The Essentials of Contract Management: Front to Back
October 24, 2019 | 3 min read
Contract management systems are more than just new ways to file paperwork.
Contract management is arguably one of the most important steps in the procurement cycle. Many businesses spend countless hours and emotional energy negotiating with suppliers. Ironically, these important documents are then stuffed into an overflowing filing cabinet, in a sea of filing cabinets, never to be referenced again. The average number of contracts handled by a company, per year, is 20,000 to 40,000 (Source: Price Waterhouse Coopers).
A better method of handling a sea of suppliers is to maintain an electronic supplier management system. Electronic procurement tools provide secure internet-based applications for creating, executing, managing, and analyzing supplier information/contracts. Overall, procurement software optimizes efficiency, reduces waste and transforms a company’s procurement cycle to a more streamlined strategic sourcing process. Strategic sourcing is the consistent analyzation of products/services a company buys, monitoring from whom they buy from, evaluating/comparing prices, and tracking the volume products/services bought.
What exactly is Contract Management?
Contract or Supplier Management is part of the strategic sourcing process that handles the agreements and terms, via contract, between a company and product/service supplier. Contract management sounds simple enough, but it is actually highly detailed, complex, and ongoing. From initiation to renewal the lifecycle of a contract involves; creation, negotiation, approval, management, and renewal.
- 1.
Contract Creation: Many companies use a standard contract. Regardless, contracts still need to be created and most often require adjustments as negotiations between company and supplier progress. Electronic contract creation allows companies to use legally pre-approved templates; making it easier to draft up more complex deals. Procurement tools eliminate the inefficiencies and risks associated with the paper-based methods and accelerate the initial contract process. Companies using procurement software report an average time of 3.4 weeks to create and approve a contract, as opposed to upwards of 3 months spent on finalizing a contract (Source: Forrester).
- 2.
Contract Negotiation: This is the step in the process where company and supplier ensure that the best possible terms, clauses, conditions are drawn up to benefit both parties. By engaging in electronic negotiation, errors and oversights are limited. Fewer mistakes reduces organizational liability for both and increases compliance with legal requirements.
- 3.
Contract Approval/Signatures: The most successful companies employ an approval/signature workflow process. This ensures that contracts are reviewed, approved, and signed by the appropriate parties. Electronic approval processes are more streamlined and efficient than paper-based methods. In fact, companies using electronic procurement software report that their contract approval time dropped an average of 82% (Source: Aberdeen).
- 4.
Contract Management: Handling a contract doesn’t just stop once authorized parties sign. Performing regular verifications ensures that contract terms are continuously met. This constant reviewing of contracts can be time-consuming, but contract management is one of the most lucrative areas of supplier management. Procurement software makes managing contracts automatic through step by step processes, aiding in the tracking of amendments and changes to a contract during its life cycle. At all times company and supplier have access to previous and current versions of an ongoing contract; avoiding the potential for future confusion or miscommunication.
- 5.
Contract Renewal: Missing a renewal means a lost opportunity to continue a business relationship. With electronic alerts for deadlines and renewals, companies are well aware of contract timelines. By using procurement software, companies are able to make contact well before renewal times, showing reliability and care for the relationship. This proactive approach to supplier management continues to build trust and loyalty between company and supplier. Companies using Procurement Software report renewal rates of 90% (Source: Aberdeen)
ProcurePort’s cloud-hosted e-procurement software will help you stay atop your company’s contracts and more efficiently manage your suppliers. You will enjoy consistent visibility of supplier information, products, contract terms, agreements, track critical dates, pricing, and supplier information. To learn more about electronically managing your contracts request a 30 minute demo today.
