.
Karthik:
And then, as a part of the diagnosis, usually if I see that right now, you have 22 countries that you have contracts you want to implement the CLM solution to, so you should definitely look at having one universal language, if not the entire contract translated, at least have a contract abstract document in English so that the executive level folks can understand what the contract is about. That's one piece. Another piece is pain has its contracts, scan them in each file cabinet. They are ink signed. They don't use any digital signatures, whereas US has it all properly put in a shared drive with a folder structure, every contract has an ID, which ERP does it tie to, all that kind of information.
Karthik:
So you need to take all this into consideration when you are migrating the contracts from whatever previous system to the current system, or previous manual process to the current process, which is called the legacy contract migration. That ends up a project by itself within a contract transformation, so you need to ensure that you have that data available the right way, you're giving it enough time. You don't want to get stuck if you implement the CLM solution and you don't have your old contracts for the next one year, then you would eventually give up on the CLM because you're not getting the required output from it.
Karthik:
You would be still looking at your share drive for old contracts and utilizing the new contract system to any new contract that's coming through. So, that's double work. So you need to ensure that that needs to be aligned. You got to be a little flexible as well, because these solutions have a lot of good features. There's no point in just replicating the current state to your future state. That's a no-brainer. So you should be a change enabler and not a change defaulter. I'll leave it at that. There's a lot more to speak in that particular subject, and that's an interesting topic by itself.
Anne:
Yes. I think that we could have another podcast dedicated just to legacy contract migration, don't you?
Karthik:
Absolutely. And I can take you through my methodology on how to migrate it. All the bruises I have on my elbows and my knees transforming close to 35,000 contracts over my lifespan.
Anne:
You can offer a lot of lessons learned, that's for sure, and how to get that right. Because, like you said, it is critical to the success of the CLM going forward, you want to be able to have access to all of your contracts and not just the new ones. But the other point you made that I think is important for people to realize when they are considering automating and getting a CLM in place is that the legacy contracts are, like you said, almost a project in itself, so it needs to be given that same level of attention to determine the process you're going to take for getting those into your new CLM.
Karthik:
For sure. We'll do that. Unfortunately, and what I've seen is, a lot of the procurement organizations think of this as a data entry job, it's as simple as that. But it isn't that simple. You need to know what laws, what does it say, whether it's expired, is there spend against that contract, a lot of other jazz around it. But we'll talk in detail about that in the future, for sure.
Anne:
I think that sounds great. Well, we'll get that scheduled because I know a lot of people would be interested to hear what you have to say on that. Well, as we wrap things up, Karthik, could you let our listeners know how they might reach out and find you if they'd like some help transforming their procurement processes?
Karthik:
Sure. So I'm big on LinkedIn, Anne. And I go by Karthik Rama, the Procurement Doctor. If you search by that name, I'm pretty sure you'll find me. And LinkedIn, YouTube, Twitter. I've got a couple of videos on YouTube, so you can search by the Procurement Doctor channel. You'll find me there. My Twitter handle is @ProcDoc, and you could find me there as well.
Anne:
Wonderful. Thanks so much. Well, I think that this has been so informative. We appreciate you being here so much. Listeners, thanks for joining today. And again, we've been talking with Karthik Rama, the Procurement Doctor. Thanks so much.
Karthik:
Thank you, Anne. It's a pleasure.
