Contract Management in Procurement — Everything a Procurement Professional Should Know
Contract management in procurement is one of the important tasks in procurement. However, many organizations still use the manual process to manage their contracts.
For this article, we will discuss how important contract management in procurement is. We will explore how companies can streamline contract management in procurement.
Reading this article will enable you to utilize all the learnings you will learn from this to your business. So without any delay, let’s now check what contract management is.
What is Contract Management?
From the word itself, contract management is the process of managing your contracts as part of legal documentation. In other words, it is the process of managing agreements with your chosen supplier or service provider.
It is a continuous procurement process and proof to ensure that suppliers and buyers will do the obligations they had agreed upon.
Contract management includes all compliance with the terms and conditions of both parties. Additionally, it covers documenting and agreeing to any changes that both parties discussed.
Importance of Contract Management in Procurement
Contract management plays a vital role in the success of the procurement process in an organization. The purchasing department can reduce prices, mitigate risk, boost compliance, and execute contracts faster by contract management.
Although contract management is critical for the success of the company, it is usually overlooked by managers. It is also not discussed frequently by the stakeholders of the company.
Contract management is important because it creates, executes, and analyzes the contract to maximize financial and operational performance. With this, the organization has increased pressure put on it to reduce costs and improve its performance.
When a contract is poorly constructed, numerous problems can arise. The mistakes with the stipulations can lose them thousands of dollars with just a simple technical error.
A simple error can cost this much as it is where the terms and conditions with your supplier are written. Effective contract management can create a powerful business relationship that will pave the road to greater profitability opportunities.
Creating an efficient contract is only possible if it is managed effectively. Additionally, it is a good idea to hire a lawyer or a legal advisor in contract management discussions.
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Stages of Contract Management Process
The contract management begins with the identification of the contracts together with other relevant documents to support the contract’s purpose.
The manual process of creating a contract is time-consuming. However, with the use of contract management systems, the process is streamlined.
This is the process where the draft is checked by the employees to correct any discrepancies. This is to ensure that before negotiating, all terms and conditions are understood well resulting in less negotiation time.
This contract management process is concerned with the approval and execution of the contract. Getting approval is where most bottlenecks occur. The organization can mend this by creating tailored approval workflows.
The execution of the contract is lessened with automation. With the use of e-signatures and fax support, the organization can shorten its signature process.
This is the part of the contract management process where obligations and revisions are dealt with. The contract requires project management to make sure that all deliveries are delivered promptly.
Additionally, gathering documents that are important to a contract’s initial drafting is a hard task. When there are discrepancies or items are not found, systems shall be able to amend the original contract.
The manual process of contract management loses renewal opportunities. With the use of automation, organizations can identify renewal opportunities and create new contracts.
Contract Management Best Practices
1. Enhance vendor management
One of the best practices in contract management is to have visibility of the performance of supplier relationships.
Managing and assessing the procurement performance by enhancing supplier relationships with vendors can help the business to develop more.
However, businesses must take note that outdated technology and manual processes will make this impossible.
2. Eliminate the manual process of purchasing and ordering
Organizations must streamline the gathering and monitoring of supplier data. This is to ensure that the organization complies with its policies.
After the collection of the supplier data, the best suppliers are selected. The purchase order is created together with the list of approved suppliers and their profile data.
Organizations that manually compile these documents will waste time doing the arduous tasks.
Furthermore, automating negotiation and supplier selection will give the organization more time to focus on other things. Additionally, automating these processes will greatly reduce the errors that the manual process omits.
3. Streamline procurement
Streamlining procurement is a hard task, especially if you do all the processes manually. In order to streamline procurement, you must have a central repository. With this, the organization can sort and search all contract information in a digital format with ease.
Automation helps procurement to save time and make all the processes efficient and easy. This reduces all procurement-related costs and enhances the productivity of the procurement department.
4. Manage and monitor expenses and terms
Managing and monitoring all the expenses of the company promotes transparency which unlocks potential saving opportunities.
Using a contract management solution allows the organization to monitor and track all related contracts to their vendors or suppliers.
A centralized repository of all the contract information will allow the organization to easily monitor and manage contract terms. This will ensure that the parties who have agreed to the contract will comply accordingly.
5. Planning and forecasting
Planning and forecasting are ways that an organization can plan for every scenario or event that may arise.
The volume of sales and reception of the customers greatly affect the procurement process of an organization.
With this, contract management must be planned carefully by taking a lot of factors into consideration. This includes changes in the market trends, the pricing structure of suppliers, customer preferences, and material sourcing.
Procuring materials or services without forecasting will create procurement risks in the organization that can affect its overall profitability.
Contract Management Software
PandaDoc is an all-in-one contract management solution. It has a robust contract and document management platform that makes it shine among other software.
PandaDoc provides custom templates that you can easily use. Additionally, you can set up custom workflows, rules, and processes.
It has 24/7 customer support on paid plans which allows it to resolve any problems immediately. PandaDoc also includes unlimited documents and e-signatures. It has a 14-day free trial period so you can check if it is the software that suits you best.
DocuSign is software that best fits small businesses. It gives small businesses access to affordable contract management solutions.
DocuSign has a mobile app for android and IOS that allows its users to monitor their contracts wherever they go. It has a 30-day free trial of the e-signature solution and 24/7 chat support to resolve any problems when using the software.
If you do not have a budget for a contract management solution, Juro can help you with that. Juro offers a free plan with great functionality.
The free plan is up to 50 contracts a year. Additionally, it has a user-friendly interface and native e-signature that will greatly help your business.
As an end-to-end contract management platform, it offers templates and a template editor to create contracts. This will allow you to send the approval quickly and easily.
Contractworks is the best partner for companies that automate their processes. It is an AI-enabled technology that provides automated services which save more time and money.
ContractWorks has unlimited users, a 24/7 support team, and free data migration. Many users appreciate its ease of use. Additionally, it provides customization options that allow you to select any data point you want to analyze.
Frequently asked questions
1. What is contract management in procurement?
Contract management in procurement is the process of managing contracts for legal documentation.
2. Is contract management important?
Contract management is important as it analyzes the maximum financial and operational performance.
3. What is the best contract management software for my business?
The best contract management for you is dependent on your business. If you are a small business, then we prefer you to use DocuSign. If your organization has an allotted budget for that, then we recommend you to use PandaDoc.
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