After enough observation, a pattern emerges among structures, natural ecosystems, scientific and philosophical theories, and even man-made concepts. One of these patterns is that each has a core. Something that is really at the heart of the matter. In procurement, or source to contract systems, that core is contract management.
Contract management is truly the bread-and-butter of procurement. Since the entire procurement cycle is based on the birth, life, renewal, and expiration of contracts it goes to reason that procurement professionals, specifically, are on the lookout for ways to optimize their contract management process through building a source to contract system that is efficient, streamlined, and cost-effective.
What came first, the contract or the procurement professional? Okay maybe not quite as mysterious as the chicken or the egg anecdote; but the point is that procurement or a source to contract management system and company contracts themselves are, by design, symbiotic. In addition to benefiting your business in several ways, establishing a strong set of operating practices for your contract management is truly more important in 2021 than it ever has been before.
With the turn of the New Year, the economy is more digital than anyone could have predicted prior to the pandemic at the beginning of 2020. The rapid acceleration into the virtual economy was incited by businesses and organizations all across the country, and the globe, shutting down their in-person operations. As a safety protocol to mitigate the spread of the virus, however, this also meant companies needed to find ways to serve the digital customer.
Immediately, the use of business and communication applications like Zoom, and Slack, and even gaming apps boomed. Zoom, in fact, even topped the app charts for the first time ever, which was a shock to the mobile app market. What this meant for procurement, however, is another story.
Within a blink-of-an-eye, or so it felt, the world had become more remote, digital, and virtual and supply chains started to crack. With such a rapid shift, procurement was suddenly thrust into the limelight, as secure and consistent supply chains became integral to a company’s longevity.
The Three Steps to Optimize Contract Management
As with any field of thought and field of practice, there are many tactics available to be employed. This is no different within the world of procurement or a source-to-contract system.
Before jumping into the five steps recommended, let’s briefly cover what is contract management.
Implement Comprehensive Procurement Software
The first recommendation here may be a little obvious, but it’s vital. Procurement and contract management software is growing as an accepted standard business practice in many industries. Procurement software has a wide breadth of capabilities, but one of the strongest components is the ability of procurement software to manage contract terms and reverse auctions.
Your procurement staff will remain vital, as they’ll need to vet the parameters set for short-listing vendors and perform other oversight and managerial type of activities. Ultimately freeing your staff up to focus on more meaningful tasks rather than monotonous ones.
In addition, after compiling the shortlist of vendors that your team wants to offer the contract to; procurement software can create, manage, and run the reverse-auction, until one vendor outbids all the rest – absolutely maximizing the cost-savings on each and every contract awarded.
Develop Contract Schedules
There are a few ways to develop and utilize contract schedules. The first is to conduct an evaluation of the outstanding procurement contracts that your company currently has on the market. These are any contracts on which goods and services are provided on a continual or recurring basis. Without a regular evaluation of the existing contracts; cost-saving opportunities can be missed, and your organization can end up overpaying for standard goods or services.
Alternatively, there should be a general awareness of the life-cycle of the contracts, and where each current contract is in relation to its expiration date. While those near the beginning of their life may need monitoring for significant price-fluctuation, those near the end of their life need more serious attention.
Your company needs to make a decision on the contracts up for, or close to expiration, as to whether or not those contracts will be renewed, or left to expire.
Involve Finance, Accounting, and Payroll
This may come as a surprise, but oftentimes these departments are siloed and separated from the procurement department. This is slightly baffling because just as the contract and procurement are symbiotic, finance, accounting, and payroll, are all integral aspects of contract management.
Contract management relies on the ongoing rendering of goods and services, however, those goods and services, as rendered need to be paid, accounted for in inventory, and have their entire life within the company traceable.
Getting finance, accounting, and payroll all involved in the procurement process will streamline the entire contract management process and eliminate slow-downs.
The Benefits of a Contract Management System
Contracts are much more than signatures and negotiations. The power businesses helping them to serve clients, manufacture their goods and services, lease properties, and build franchises. Contracts are the oil in which modern corporations run, and despite their growing significance, many contracts are handled haphazardly without reason or rhyme.
A strong contract management system can impact operations in a big way. The benefits of a contract management system are all clear – and they have to do with building a business that has the full capacity and transparency.
The advantages of the contract management process include:
- Simplify the negotiation process. When you have a contract management system in place, all employees and all teams will be working together towards a common goal. Negotiating discounts for deals can be exhausting for teams – therefore, a contract management process eases the negotiation process, leading to better and more informed business deals.
- Visibility and accountability. One of the greatest advantages of contract management is the benefit they bring to your business operation. By having a contract management system in place, you can set strong governance processes. The system also gives you easy access to data so that you can make better business decisions and have an accurate view of your company.
- Improved compliance. Contract management can become complex for businesses working across borders, whether nationally or internationally. Having different contract commitments in place can bring a multitude of compliance requirements.
Wrapping Up
Contract management is really the core of procurement, and as such – its place in business is absolutely vital. Implementing contract management software will help your procurement team in identifying new cost-saving opportunities, free up time in their day to focus on more meaningful business tasks, and ultimately increase your company’s efficiency.
For more information on contract management software, or any procurement software, visit ProcurePort today. ProcurePort is the internet’s premier place for everything procurement: from information and knowledge, to software, technology, and everything in between.
