Every business needs goods and services to help fulfill its mission of meeting its own customers’ needs. Some must manage complex supply chains, while others have far simpler requirements, but they all must manage a procurement process of some sort.
In many organizations, procurement can be a complex and lengthy process. Specifying requirements, identifying prospective vendors, agreeing on price, and negotiating commercial terms all require significant time and expertise. Procurement extends far beyond the execution of an initial contract, though. Companies must consider all that goes into supplier relationship management. This includes monitoring supplier performance, verifying that vendors are meeting their contractual obligations, and attending to amendments, renewals, and terminations.
In the past, contract management has been an especially labor-intensive element of the procurement process, relying heavily on diligent professionals to make sure nothing slipped through the cracks. Tedious administrative tasks consumed far too much time, but in the absence of any alternative, this was simply a necessary part of the process.
Today, procurement processes have gone digital. Digitization has transformed the way companies buy and sell goods and services, making the process far more efficient and effective while generating substantial new value for the organizations that have implemented it.
Nevertheless, there is one very important piece of the puzzle that many organizations have yet to benefit from. Contract management software takes procurement to the next level, not only making it substantially faster and easier to procure goods and services, but also ensuring that businesses get maximum value from all of their supplier relationships. Contract management software helps to minimize risk, reduce errors, ease compliance, reduce costs, and improve visibility to the metrics that matter.
In this article, we’ll explore ten ways in which contract management software helps procurement teams deliver massively enhanced value to their organizations.
10 ways contract lifecycle management improves procurement processes
1. Streamlined procurement process
Contract Lifecycle Management (CLM) software streamlines all elements of vendor agreements, making it substantially easier to deal with supplier contracts at scale. Automated workflows ensure that work in process moves along smoothly and efficiently. Contract templates and clause libraries help to standardize and streamline the drafting process, while AI automates initial contract reviews and highlights matters that may require the attention of a legal professional.
Many of today’s organizations are challenged to achieve more than ever before, but unfortunately they have fewer resources to do the job. Contract management software helps thinly-stretched teams to keep up with the workload, ensuring that key tasks are completed on time and automating many elements of the process. This is especially important for growing organizations, where procurement teams and contract managers must struggle to keep up with a burgeoning workload, often while onboarding team members who are new to the organization. Contract management software eases those growing pains.
2. Error reduction
When legal professionals in procurement teams must grapple with high volumes of work, mistakes and oversights are inevitable. Contract management teams must struggle to avoid the kinds of errors and omissions that inevitably occur when small but important details slip through the cracks.
Without a contract management solution that offers a single source of truth for all of your vendor agreements, it can be difficult to know where you stand with each of your suppliers. That can often lead to missed deadlines and renewals. The best CLM software provides an up-to-the-minute snapshot showing the current status of every current contract you’re working with.
3. Identifies your best suppliers through optimized vendor management
It can be hard to keep track of which suppliers fully meet their contractual obligations versus which ones fall short. Typically, those kinds of terms and conditions are buried deep within long-form documents, so it takes considerable time and effort to extract, organize, and monitor vendor performance relative to those obligations.
The best contract management system applies advanced technology to parse the language of each legal agreement, identify key terms and conditions, and map those to a set of supplier performance metrics that allow for clear visibility to the status and value of each business relationship. Integration to ERP, supplier relationship management, or other software offers procurement teams a clear view of the things that matter.
4. Ensures compliance
The parties to any given agreement must adhere to certain obligations, of course. These may be legal regulations, operational standards, or compliance requirements specific to a given supplier. CLM software helps to ensure that both parties to the contract have the information they need to conform to these compliance standards.
In addition, CLM software can help to ensure that third parties are meeting their obligations as well. Agreements that establish supply chain standards or subcontractor certification requirements, for example, must be monitored to ensure that all parties are in compliance.
When companies don’t have a clear view to compliance, the likelihood of theft and fraud increases substantially. When your company has mechanisms in place to monitor compliance on an ongoing basis, it increases trust and allows for early intervention when lapses do occur.
5. Alerts eliminate missed deadlines
To manage procurement contracts effectively, organizations must be keenly aware of renewal and termination dates as well as other key deadlines. In many organizations, though, deadlines are “out of sight, out of mind.” People tend to act on deadlines that are close at hand, if they’re even aware of a pending deadline at all. Unfortunately, this can be costly, both in terms of dollars and cents expenses and missed opportunities.
Contract management software notifies procurement teams of pending deadlines, allowing for ample time to take action with respect to renewals, terminations, or enforcement of supplier obligations.
6. Better access to contracts
In many organizations, contracts are relegated to a file cabinet or shared network drive as soon as they have been executed. If procurement personnel need to revisit a supplier contract, reviewing specific terms and conditions, for example, they must often track down a member of the contract team to dig up the original agreement.
That can be time-consuming, especially if a contract gets lost, damaged, or misfiled. Without a clear mechanism for establishing and enforcing user authorizations, limiting access to the right people can be cumbersome.
Contract management software ensures that digital copies of contracts are readily available to the people who need them, while also enforcing access rights to ensure that confidential information is safe from prying eyes.
7. Rapid contract renewals
CLM software enables organizations to accelerate their procurement processes. This is especially true of contract renewals, which often require frequent attention. Many contracts must be renewed annually, or even quarterly. For organizations that must deal with multiple renewal periods, tracking deadlines can be especially challenging. Most procurement teams strongly prefer to focus on high-value activities, rather than spending their time managing routine tasks like contract renewals.
Contract management software provides automated approval processes, notifying key users when action is required, and simplifying the task of moving contract renewals forward.
8. Contract management software provides improved reporting and analysis
Powerful contract reporting capabilities provide organizations with a wealth of information about their legal agreements. That in turn helps them to increase the value they get out of their vendor relationships.
Contract analytics helps procurement teams to identify underperforming suppliers, spot opportunities for potential savings, and zero in on untapped performance obligations. Powerful reporting helps to identify opportunities for renegotiated terms, increased value using alternate suppliers, or simply getting more value out of existing relationships by holding suppliers accountable to their obligations.
9. Improved forecasting accuracy
Effective supply chain management hinges on efficient procurement practices, and accurate forecasting is key to success. Volume agreements, lead times, and supplier performance relative to contractual obligations are critical factors in developing and updating forecasts to achieve maximum efficiency. Contract management software provides clear visibility to the elements of each supplier relationship that impact accurate forecasts.
10. Cost reduction
A good contract management system will reduce costs in a number of different ways. By eliminating many of the routine, tedious tasks involved with the administration of procurement and contract management agreements, CLM software reduces effort while increasing accuracy and efficiency.
With better visibility to supplier performance, organizations can also achieve cost efficiencies by ensuring that vendors comply with their obligations and deliver maximum value to the business. By understanding the costs associated with shortfalls in supplier performance, the organization will be in a better position to negotiate terms and hold vendors accountable. By monitoring and key managing regulatory compliance, companies can avoid fines, penalties, and reputational damage as well.
In most organizations, procurement is a mission-critical function that powerfully impacts the company’s mission and its bottom line. Contract management is an essential element of effective procurement processes. With the right contract management system in place, procurement teams and contract managers can achieve greater efficiency, visibility, and higher value for their organizations.
Icertis Contract Intelligence (ICI) helps enterprises extract greater value through all stages of their legal agreements, improving bottom-line metrics and delivering measurable business value. To learn more, schedule a demo of Icertis Contract Intelligence today.