What is Contract Management in Procurement?
The process of developing, negotiating, analyzing, reviewing, modifying, and tracking contracts in procurement, is called contract management. This process is a highly effective, essential, and beneficial tool for procurement officers, sourcing departments, and supply chain managers aiming to maintain robust and streamlined operations with strong partnerships. Companies have become increasingly dependent on contract management, and have witnessed the increasing need for accurate strategies, transparent communication, sustainable solutions, and actionable insights. With the help of contract management professionals, companies can increase compliance rates, successfully negotiate cost-effective contract terms, mitigate various risks, and significantly increase the value of all potential and current partnerships. In a complex, stringent, and rapidly evolving market like the logistics industry, companies must ensure compliance with regulations and contracts, identify and address various major risks, constantly evolve as per market and legal needs, and find the most efficient ways to minimize unnecessary expenditure. In the logistics industry, maintenance, service provision, permits, and daily operations can be expensive, and market players require a comprehensive approach to curtail spend. Contract management helps achieve that, and many other benefits if efficiently conducted, and controlled with the use of various industry best practices.
What are Some Essential Contract Management Best Practices?
Standardization: The language, terms, and conditions stipulated in a contract have a significant impact on the future relationship of the signing parties, and terminology can make a major difference. To minimize the possibility of human error, inaccuracies, and fluctuations, experts advise standardization of the contract creation process. This includes, pre-approved templates, predetermined terms in certain cases, and a standard set of conditions, legal requirements, and language utilized across all contracts. Not only does this increase efficiency through reduced error rates, it also helps companies decrease contract creation time, maintain a comprehensive understanding of their needs and expectations, and ensure equal and fair treatment of all contract acquired parties. Certain sections can be altered as per requirements, and minimize the need for constant redressal, back-and-forth between departments, and stakeholder inputs.
Track, Assess, and Review: Contract management is a time-consuming and complex process that includes the interaction, cooperation, and collaboration of various systems, professionals, teams, and departments. Tracking performance, compliance rates, and changes within the system, assessing all risks, changes, drivers, and challenges, and regularly reviewing supplier cooperation, communication systems, and company expectations can help tackle various issues. It can help preemptively identify risks and develop strategies to address them, enable transparency among departments, contract parties, and stakeholders, and help stay ahead of any upcoming changes. Markets can be highly versatile and dynamic, and tracking various metrics within the supply chain and organization can help maintain efficiency and overcome challenges.
Evaluate Finances: The process of creating, negotiating, and signing contracts requires a significant amount of financial discussions, including the costs of creating and signing contracts, prices and costs discussed with potential partners, and future maintenance. When entering a contract, companies must utilize data, analytics, and a comprehensive understanding of their financial status, market prices, competitors’ costs, suppliers’ expenses, and overall spend to stipulate the fair and ideal amount. Routinely revisiting the overall spend, financial strategies, and other financial metrics is necessary to maintain low costs and help the company grow. Cost reduction is a crucial tenet of contract management, and companies must invest skill, time, and labor in minimizing costs during the contract creation, negotiations, contractual obligations, and other expenses pertaining to the partnership.
Dispute Resolution: Frequent reviews, continuous tracking, and regular assessment of various metrics, dynamics, and performance indicators can help companies improve efficiency, overcome challenges, and increase profitability, if accurately addressed. To receive the benefits of these best practices, companies must develop strategies, take comprehensive steps, and create business plans to tackle all identified challenges, shortcomings, performance gaps, or risks. Proactive responses, and departments with detailed preemptive plans can help minimize the impact of negative factors, enable significant cost reduction, and provide the time and efficiency to improve performance. Addressing concerns immediately is necessary to avoid losses, maintain smooth functioning, and meet all expectations continuously.
Keep Pace with Needs: Companies, industries, and markets witness various changing factors, dynamics, and developments over time, and organizations must track and keep pace with these changes. When signing a contract, both parties enter with certain expectations, requirements, and business needs. However, as markets change and businesses evolve, so do their needs, abilities, and expectations. Developing comprehensive plans to address changes in demand, supply, prices, and other crucial factors, or tracking industry developments that would impact the partnership is imperative to maintaining sustainable and transparent relationships in any industry. This versatility makes it necessary for companies to stay ahead of the curve, keep pace with their developing business needs, and mitigate the probability of unexpected changes.
In the increasingly complex logistics industry, companies have been struggling to keep pace with changing regulations, maintaining mutually beneficial partnerships, and overcoming industry developments. Supply chains have been severely impacted by the lack of appropriate strategizing, reviewing, and modification of company needs, expectations, and targets. A leading logistics service provider witnessed a sudden decline in compliance rates, rise in costs, and reduced savings. Unsure of the cause, the company approached SpendEdge to gain insights into their operations and contracts. Our experts evaluated the contract management team, processes, and data, and noticed the need for current, relevant, and effective data, strategies, and approaches. With a comprehensive understanding of the business goals, needs, and targets, SpendEdge experts provided the company with crucial recommendations regarding their contract management, and helped them improve operations. By establishing a regular reviewal system, introducing software that enabled continuous tracking, standardizing major functions, and encouraging the development of proactive and resolution-based strategies, our experts helped the company tackle their shortcomings and significantly improve performance, increase savings, and reduce costs.