Contract management is one business process that includes the creation, execution, evaluation, optimization, and compliance of contracts. Complex business processes and expanding supply chains require the planning, collaboration, and expertise of multiple managers, professionals, employees, and software. An extremely crucial component of supply chain management, supplier relationships, and overall business efficiency, this process can be challenging and time-consuming. Recently, companies have realized the value and importance of automated systems and software to handle complicated processes like contract management. As businesses grow, maintaining an efficient and robust contract management system can propel growth, reduce costs, increase profitability and productivity, address supplier issues, and significantly improve overall operational efficacy, functionality, and supply chain resilience. However, many companies fail to improve their contract management systems and support software and automation to reduce the probability of human error. Understanding the various benefits and learning how your organization can build a strong, effective, and helpful contract management system is imperative to optimize your supply chain successfully.
Creating a robust contract management plan is essential for a leading player in the transportation and logistics industry. Gain access to actionable insights with sourcing and procurement intelligence solutions offered by the team of highly skilled analysts at SpendEdge.
Let us look at the benefits of contract management in procurement
Risk Reduction: Contract management systems address various significant challenges, including automation of complex processes, contract compliance, and standardizing procedures that cause substantial long-term losses. As companies aim to grow through supply chain optimization, it is imperative to identify, track, and mitigate risks. Automation, standardization, and improved relationships can help reduce the volume of potential risks and preemptively identify risks. Further, this process helps identify suppliers in high-risk areas and policy or regulation violations faster, making it significantly easier for companies to choose the right suppliers, draft improved contracts, and reduce losses. A poorly drafted contract can lead to substantial losses for either party in an agreement and cause further friction during collaboration, mitigated by standardization.
Higher Productivity: Having better data and analytics available to the company can help identify, evaluate, and target problem points or shortcomings while highlighting strong points and enabling further optimization. The high level of automation allows improved efficiency, fewer errors, and provides better control over the contract management process. Additionally, automation helps place human resources in other imperative sections or departments, significantly improving both sections’ functionality. Effective tracking and continuous alterations, and real-time data enable improved decision-making, accurate investments of time and labor, and propels growth along the supply chain.
Financial Optimization: Contract management is a legal and complex process that requires significant expertise, visibility, and diligence. A system helps reduce the need for legal professionals and reduces costs by tracking and eliminating unplanned or unnecessary services. Additionally, high visibility of data into expenditure and the linking of sourcing and contract processes can increase savings substantially. Further, automation can ensure that purchases are made at stipulated times, for required quantities, from chosen suppliers, mitigating the risks of under or over-ordering, inventory challenges, product, time-to-market delays, and extra spending on non-compliant prices or costs. Tracking, terms of a contract, and ordering in required bulk can help improve savings and ensure the system accurately records them.
Improves Supplier Relationships: Developing and maintaining strong, positive relationships with suppliers and vendors is crucial to cost-reduction, efficiency, and building a resilient supply chain. Contract management systems enable creating clear, concise, and standardized contracts, reducing the chances of error, and building a strong foundation for long-term partnerships. Additionally, the system helps track and assess suppliers’ performance and track potential risks, enabling data-driven discussions, collaborative deals, and well-informed decisions regarding future goals and motives. Automating and monitoring the process also helps evaluate and ensure compliance, and significantly improve compliance levels, consequently mitigating risks, losses and improving procurement processes.
Five steps to create a better contract management plan
Evaluate and Set Precise Goals: Drafting, planning, and executing contracts requires clarity, precision, and focus. To ensure an efficient contract management process, companies must have a clear vision and mission, know their aspired goals for a relevant period, and have clarity regarding their expectations from the process, their contracts, and their supply chain. Evaluating your business’s current position is imperative to set data-driven and well-informed goals and identify the ideal partnerships or deals to partake in. As an organization grows and major goals expand, it is crucial to assess short-term goals and utilize the contract management process to meet all targets and supplier or contract-related requirements efficiently.
Automate Systems: Embracing digitization and automation has transformed supply chains over recent years and helped companies across industries improve their ROI, increase profitability, enable efficiency, overcome risks and limitations, and develop stronger business relationships. Automation in contract management helps track, assess, and provide data regarding supplier performance, reduces required labor for repetitive tasks, lessens the probability of human error, and provides managers, stakeholders, and partners with relevant data regarding the supply chain. Additionally, automated contract management processes can reduce costs, increase savings, and help companies focus on skilled labor for complicated decision-making rather than repetitive and mundane tasks.
Continuous Reviews: Scheduled and continuous reviewing and adapting contract management systems can ensure that the data, contracts, suppliers, and deals being utilized are relevant, accurate, and still beneficial for the company. This practice also helps companies identify problem points within the system, reduces the chances of unnecessary expenditure, and further improves the process. With constant changes in supply chain management, contracting, and sourcing departments, businesses must continuously update their systems to keep pace with dynamic trends, industry developments, or procedural changes. Reviewing can be scheduled for a preferred time frame, such as monthly, quarterly, or annually, depending on your industry’s versatility, the efficiency of running systems, and the company’s growth trajectory.
Ensure Communication: In a complex system that is supported, enabled, and propelled by various complicated procedures, automated systems, and managing teams, companies must allow collaborative, clear, and precise communication. This includes developing strong relationships between departments, external parties such as vendors and suppliers, and managers. Gaining insights and inputs from employees, learning from managers, and accepting suppliers’ ideas can help companies grow at an exponential rate. Clear communication also mitigates potential risks or misunderstandings, helps target inter-departmental challenges, enables the development of cooperative systems, and builds a cohesive unit. Contract management requires clarity and precision, and clear communication helps develop ideal contracts with suppliers, understand sourcing and procurement needs, and address problems with relevant data and efficiency.
Standardize Processes: The aim of contract management systems, supply chain managers, and supplier relationship management is to reduce mistakes, improve efficiency, increase profitability, and overcome company shortcomings. Standardizing contract management processes can further enable these goals while also reducing cycle times, bringing down costs, and reducing the chances of non-compliance or disagreement. This can include standardizing contract templates to minimize risks and errors in content. This practice also helps streamline tasks like reviews and approvals and improve overall time-consumption and productivity within the organization. Negotiating, finalizing, and executing contracts faster with this practice, helps shorten return time, optimize performance, and focus on other, more decision-centric processes.
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Success Story – SpendEdge Advantage
In an increasingly challenging industry, companies often struggle to adopt and accurately implement new contract management systems, unknowingly causing further losses, challenges, and risks. A transportation and logistics industry player witnessed a steady decline in productivity and could not track, assess, or improve contracts and supplier performance, causing substantial losses for the company. SpendEdge provided the client with unparalleled insights into the importance, benefits, and best practices for a novel and improved contract management system. With the insights and new system, the client successfully identified and mitigated risks within their contract management processes, overcame the impact of lapsed or unnecessarily renewed contracts, maintained a clear track of suppliers’ compliance and performance, and significantly improved their supply chain efficiency.