Cars, trucks, and innovation are part of Detroit’s culture and nearly everybody who lives there is part of “The Big 3”: General Motors, Ford, and Chrysler. The disrupted supply chain and labor shortage seem to be a major cause of parking lots filled with cars that cannot be sold while dealerships have few to sell. After years of record profits, the auto industry is at that pivotal moment where it’s time to apply innovation to manage supplier contracts. After all, the current process being used was designed and implemented back when flip phones were all the rage.
Modern contract lifecycle management (CLM) software helps companies turn their contracts from a liability into a highly managed asset that keeps companies safe, while providing world-class contracting services for its customers, employees, and vendors.
Ann Marie Uetz, Partner and Head of Foley Lardner’s Automotive Practice Group recommends in this article that “suppliers should consider updating traditional operational and contracting practices in order to enhance flexibility in a more unpredictable world.” Many Agiloft clients report that their managed contracts have an instant return on investment that provides suppliers with greater flexibility and risk sharing in pricing, warehousing/inventory, and managing freight costs.
While the automotive industry is a considered a leader for technological innovation in manufacturing, the industry is late to adopt business process technology. Remember back during the recession in 2007-2011, when budgets and staffing for the Office of the General Counsel (OGC) went down while the need for their services went up? GC’s that thrived during that time harnessed the power innovation using solutions like cloud-based matter management and ebilling systems. Now, 15 years later, GC’s will attest that these systems are critical in keeping their organizations safe and help them provide world-class legal services.
Now, in 2022, the industry seems to have another mission-critical need for innovation. Today, Contract Management is the key for legal, finance, procurement, and sales in helping the company increase profits and reduce cost while improving efficiencies, morale, and relationships.
Read our four key trends for why the time is now for the automotive industry to embrace digital transformation with CLM.
Contract lifecycle management for the automotive industry
If you’ve worked in the auto industry, you’re most likely familiar with:
- Expedited freight charges
- Price changes
- Management of tooling
- Keeping a scorecard green
- Knowing and fulfilling service obligations
- Cost sharing
- Collaboration on contracted service level agreements
How does an organization manage all these friction areas many years after contract execution? What about employee turnover, the increase in work from home, and disparate financial and supply chain systems? If contracts dictate money in and money out of an organization, shouldn’t they be managed and measured as if the health of the company relies on it?
With CLM software in place, an organization gets a full view of all contracts associated with a particular customer or supplier. All modifications, negotiations, and track changes of every contract, and the metadata within the contract, are now managed and measured, serving the company as an asset and not a liability. For continued visibility of contracts (that may last up to 30 years), best practice is to warehouse the data in a database that is visible across sales, legal, finance, and operations teams now and for your company’s future.
What if it were possible to integrate master service agreements directly into your ERP system? What if freshly negotiated freight terms went directly to your logistics teams automatically? What if a new calendar year and subsequent new per-unit price was reflected instantly within your financial systems to avoid invoicing discrepancies?
Why agile CLM is critical for success:
The possibilities with Agiloft’s agile CLM are endless with these three capabilities:
- No-Code Platform – configure the system to operate the way you operate.
- Integration Hub – work in the systems you already use and exchange data with over 400 other enterprise systems using Agiloft’s Connected Experience Platform.
- A Partner Network that consults on best practices, systems designs, implementation, and Go Live.
Three ways automotive companies get more value from contracts with CLM
Here are three simple examples on how suppliers use Agiloft CLM to address price changes, freight terms and service obligations.
1. Price Changes
During a vehicle program life, often there will be annual price changes either at certain production volumes, or at certain years into the program. With Agiloft, the process of updating contract-dictated pricing in an MRP/ERP system looks something like this:
- A contract is executed. Pricing tables with set price-downs and discounts/upcharges are laid out in the table.
- Agiloft is configured to extract pricing from tables as metadata.
- Agiloft CLM system with pricing metadata is integrated directly into customer ERP/MRP system using Workato “Recipes” via the Integration Hub.
- Rules and notifications can be configured so that systems communicate at certain times. For example, ERP system recognizes that it is year 2023 and thus ERP system refers to metadata in Agiloft for latest 2023 pricing in the pricing table.
- New year 2023 price is extracted from Agiloft and updated in ERP system for a seamless price change.
2. Freight terms:
When freight terms need to be renegotiated, Agiloft will reflect the change and update the ERP system.
- Agiloft and customer ERP system are integrated, and ERP system is designed to pull metadata from Agiloft Contracts.
- Sales Team and Customer renegotiate freight terms.
- New terms are set forth in a contract and saved into Agiloft.
- Agiloft updates metadata, and ERP system pulls new metadata into their system for seamless update of terms and conditions.
3. Fulfilling service obligations:
It is typical for a supplier to have obligations of fulfilling service parts for a duration up to 30 years after the end of a program life. With employee and systems turnover, sheer volume of negotiated contracts, and contract timeframes, how can a company expect to know their legal obligations from 25 years ago?
- From the beginning, all contracts are negotiated, track changed, approved, and signed within Agiloft. Or legacy migration brings in contracts and all metadata.
- As production continues and programs phase to service, negotiations take place and eventually a master contract is in place within Agiloft.
- 20 years pass, and new employees are running operations. A customer request 10 pcs of part number XYZ123 – a part unfamiliar to most employees within the company now.
- Employees can easily reference Agiloft to view all contract-related history, negotiations, involved signing parties, and most importantly, terms and obligations. Reviewing this data and having it at your fingertips allows for service obligations to be acted upon quickly and fulfilled easily.
When you combine a central, well-managed place of truth for contracts, automation of dozens of business processes with custom workflows, and multiple integrations powering data exchange and intelligence, you empower your organization to use innovation to thrive not just survive in uncertain economic environments.
Want to learn more? Our automotive contract management experts are ready to discuss how CLM can help your organization get more value out of your contracts and use it to gain an edge over your competition. To learn how, schedule a customized demo today.