Procurement today is supposed to be a management function within an organization, directly supporting the strategic goals of the organization. However, this is yet to be achieved in most organizations. In most cases, contract management is left to the legal department team members. However, the team may not have all the required technical knowledge to carry out the work properly, especially when an organization runs a long and complex supply chain.
There may be hundreds of relationships and nuances they may not be aware of. Input from the procurement is therefore invaluable because of their frequent interactions with the service vendors and suppliers.
Standardizing Contact Creation
The procurement team should be involved in coming up with a standard way to draw contracts with vendors and suppliers. Each organization should have terms, conditions, and technical language that are used in its contracts. Procurement team members should help the legal team in discussions about common terms and conditions in the industry. They can also give input on what the impact of setting certain conditions will be or how best to protect the interests of the company in contracts with suppliers.
Setting Contract KPIs
Big organizations will have complex supply chains, sometimes spread across continents. The key performance indicators will differ depending on goods and services. The procurement team must therefore be involved in coming up with yardsticks to determine the best way to evaluate suppliers of each item or service.
Procurement team members interact with suppliers and they know their reliability. They can advise management on whether the terms inserted into a contract are realistic and how they will affect relationships with vendors. A company also needs to decide on how to go about collecting data to assess supplier performance. The data collection strategy should be affordable and easy to understand.
Evaluating Supplier Performance
A procurement specialist would be best placed to determine whether suppliers are meeting their KPIs. A procurement expert can make a good judgment on whether the letter and spirit of the contract are being followed, in the context of the current operating environment. There are times when delays in delivery or other failures can be explained by inevitable occurrences. However, some scenarios may require a reevaluation of the relationship between an organization and a supplier.
The procurement team can make a detailed report to management on the cost of changing unreliable suppliers. In some cases, also, the procurement team might advise the company to revise its contract with a vendor as opposed to canceling it altogether. The management would then make the decision in the best interests of the company.
Finding Saving Opportunities
The procurement team should be continually involved in evaluating supplier contracts to ensure they are aligned with the overall objectives of the company. They should be on the lookout for new opportunities to reduce costs. For instance, giving a vendor a longer contract might lead to a more favorable price per unit. Ordering larger quantities could also help minimize costs without necessarily leading to overstocking.
Sometimes the company may be paying for items or services they no longer need. This happens a lot in big organizations. The procurement team should be involved in assessing the value of everything the organization is paying for. Should demand a particular product decrease, the team should be able to integrate such a trend into the overall procurement strategy.
The Benefits of Contract Management Software
There are numerous reasons that justify the need to have contract management software where complex supply chains exist. First, there will be a central source of information regarding all supplier and vendor contracts. Everyone involved in contract management can see one version of a contract. Besides eliminating paperwork and emails, it makes it impossible to edit the contract without proper authorization or discussions.
The team can easily access important details from contracts including the contract value, length, upcoming renegotiations, renewals, and chances to opt-out of contracts. The search function on contract management software saves a lot of time when decisions need to be made quickly. Even people who may not understand procurement and legal terms can easily access the most important details of a contract.
With contract management software, it’s possible to generate reports to gain insight into the organization’s procurement trends. It’s possible to see the geographical spread of suppliers and how it’s changing year on year. It’s easy to see how long the organization has worked with a supplier, the volume of business, the number of contracts, and so forth. Such trends and reports make it possible to make projections into the future and plan accordingly.
ProcurePort Contract Management Software
If your organization is seeking a contract management solution, we recommend you check out ProcurePort. It’s a feature-rich easy-to-use software that is entirely cloud-based. The software provides 24-hours access to your contract repository and allows buyers and sellers to sign contracts digitally. It gives you alerts on important upcoming issues including the expiry of contracts and deadlines. With an easy-to-understand business intelligence dashboard, it’s always going to improve the workflow of senior managers involved in contract management.