Three Steps to Tackle Value Leakage

Value leakage occurs when the value realized over the life of the contract is lower than the value agreed or lower than it should have been agreed.  Missed discounts, pricing discrepancies, unnoticed contract renewals, and inefficient supplier management can quietly drain resources. 

Understanding where and why this happens is the first step to addressing it, but it isn’t the end of the journey.  This article outlines a practical, three-step approach to identifying, prioritizing, and recovering hidden savings—helping you to strengthen supplier relationships and maximize the impact of your agreements.   

Step One: Gain Contract Visibility and Identify Value Leakage

At this stage, organizations recognize that they are experiencing contract value leakage but may not yet understand its full scope or root causes.  This is because of a lack of contract visibility, which makes it challenging to track supplier obligations at scale.  Once populated with contracts, the Digital Mirror application removes this hurdle and the journey to eliminate value leakage can begin. 

Key Activities 

• Identify opportunities to claim, amongst others, early payment/volume discounts, rebates, or credits. 

• Detect duplicate or inaccurate invoices, unfavorable payment terms, or other sources of unnecessary expenditure. 

• Verify pricing against catalog/discount schedules. 

• Gain visibility into potential under or overuse of materials, services, or resources.  (e.g. licensing) 

• Identify automatic price increases or decreases.  Determine if thresholds are defined. 

• Track and manage renewals to avoid missed renegotiation opportunities or automatic renewals at higher rates. 

Outcomes 

• Improved contract visibility, leading to proactive management of value leakage risks. 

• Quantified value leakage with supporting evidence, providing a foundation for structured improvements. 

• Increased identification of recoverable savings through discount enforcement, duplicate invoice detection, and pricing discrepancies. 
• Enhanced contract governance through improved tracking of supplier obligations, contract terms, and performance benchmarks.

Step Two: Prioritization and Value Recovery 

Once leakage points have been identified, the organization can start prioritizing areas with the highest financial and operational impact, prompted by insights from Digital Mirror. 

Key Activities 

• Categorize leakage by root cause, including subcategories (e.g., pricing leakage: missed discounts). 

• Map external data sources to target categories. 

• Track supplier obligations, including SLAs and performance-based incentives. 

• Categorize KPIs by success rate based on cost implications and potential for operational disruption. 

• Capture the team’s “tribal knowledge” within the prioritization process. 

• Automatically flag supplier non-compliance with KPIs. 

• Identify early wins, such as enforcing discounts or recovering overcharges. 

• Define corrective actions, such as renegotiating unfavorable terms, improving supplier accountability, or strengthening compliance controls. 

Outcomes 

• A structured action plan with timelines, responsibilities, and measurable success metrics. 

• Increased cost recovery from identified contract discrepancies and non-compliance. 

• Improved supplier compliance with contractual obligations, reducing financial and operational risk. 
• Shortened response times to regulatory and market changes, minimizing contract-related disruptions. 

Step Three: Automation and Sustainable Value Capture 

With the most critical leakage points identified and process improvements underway, it’s time to deploy automation to capture the best practices embedded as tribal knowledge in the team and ensure the value promised in supplier contracts is captured and managed sustainably. 

Key Activities 

• Automate key contract management tasks to institutionalize best practices. 

• Rationalize KPIs and obligations based on financial, operational, and compliance priorities.  (see article on Priorities for Rationalisation) 

• Continuously monitor and re-evaluate contract and supplier performance. 

• Implement proactive alerts and preventative actions for potential supplier failures. 

• Trigger corrective actions when suppliers fail to meet contractual obligations. 

Outcomes

• Reduced manual effort and improved operational efficiency through automation. 

• Enhanced supplier performance visibility, enabling proactive risk mitigation. 

• Sustainable cost savings through continuous value leakage prevention. 

• More precise and actionable supplier performance metrics. 

• Improved contract adaptability to regulatory and market shifts via automated updates. 

Conclusion 

Preventing value leakage isn’t just about identifying losses—it’s about building a more proactive, data-driven approach to contract and supplier management.  By improving visibility, enforcing terms, and leveraging technology to track performance, you can recover lost value and create lasting financial and operational benefits. 

Addressing these gaps strengthens supplier relationships, enhances negotiation strategies, and ensures that every contract delivers on its intended value.  The journey to reducing leakage requires continuous attention, but by following these steps, you can turn hidden losses into measurable gains.