Introduction
The more things change, the more things stay the same—and the more pressure law firms feel to cater to client demands. Though we have emerged (we hope) from the pandemic, firms are now looking for ways to differentiate themselves as client spending continues to normalize. But they are also looking for ways to serve clients more efficiently, given the risks posed by a looming recession and uncertain political future.
Law firms that have already strengthened and centralized their procurement function are likely better prepared to address these continued shifts. But unless demand grows, law firm margins will remain under pressure. As clients continue to expect better service at a lower cost, procurement teams must play a bigger role in finding new ways to improve the client experience while meeting client expectations for efficiency, diversity, and sustainability—all without adversely affecting firm operations or headcount.
As clients continue to expect better service at a lower cost, procurement teams must play a bigger role in finding new ways to improve the client experience while meeting client expectations for efficiency, diversity, and sustainability—all without adversely affecting firm operations or headcount.
Three key priorities for 2023
In our Law Firm Procurement Survey at the end of 2022, we once again asked procurement leaders across the country to identify their current and future concerns. From those discussions and our own ongoing client experiences we've selected three strategic priorities to guide the efforts of law firm procurement offices in 2023:
- Managing vendor risk,
- Increasing the scope of vendor governance, and
- Broadening environmental, sustainability, and governance (ESG) efforts.
Managing vendor risk
Law firms rely heavily on outside vendors, who can be sources for a range of risks, from financial to data breaches, which can also cause reputational harm. Managing vendor risk is therefore crucial. Procurement teams should survey the risk landscape by identifying all active vendors, assessing their potential risk impact, and categorizing them based on their value and risk. Policies and procedures should be created to mitigate risk, including provisions regarding contract obligations, security measures, and audit clauses. Regular monitoring and measurement of vendor performance and program effectiveness are essential.
Centralization reduces the amount of effort required for vendor management and improves contract consistency and expense management.
Increasing the scope of vendor governance
Given the uncertainty in the legal market and the prospect of a recession, nearly half (48%) of law firms are prioritizing the expansion of their vendor governance program in 2023, an 18 percent jump from 2022, according to our 2022 survey. In addition to risk and reputation management, vendor governance programs help law firms identify potential areas for cost reduction. By centralizing the governance function, firms can assess risks, source efficiently, negotiate flexible contract terms and mitigate contract risks, and guide staff to make the most cost-effective buying decisions.
Firms are encouraged to map spending and contractual obligations against current needs and priorities, then compare how well those correlate, taking into consideration "must haves" and what are merely "nice to haves." It is also important to have in place mechanisms to control costs, including policies and procedures and proactive budget tracking.
Strengthening sustainability and supplier diversity initiatives is increasingly important for law firms. Procurement teams should determine the firm's carbon footprint, set sustainability goals, and communicate progress transparently. Supplier diversity programs should be formalized, including clear standards and goals, proactive research to identify diverse vendors, and support to help them grow. Procurement teams can play a significant role in enhancing a firm's ESG maturity and engaging diverse vendors.
Law firms are lagging behind other industries in diversifying their supply chains.
Conclusion
As law firms adjust to changing market conditions, they should not overlook the value of the procurement function. Procurement can add value in managing vendor governance, including vendor risk, and supporting sustainability and supplier diversity initiatives. Procurement teams should advocate for greater oversight of their firms' vendor programs, which can help firms not only be better prepared for financial challenges, but also compete in areas that matter to their clients, including vendor risk management and ESG.
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- Business operations
- Cost & spend management
- Operational performance
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