Contract Management in Procurement — What You Should Know

Stages of Contract Management Process

Contract management is important to ensure supplier compliance and build stronger relationships with them. However, many professionals still don’t know where to start. For this, we outlined the six stages of contract management to help you start with the process:

1. Creation

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. 

2. Negotiation

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. 

3. Execution

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. 

4. Amendments and revisions

We all know that many things are now happening in the world. From a global pandemic to war between countries, everything now is uncertain. These events can disrupt the supply chain which makes it necessary to amend contracts.

Of course, when amending the contract, the other party must be involved to ensure that everything is transparent and fair for all parties.

5. Tracking

This is the part of the contract management process where obligations are dealt with. The contract requires project management to make sure that all deliveries are delivered promptly. 

6. Renewal

The manual process of contract management loses renewal opportunities. With the use of automation, organizations can identify renewal opportunities and create new contracts. 

The Objectives and Challenges of Contract Management

The objective of contract management is to help establish a good working relationship between the client and provider. To establish a good working relationship, several objectives are essential for effective contract management:

1. Efficient Preparation

The process of contract management always involves efficient preparation. It should always begin as soon as possible during the contract development stage. 

If we’re to base it on the procurement process stage, it’s the part where you, the procurement manager, are taking care of the contract that will be awarded to the supplier. An accurate assessment of needs helps build a clear specification.

During the first stages of evaluating prospective suppliers, there should be an emphasis on building clear instructions, managing expectations, minimalizing risks, and ensuring process capability. 

A good evaluation will help in picking the right supplier. The challenge here is how to create the right preparation though, just like with all procurement processes. For that, you can check out our Negotiation Course For Procurement Professionals for the ultimate crash course tutorial on contract management.

2. Relationship Management

Another important aspect to consider for successful contract management is relationship management. There should be mutual trust, understanding, and openness between the company and the supplier/provider. To achieve that, excellent communication is a must.

The challenge for this is to learn who to talk to when specific issues arise. The solution here is to ask and evaluate who is the right person for the job.

3. People, Skills, and Continuity

The procurement team must have the right people for the job. Contract management is a responsibility that should often be handled by a team because of its breakdown of tasks.

The right people for the job are those who have the right interpersonal and management skills. These skills are necessary to manage peer-to-peer relationships in the organization.

Of course, the biggest hurdle for this would be finding the right people for the job.

4. Flexibility

Management of contracts requires a lot of flexibility. The procurement manager handling the contracting team must have someone who can adapt to the terms of the contract as quickly as possible. 

5. Knowledge

The people involved in managing contracts must understand the objectives and must familiarize contract documentation.

Intelligent customer capability, in-depth knowledge of the department and its objectives, and an understanding of what the supplier can and cannot do are some of the best traits needed to create a team that will manage the contracts for the procurement team.

Benefits of Contract Management

There are many benefits that a company can get when it practices effective contract management. In fact, we at Procurement Tactics believe that contract management is actually more important than procurement itself.

Of course, companies need procurement to buy the materials they need for company growth or company survival. Depending on what your company does, your procurement process will greatly benefit if your procurement team also practices efficient contract management.

Some of the great benefits that include good contract management are the following:

• Supplier Commitment – Suppliers are more likely to be loyal and committed to your company since there is an established working environment between your company and the supplier.
• Higher quality of supplies – Because a supplier trusts that you can keep track and enforce the contracts given, they’ll be more inclined to give you the best quality of supplies available.
• High service levels – There is more efficiency coming from all your partners because of your reputation as someone who values their contracts.
• Low chances of cost creep – Because a company is able to keep track of its contracts, there is little to no chance of cost creep appearing in the company spreadsheets. A company having a cost creep is a death sentence, as this is a sign of financial issues within the company.

Contract Management Best Practices

We know that managing contracts is hard, especially if you do not know where to start the process. Don’t worry, we got you! Here are some of the best practices that you can utilize to manage your contracts effectively:

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 procurement performance by enhancing supplier relationships management 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 with 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

1. PandaDoc

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. 

2. DocuSign

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. 

3. Juro

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.

4. ContractWorks

Contractworks is the best partner for companies that automate their processes. It is an AI-enabled technology that provides automated services that 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.

Benefits of Contract Management Automation

We all know that automation can do wonders for many organizations which is also true for contract management. Contract management solution enables digitization and automation of the critical parts of contract management. 

Contract management solutions can help improve contract efficiency, and allow better supply chain visibility and management of obligations. Furthermore, it enhances contract compliance and reduces exposure to supplier risks. 

Contract management solutions can also give you the following benefits:

1. Faster contract creation

Software solutions allow users to begin the contract creation process with some level of guidance. The usage of approved templates and language helps to speed up approvals. 

Additionally, automated review, collaboration, and tracked changes can help speed up negotiation and review. 

2. Enhanced contract visibility

Having a centralized system for contracts is priceless. The suppliers and employees of the organization can easily access the contract data they will need. Additionally, the entire history of a contract is visible which can give you insights for the benefit of the organization. 

3. Improve compliance with contracts

Tracking and monitoring compliance with contract conditions, obligations, and terms are easier with contract management tools. You can link your supplier contract to the procure-to-pay process to ensure that transactions are compliant. 

4. Mitigate risks

Contract management software helps reduce exposure to risks by monitoring key obligations. It can also help identify contracts that need amendments due to regulations. 

In Conclusion

Effectively managing contracts in procurement is crucial for organizational success. This article emphasizes the importance of adopting streamlined contract management practices, especially considering many still rely on manual processes.

Understanding the stages of the contract management process—creation, negotiation, execution, tracking, and renewal—is vital for maximizing financial and operational performance.

It outlines best practices for efficient contract management, highlighting the benefits that come with it, such as maintaining quality and fostering positive supplier relationships.

Additionally, the article discusses the advantages of incorporating automation into contract management processes, noting how technology can streamline handling contracts and ensure supplier compliance.

By incorporating automation and careful planning, businesses can enhance transparency, reduce errors, and uncover saving opportunities in procurement.