Top 9 Contract Management Practices in the Procurement Department

Contract Management plays an integral role in the procurement cycle of any organization. Contracts are inextricably linked to relationships with vendors, suppliers, outside service providers, and other purchasing /sourcing entities.

According to Hackett Group research in 2018, procurement professionals agree that digital transformation will help them achieve critical objectives such as cost-cutting, improving agility, and improving their productivity to the enterprise. One such digital transformation that procurement professionals should consider is deploying Contract Lifecycle Management (CLM) technology for their contracts.

If procurement and contracting teams rely on manual processes, spreadsheets, and siloed systems to manage the pre- and post-award phases of buy-side contracts, it renders the overall management of contracts inefficient, time-consuming, incurs higher costs and exposes the organization to risk.

Click here to read 5 Key Ways How AI Brings Value to Contract Lifecycle Management

That’s why it’s important that contract management for procurement departments is an efficient and well-managed process. The following top five practices of contract management can help organizations improve the efficiency and effectiveness of their procurement process:

1. Optimizing Vendor Management & Service-Level Agreements

   One of the best practices to improve contract management in procurement department is to be able to get much greater visibility into the performance of supplier relationships. The Hackett Group’s research identified that managing and measuring procurement performance by optimizing relationships with vendors helps to achieve the best possible outcomes for the business. However, with outdated technology, soloed information, and manual processes, this becomes nearly impossible.

   Implementing CLM (Contract Lifecycle Management) Software provides this end-to-end visibility by enabling contract data to be structured at the organizational level and also helps to monitor and manage contract terms, dates, important supplier information, type of supplier, type of contract, etc. With real-time data insights, organizations can know which suppliers are meeting their obligations and which ones aren’t and can accordingly manage them.

2. Eliminating Manual Process of Creating Purchase & Negotiation Orders

   Before negotiations, strategic procurement starts with qualifying suppliers. Companies should streamline the collection and monitoring of supplier data to ensure that they comply with corporate policies. After collection of important supplier qualification information, best suppliers are selected. Then purchase order templates are created with the list of approved suppliers and supplier profile data.

   Companies should use up-to-date contract information to create purchase orders through means of a CLM software that features sanctioned templates, approval workflows, and intelligent guidance that empowers procurement to confidently execute contracts. This helps in reducing costs owing to the elimination of manual errors and also acts as a contract compliance check.

   Comparing supplier proposals and manually compiling them can be a very time consuming and arduous task. Best practices to achieve bottom-line results can be made possible by automating negotiation and supplier selection.

   Through a comprehensive contract data repository, we can allow the procurement professionals to identify the right supplier and easily create effective negotiation documents. Contract data will include pricing, service-level agreements (SLA), and terms & conditions. Advanced CLM solutions ensure that the organization’s approval policies are followed and all necessary information is included in every contract.

3. Streamlining Procurement Processes

   By creating a central repository, the procurement department will be able to sort and search all contract information that is stored in digital format. Automation helps procurement professionals to save time and eliminate inefficient manual searches for information pertaining to suppliers and current contracts. Thus it reduces procurement-related costs and enhances the efficiency and productivity of the department.

   Click here to read 6 Tips to Streamline Redlining and Negotiating in Contracts

4. Easily Monitoring and Managing Expenses & Terms

   Spend transparency in procurement functions helps unlock potential savings and achieve operational excellence. All the expenses related to contracts with vendors and suppliers are easily monitored and tracked by procurement professionals using a CLM solution. Doing away with messy spreadsheets with the potential for manual errors and incomplete data, these professionals can provide fast answers and report accurate data related to their supplier agreements through the contract data captured in the graphical dashboards and customizable procurement contract management reports.

   By creating a centralized repository of all contract information, it is now easy to monitor and manage contract terms ensuring compliance and governance. By leveraging preapproved clauses and template libraries enforcing the use of approved language and formats, procurement teams can quickly search and report where certain clauses and terms are used with their suppliers.

