5 Important Contract Management Practices That Will Benefit Any Procurement Department

Wednesday 13th Apr 2022 |

A business works better through effective partnerships. No organization can survive on its own without the joint effort of others. Therefore, whenever an organization teams up with another, there would usually be some underlying principles that govern their relationship. 

Without these principles, the relationships may suffer, and their ultimate goals may not be met. A business contract is a legally binding document between two or more parties that defines their obligations to each other. Procurement services are intimately related to contracting, as it concerns the negotiation and fulfillment of specific duties. 

Hence, an effective contract management practice is essential to ensure the profitability of a business. The contract management method plays a vital role in the procurement circle of any business, and contracts are inseparably linked to relationships with outside service providers and other purchasing organizations.

Suppose procurement and contracting teams depend on manual processes like spreadsheets and other siloed systems to manage their contracts. In that case, it could render the overall management of contracts time-consuming and incur higher costs while exposing the organization to risk. A single flaw in a procurement contract can cost huge bucks for your company.

This article will discuss contract management and the key benefits it could have on your business’s procurement department.

Understanding contract management system

Contract management is the practice of managing the creation, execution, and analysis of contracts to enhance operational and financial performance while also reducing financial risks that may be involved. 

It encompasses all the negotiation of the terms and conditions in a contract while ensuring compliance with the agreed terms. 

However, a procurement contract is a written agreement between a company (buyer) and the procurement service provider (seller). The obligations of both parties, the terms, mode of delivery, and other legal conditions are clearly stated therein.

Aims and objectives of contract management

Some of the key objectives of effective contract management practices include:

  1. Contract management helps make transactions hassle-free, maintaining solid relationships with your suppliers.
  2. It enables you to Discover quick solutions to any possible conflict and reduce risks in your dealings.
  3. It ensures timely delivery of products or services at the right place and in the correct quantity
  4. It makes sure that the product or service conforms to the specified standards.
  5. Contract management makes certain that the product or service is sold at the agreed price.

Best Practices for Contract Management in Procurement.

It is important to develop a standardized and highly reliable contract management process for your procurement department with all the objectives mentioned above.   

Below are some practices that, when utilized appropriately, can help your business maximize the contract value while still maintaining the contract’s security and productivity during the procurement process.

Start With Vendor Management and Service-Level Agreements (SLAs) 

This is one of the best practices to improve contract management in the procurement department. With it, you can get much greater visibility into the performance of your supplier relationships. 

Improving contract management in the procurement department all boils down to proper planning and strategy. 

Through effective analysis, you strengthen vendor relationships that can support your business in reaching its outcomes. Although, this is only possible by implementing a contract lifecycle management (CLM) software platform.

Automate the Process of Creating Purchase & Negotiation Orders

The whole manual process of checking your supplier proposals and collecting them can be time and effort-consuming. To that end, you should automate your negotiations and how you select suppliers. 

This can be done using contract lifecycle management (CLM) software, equipped with a cloud secure digital contract storage, and empowers procurement managers to select the best suppliers and quickly build negotiation documents.

Improve the Effectiveness of your Procurement Process

Your procurement department can easily organize, search, and retrieve contract data using CLM. Additionally, CLM software is often equipped with automation, helping you to cut down on time spent completing tasks. 

With the user-friendly interface of CLM software, you’re provided with an efficient way to lookup and retrieve contract information. This helps you cut down on several costs while increasing your team’s productivity.

Monitor and Manage Terms & Expenses

Using a CLM solution, you can easily keep track of all the expenses related to contracts with vendors and suppliers. This helps you do away with messy spreadsheets that may have manual errors and incomplete data. 

Your professionals can provide fast answers and report accurate data related to their supplier agreements through the contract data derived from the graphical dashboards and customizable procurement contract management reports found in the CLM software.

Creating centralized storage for all contract information is now super easy to monitor and manage contract terms, ensuring compliance & governance, helping increase the opportunity for additional savings and overall operational effectiveness.

Distribute Roles and Responsibilities 

The best and most effective way to gain efficiency in your contract management in your procurement is by clearly delegating different roles and responsibilities evenly.

You can boost your contract administration and efficiency by categorizing your procurement process and assigning tasks and responsibilities based on these responsibilities. 

Contract and procurement managers can now optimally designate roles and responsibilities with several modern contract management tools at their fingertips.

Benefits of using CLM Software for Procurement

A recent study on contract management in procurement revealed that about 81% of organizations do not utilize CLM software. As a result, they lack consistency across contracts, cumbersome processing, and supply chain continuity problems.

With this in mind, businesses should strive to implement some of the best contract management practices in the procurement department, to better improve the speed and efficiency of the procurement function, reduce costs, and improve the company’s all-round performance

An organization that centralizes and automates procurement processes using contract lifecycle management software is more strategic in its sourcing and negotiations.

Successful vendor management is essential to building long-standing relationships with both your suppliers and customers. This would help to achieve your business goals, minimize the risk of supply chain disruption and revenue disruption on the sell-side.

So take advantage of the  wonderful opportunity that technology has endowed us with, and make your procurement department get the best benefits from adequate contract management practice