5 Key Contract Management Practices for Procurement
Procurement is one of the most complicated sides of running a business. Throw in the legal aspects of contract management and it becomes even more challenging to run a procurement department efficiently and cost-effectively.
Contracts are legally binding agreements that can have lasting effects on a business long after the contract has been fulfilled. To reduce cost inefficiencies, risk, and time wasted managing contracts manually, proactive companies are turning to contract lifecycle management (CLM) solutions to steer them clear of trouble. These systems provide essential tools and features to help businesses adhere to best practices in contract management.
In procurement, the following 5 contract management practices are key to streamline drafting, tracking, legal review, and more during the contract lifecycle.
1. Eliminate Manual Processes
The risk of human error increases exponentially when creating and executing contracts via a manual process. Managers should review existing processes and make note of all manual steps taken in a current CLM process. It is important to review whatever actual process is taking place and not the documented, ideal process.
Once managers have an accurate workflow map, they can begin looking for solutions to automate manual steps or add technical assistance. Here are some common ones:
- Onboarding and managing supplier information
- Submitting and approving invoices
- Creating purchase and negotiation orders
- Drafting contracts
- Reviewing and approving contracts
Procurement departments can always use updated information to draft contracts or create purchase orders with CLM software. They can also create approval processes that guarantee contract deadlines aren’t overlooked by anyone in the approval chain with notification settings.
Using templates and the contract repository can speed up the contract drafting process or simplify comparing supplier proposals. With a contract data repository, a procurement team is able to easily identify the right supplier and create effective negotiation documents. This contract data often includes pricing, service-level agreements (SLA), and terms and conditions.
These automated features help in reducing costs by saving time and eliminating manual errors or missed contract deadlines, but they aren’t the only benefits of using contract management software.
2. Migrate to the Cloud
Storing your contract management data in the cloud is crucial for two reasons. First, many employees are now accessing their work documents remotely and need contracts to be stored online so they are always accessible. Second, if a computer or hard drive that stores key business information crashes, your contract management data is stored in the cloud and can be accessed elsewhere.
Cloud access makes sharing documents seamless and contracts are accessible on various devices. No matter where a promisor, promisee, or beneficiary is, he or she can always have access to an updated version of a contract or another supporting document. Plus, procurement team members will never have to wait until returning to the office to complete a deal. If internet connectivity is an issue, it is always possible to mark or download some documents for offline use.
3. Implement Document Tracking
Most cloud services already have this feature available, but it deserves a separate mention. CLM solutions make it possible for managers to determine when documents were created and by whom. Teams can also track any changes made to the document. This improves transparency, accountability, and streamlines future contract drafting.
If you have opted to work with an attorney to review and approve each contract, document tracking can streamline this process. It becomes much easier for you to assign contracts to the attorney and to determine when he or she has signed off on the terms. Another option for legal review is automated legal assistance.
4. Automated Legal Assistance
Because contracts are legal documents, guidance from an attorney or a team of attorneys is necessary. Some CLM solutions have features that can identify and flag clauses that might not be favorable for your business or that have caused legal flags/concerns in previous contracts.
Whether you choose automated or in-person legal assistance, you will likely need help answering the following (and more) pressing questions:
- Are the terms in the contract favorable to your business or fair?
- What is the level of business risk associated with the terms presented?
- How much negotiation room do you have?
- Is there a way to create one standard contract for use with all vendors and suppliers?
- What fallback clauses can be used if a term is unfavorable?
There are a variety of different automated legal assistance options. Recently, the most popular option is a CLM solution with artificial intelligence (AI).
5. Enhance Supplier Compliance Measurement
CLM software can automate supplier management too by helping procurement departments identify compliance problems early on. These systems consistently track supplier compliance to the terms of the contract and other supplier performance metrics, allowing procurement departments to correct any problems at an early stage. These teams can also shift to suppliers who are performing best to their contracts to optimize return on investment. With all contract data stored in a centralized repository, contract expiration dates are flagged so that procurement teams can ensure contractual milestones are reached.
To really gain insight into contract performance and value, you must define and track key KPIs with analytics, contract auditing, and compliance tracking.
The Bottom Line
Having an established contract management process in place improves consistency and reduces risks in the procurement department of a business and beyond. In the event of a legal dispute, it also ensures accurate documentation to protect the company’s best interests.
Are you ready to reap these benefits and more for your business? MALBEK provides contract management software for all your procurement needs. Our cloud-based solution allows you to make a seamless transition from the manual processes you currently use. Don’t just take our word for it, request a free demo today.