Procurement vs. Contract management
Let us see contract management in procurement. Contract management organizations control their spending and execute their operations based on the timely acquisition of goods and services. The procuring and contracting team generally relies on manual processes and spreadsheet systems for their strategic functioning. When they automate their sourcing and procurement activities, they enhance their purchasing power and supplier communication. Therefore, contract management is an integral part of a company’s procurement cycle.
When the companies incorporate suitable procurement contract management software, the procurement and purchasing firms boost their compliance with the vendors, reduce vendor prices and execute new contracts much faster and safer. The procurement contract management process includes:
- Companies can effectively manage their contracts as a part of their legal documentation, which comprises the work relationships with the vendors, customers, and also partners
- Easy negotiation of terms and conditions of the contracts
- Transparency in compliance
- Documenting and mutual agreement of any changes in the contract by both the vendor and your company
Before understanding the importance and benefits of contract management in procurement, it is essential to comprehend procurement vs. contract management. The definition of procurement can be characterized as when the company makes a one-time purchase of goods and services necessary for a project. The procurement process includes costs of goods and services, delivered items, quality, repayment term, etc. Whereas the contract definition can be characterized as when the company makes a recurring purchase of the same materials and services for a specific period of time, which is agreed upon by mutual terms and conditions.
Importance of contract management in procurement
Procurement is never seen as a separate function in any business, and a solid contract management plan is of absolute importance. Having strong contract management enhances the company’s business functioning by accurately identifying the needs and implementing precise strategies based on the company’s objectives. In addition to this, when a company successfully manages the contracts, it can effortlessly manage its financial transactions and have control over its spending due to better visibility. So, when you have better control, you have better compliance with the vendors, which reduces risks.
Moreover, it is necessary to have contract management in procurement as you can evaluate suppliers based on their qualifications, allowing you to streamline the best easily. Furthermore, you can have a centralized system for monitoring supply chains and managing vendors when you use contract management software and tools. Modern contract management software enhances your procurement process by providing the best KPIs and SLAs with vendors, analytics, audit trials, supplier metrics, and compliance.
Procurement contract management best practices
Contract management is often overlooked despite being an important part of the procurement process. Many organizations think that contract management only begins after signing, but they fail to realize that it starts at the negotiation stage itself. Following are some of the best practices of procurement contract management:
- An excellent sourcing strategy is a crucial step in procurement contract management. The primary objective of the sourcing process is to enable businesses to have exceptional customer satisfaction at low-cost ownership. Having the best sourcing strategy means you can categorize vendors, consolidate synergies and maintain a good negotiation position.
- Next is to include the contract resource procurement process where the company invests and buys specific materials and utilities, enhancing the company’s work measurement, ergonomics, employee satisfaction, and reliability.
- Since contracts are vital for an organization, it helps the employees learn about the company’s rights and responsibilities.
Especially in the pandemic, employees reached for their company’s contract to better understand how to conduct business with suppliers when they could not deliver their products.
- Centralizing is another vital practice in contract management. It would become difficult to assess if the contracts are not stored in a prime central location. It doesn’t matter how good the contract can be; centralizing is crucial.
- Finally, in addition to managing, regular auditing is critical to check whether the procurement needs are met and are obliged within the specifications mentioned in the contract.
Top Procurement Contract Management Software
Contract management software, otherwise known as contract lifecycle management, is a digital platform that is designed professionally to help companies efficiently manage their contracts. It acts as a repository and offers several features such as contract creation, contract e-signature, visual analysis, contract negotiation, contract renewal, and much more. It is user-friendly, and the company can store and view its contracts at any time. In the past, the contract management process was done manually, which led to companies storing vast volumes of documents. Now, with technological advancements, companies are slowly adopting the digital way of managing contracts. The legal, human resources, procurement, and finance sectors utilize contract management software.