6 Best Procurement Contract Management Practices
Your procurement process is the strategic backbone of your organization. By optimizing your spending and ensuring the stability of your supply chain, you can secure the resources you need to stay ahead of your competition. Effective procurement contract management is key to making that happen.
Follow these 6 best practices to get your organization there.
What Is Procurement Contract Management?
Procurement contract management is the process of ensuring all parties follow through on the established guidelines, providing the level of support, service, and product agreed upon in the contract.
Effective procurement contract management involves maximizing the value of the contract for the organization while minimizing the risks involved. It also involves identifying cost-saving opportunities and brokering any changes to the contract as the relationship evolves.
What Are Procurement Contract Management Best Practices?
If you don’t take advantage of your procurement contracts and manage them properly, you’re losing value. By following best practices, you can streamline your procurement contract management process and secure more value for your organization.
Here’s what you need to do.
1. Focus on Procurement Contract Management From the Start
Focusing on procurement contract management after you’ve drawn up the contract is too late. Once you’ve drawn up a contract, it becomes increasingly difficult to make changes.
Instead, it should be in your mind at the start of the procurement process. After all, this is where you have the most control.
Once you identify a need for your organization, think about the contract and what needs to be included in that contract to ensure your business gets the most value out of the relationship.
2. Engage with Key Stakeholders
Drafting a contract without the insight of the relevant parties involved is a recipe for disaster. The last thing you want to do is to establish a vendor relationship that doesn’t have the needs of your team in mind. Instead, sit down with the key stakeholders to better understand their needs before drafting up any contract.
3. Optimize Procurement Contracts Digitally
As an organization, you should clearly define and detail both parameters and goals for your procurement contracts in a digital template. This makes finding, reviewing, sending, and adjusting contracts much easier. Rather than drafting up a new contract each time, you can copy/paste templates that are in alignment with your company’s needs.
Digital contracts also provide extra security and streamline the execution of agreements. Paper documents can take days or weeks to get signed. There’s also a greater chance that unauthorized users can access the documents and compromise your security.
4. Remove Manual Processes
Tracking data across multiple spreadsheets, siloed systems, and disparate applications manually increases the risk of human error and wastes time.
Your team can overlook contract renewals, for example, and miss the window for negotiating better terms. Worse, you could end up stuck in a contract with unfavorable pricing for the long term.
By deploying CLM (Contract Lifecycle Management) Software, you can avoid the pitfalls found in manual tasks by automating many of the processes. These platforms make it easy to collect supplier data and monitor contract terms.
Additionally, you’ll get real-time insights into vendor performance so you can proactively follow up with those who are underperforming.
5. Evaluate Market and Purchasing Trends
Analyzing customer forecasting data and market trends is critical to determining your future procurement needs. And the last thing your organization wants is to be stuck in a contract for the long-term with a supplier that no longer supports your business goals. Instead, use market insights to forecast your needs and adjust your procurement contracts accordingly.
6. Renegotiate for Better Terms at Renewal
If you fail to revisit a contract before it expires or auto-renews, you could miss out on favorable terms. This could cost you additional savings and allow your supplier to deprioritize your account. Instead, you need to revisit contracts before they expire and use vendor performance data alongside competitor analysis to renegotiate better contract terms.
Procurement Contract Management Goals
Effective procurement contract management strengthens the relationship between your business and vendors. It reduces risks to your organization. And it helps guide any challenges to a speedy and agreeable resolution.
Additionally, procurement contract management ensures that your organization receives the agreed on quality and number of products or types of services for the right price. And it enforces established delivery and payment terms.
Internally, procurement contract management should be cost-effective. If your organization spends too much time and money chasing down contracts and sorting through terms, you’ll miss out on additional cost savings.
Benefits of Effective Procurement Contract Management
Effective contract management reduces spending, risk, and waste while strengthening relationships between a business and its suppliers. It also helps organizations identify their needs and adjust their procurement strategy to fulfill them. Most importantly, it secures your supply chain so your business can adjust to market disruptions and remain competitive.
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