   “As the procurement head, we always had issues with enforcing compliance and tracking vendor agreement status. With DocuCollab, however, we were able to take complete ownership of the process and manage our vendors efficiently.” – Jackson, Procurement Head

5. Enhancing Supplier Performance Visibility

   Automation helps procurement department to identify problems at an early stage, by continually measuring supplier compliance to the terms of contract and through the purchasing activities based on dynamic supplier performance metrics. This empowers the procurement department to correct the problems at the initial stage and shift to suppliers who are performing best to contract, thereby optimizing return on investment. Thus companies will be able to see a reduction of costs on multi-supplier maintenance and improvement of relationships with suppliers. With the information in a centralized repository, it can flag contract expiration dates so that we never miss deadlines and ensure contractual milestones are attained.

   For procurement to gain visibility into contract performance across its value chain, it must have analytics capabilities, audit trail, and compliance enforcement. Organizations by deploying a modern CLM solution can analyze supplier performance and accurately discover the best practice across contracts to define the most effective KPIs and SLAs with vendors.

   Click here to read 5 sure ways to convince your Boss to invest in a Contract Management System

6. Assign Roles and Responsibilities

   Even with a centralized system, monitoring the supply chain and managing the vendors is a complex task that requires extensive support from experienced professionals. Especially when the company deals with multiple vendors, the chances for confusion and mismanagement are very high. For efficient contract management procurement practices, the company must engage individuals wisely by assigning roles and responsibilities. By categorizing the different levels of the procurement process and assigning responsibilities such as procurement analysis, purchase management, logistics, supplier contracts management, legal validation, etc, the company ensures maximization of operational efficiency and a better administration by the managers. Using contract management tools, managers can assign roles and responsibilities efficiently.

   Click here to read Top 12 Most Important Job Functions for a Procurement Department

7. Supplier Relationship Management

   In recent years, the concept of supplier contract management in procurement has gained considerable momentum due to the benefits it offers to the organization. Engaging with the vendors even after procuring the essentials, creates a positive bond with the supplier. Establishing a receptive relationship with the supplier can help the company in procuring materials during uncertain times, resolve problems amicably, negotiate the pricing, and more.

8. Planning and Forecasting

   Planning and forecasting are an integral part of organizations that prepare them for every socio-economic scenario. The procurement process is built upon the volume of sales and the customer’s reception of the company’s goods or services. The procurement and contract management process must be planned strategically by taking into account a number of factors including, customer preferences, changes in market trends, vendor pricing structure, avenues of material sourcing, competitor evaluation, and more. Procuring without forecasting is a risky business that can affect the overall profitability of the organization.

   Click here to read What are the Top 5 Challenges Facing the Procurement Department Today

9. Initiatives in the Public Interest

   More and more companies are going the eco-friendly way, thereby contributing their part in creating a sustainable future. One of the procurement contract management best practices that can be employed in the procurement process is to select vendors consciously and create a sustainable supply chain link that does affect the environment adversely. Although the concept of taking initiatives in the public interest has not reached a wide and popular circle, it is a promising concept that can improve the company reputation as well as environmental responsibility.

Why Use CLM Software for Procurement?

A recent report on contract management in procurement states that nearly 81% of organizations do not use CLM software and as a result face a lack of consistency across contracts, cumbersome processing, and supply chain continuity problems.

Organizations should strive to implement some of the best contract management practices in the procurement department to improve the speed and efficiency of the procurement function, reduce costs, and ultimately improve the company’s bottom-line performance.

Enterprises that centralize and automate procurement processes by using contract lifecycle management software can be more strategic in their sourcing and negotiations. It can proactively manage all aspects of the procurement and contract management lifecycle to improve performance.

How DocuCollab`s Software Can Bring Efficiency In Procurement?

Procurement has transformed itself as a key element of business performance within organizations across the globe by effectively contributing to strategic areas.

The Hackett Group`s research shows that many organizations are moving toward a single, cloud-based suite that integrates enterprise contract management solution as part of the procurement function to help them improve margins, reduce costs, and manage risks.

By leveraging technologies such as DocuCollab Software in the areas of spend analysis, strategic sourcing, supplier management, contract management, financial savings management, and procure-to-pay, procurement professionals will be able to drive competitive performance along these strategic areas.

DocuCollab’s cloud-based enterprise contract management solution helps organizations to reduce supplier costs, improve spend under management, increase sourcing productivity, execute agreements with new parties faster, mitigate risk, better manage internal and external relationships, and improve process efficiency across spend categories.

Click here to discover how you can automate every step of your contract management lifecycle through DocuCollab’s seamless contract lifecycle management tools.