Home >> How to improve your Procurement efficiency with effective Contract Management
When two entities wish to do business with each other, a contract specifies the responsibilities of both and the terms through which they will fulfill those responsibilities. Sounds simple enough. Two companies form a relationship that is legally binding so that they both get what they want from each other without any hassle. But why is there a concept called contract management?
Contract Management by definition is the process of managing the agreements made with clients, suppliers, or partners. A contract specifies the activities and obligations between organizations and the terms through which they will each fulfill their parts of the agreement. This process covers all aspects of the Contract Lifecycle Management from initiation through award, milestone tracking, compliance, and renewal. This minimizes risk and assures that the time and money invested in the relationship is well spent.
Now, who uses contracts the most in an organization? The buyers, in other words, the procurement department.
Procurement teams play an important role to control the organizational spend by backing the operations with the timely purchase of quality goods and services. A procurement contract is an agreement between a buyer and a seller, for any goods or service from the seller in exchange for payment.
Contract Management System in procurement is an essential process to ensure compliance in achieving other sourcing objectives such as cost control, formalizing relationships with vendors, tracking milestones etc. Relying on manual processes and spreadsheets to manage the pre-and post-phase of buy side-contracts renders the overall management of contracts inefficient, time-consuming, and adds to cost for the organization.
Contract Management Practices to Boost Procurement Efficiency
Procurement is becoming a key element in the business performance of organizations across the world. By making use of technologies that provide spend analysis solutions, strategic sourcing, supplier management, and strategic procurement management, businesses can achieve a competitive advantage along those lines. Organizations should also lookout for new and efficient contract management practices in the procurement department to improve speed and efficiency, reduce cost, and eventually increase the company’s overall performance.
Businesses that automate the contract management in the procurement process by using procurement software tend to be more strategic in their sourcing and negotiation process.
Here are seven ways how using a contract management solution can help you simplify your contract lifecycle management:
1. Removing the manual process and automating business rules
Comparing the supplier proposals manually is a cumbersome and time-consuming process. Whereas, using software with approval workflows and sanctioned templates can speed up the process and also ensure a compliance check. Contract Management Software ensures that the approval policies of the organization are not violated in the purchase order creation, leaving the legal compliance verification to the system.
2. Managing the expenses and terms
Transparency in the procurement function helps to discover potential savings. All expenses related to suppliers and contracts are easily monitored and tracked with the help of Contract Management tools. The centralized repository in the software helps monitor and manage contract terms to ensure compliance and governance. Professionals can provide answers and report precise data related to their agreements through the data that is stored in the repository. Procurement teams can thus quickly find information related to the supplier’s payment terms via this repository.
3. Contract Performance
All modern solutions are equipped with analytics that helps businesses gain insights into contract performance. They help monitor supplier performance and discover best practices across contracts to define KPI’s with vendors. This helps the procurement department to identify the problems at the initial stage and shift to suppliers that best meet the needs of the business to optimize procurement efficiency.
4. Improve Service Level Agreements
With end-to-end visibility by having the contract information stored in a repository, important information such as contract dates, type of contracts, type of supplier, etc. can be monitored. This data helps organizations understand which supplier is meeting their obligations and which ones are not. Hence, supporting the supplier management process.
5. Ease of access, search and updates across the entire repository
With a repository created, the procurement department will be able to search for all the contract related information categorically. Automation helps the procurement department to avoid manually go through all the paperwork. It helps reduce procurement’s operational costs and increase the efficiency of the whole process.
Since the contracts are securely stored in a database, it makes it easier for the management to access them centrally. It goes without saying that only authorized personnel can access these databases. So, the security concern is eliminated.
6. Compliance – never miss a contractual milestone
The contracts will be actively managed by the procurement team to ensure that the supplier performance is satisfactory, appropriate stakeholders are informed and all promises in the contract are fulfilled. Compliance is improved with alerts and notifications on key contractual milestones to all the stakeholders so that there is no chance of late payments and penalties. Volume, as well as annual discounts, can be tracked and benefits can be accrued without fail.
Know anything and everything related to items purchased. View purchase orders of the contracts, pricelists, spend patterns, etc all on a simplified interface that lets you access the information you need from the central repository.
MeRLIN is a Strategic Sourcing solution that provides the features you need to create the right strategic environment to manage procurement efficiently. The Contract Management Solution provides an intuitive user interface to create, search, and manage all your contracts easily. MeRLIN is equipped with strategic sourcing tools including contract management that help improve the productivity of procurement teams by leveraging a central Contract Repository Software for managing all your contracts, their renewals, prices, terminations, etc. You get notifications and alerts on contractual milestones so that you can mitigate unnecessary risks such as compliance violations and additional costs. Contact us to know more about MeRLIN.