Finding and securing a supplier is an essential part of sourcing and procurement strategy, as is maintaining a strong relationship with them. However, a vital part of this relationship is often overlooked or not given enough attention: contract management.
Contract management is not simply about writing and signing contracts. That part of the process is important, but there are many more factors involved. An effective and efficient supplier relationship requires planning and forethought during the contract writing and signing, as well as continued attention throughout the duration of the contract. And when an organization has multiple contracts to manage — sometimes even hundreds — inefficiencies in the process add up quickly. It is therefore essential to budget time and resources for this area of the business.
Here are some tips for effective contract management:
Pay attention to wording: Even if both sides have the best intentions, unclear or improper wording can cause problems somewhere down the line. Poor wording can open your company to abuse, legal action, or simply confusion, making any conflicts more difficult to resolve.
Be specific: If you discuss something with your supplier, include it in the contract. Specify what needs to be done and when, but also include other details on the process and the relationship. If it is well documented, it is less likely to be forgotten, and you will have legal recourse if your supplier doesn’t deliver what you expected.
Be flexible, and build flexibility into the contract: Everything in a contract should be well defined, but that does not mean there is no room for flexibility. Needs and circumstances will change, and if the contract includes provisions for this, it will be easier and less costly to accommodate those changes.
Be willing to adjust terms: While writing flexibility into the contract is important, it still will not account for every eventuality. Sometimes changing terms is advantageous, or even necessary, in order to adapt to unexpected events.
Communicate: Check in on your partner’s progress, find out if there are any issues and whether the supplier is meeting your requirements. It is easier to detect and fix misunderstandings and other problems early in the process. Also let your partner know of any changes or problems on your end, as well as any other information that might help them better meet your needs. It is dangerous to assume that everything is going well just because you haven’t heard otherwise.
Maintain a good relationship: It is important not only to communicate, but to be on good terms with your supplier. If both parties are on good terms, it will be easier to work together, and you will both be more invested in the other’s success. It will also make your supplier more willing to accommodate changes or problems.
Use key performance indicators: Having objective ways to measure performance will make it easier to monitor progress and detect problems. These can be included in the contract itself in order to ensure that certain goals are met, and to have provisions in place if they are not.
Plan for problems: Make sure your contract has measures to deal with issues with your partner. Even if both parties start out (or seem to) on good terms, it is always possible for a relationship to go sour. You are not being rude to your partner by including these provisions, especially if the contract also provides recourse for them if you fail to uphold your end of things.
Be prepared for the end of the contract: Don’t let the contract’s expiration take you by surprise. Leave yourself plenty of time to either renegotiate or to find a new supplier.
Find a good software solution: Working with multiple suppliers means multiple documents to track and relationships to manage. This can be time-consuming and details can be easily lost. A good solution will streamline the contract creation process and help you keep track of essential and timely information. It will also save many hours of labor.