Why Contracts Are the Key to Vendor Management

What is vendor management?

Vendor management describes the processes organizations use to manage their suppliers, also known as vendors. Vendor management encompasses a variety of activities. These include selecting vendors, negotiating contracts, controlling costs, reducing risks associated with vendors, and guaranteeing quality and timely delivery.

Effective vendor contract management enables businesses to control costs, speed up onboarding processes, mitigate supply chain risks, and build stronger supplier relationships. When done right, vendor contract management can help businesses achieve their revenue goals.

It starts with a contract

Contracts touch every part of an organization’s value chain. From demand planning to compliance, pricing to shipping and routing, and channel management to profitability, these strategic documents define what you buy, sell, and how you run your business.

Proper contract management can help you streamline your vendor partnerships, reduce risks, and protect against legal issues that may arise due to non-compliance. The right Contract Lifecycle Management technology transforms this critical business information into actionable insights and drives business outcomes. Learn what an effective vendor contract should contain and how the right contract management tool can help you accomplish those goals. 

Contracts play a central role in vendor management

Vendor management begins with the contract, the cornerstone of any business relationship. It's here where expectations, obligations, and responsibilities are outlined, forming the blueprint for collaboration. Effective vendor management involves diligent contract analysis to identify potential risks, ensure compliance, and establish performance metrics. By proactively monitoring contractual obligations and maintaining open communication with vendors, businesses can optimize value, mitigate risks, and build stronger long-term partnerships.

1. Legal Protection

Vendor contracts provide a written agreement outlining the vendor's rights, obligations, and responsibilities to the organization engaging in their services and what each party can expect from the other. They protect both the vendor and the company by ensuring everyone is on the same page.

2. Clear Expectations

Vendor contracts establish clear expectations through contract obligations management. Obligations management outlines the goods or services to be provided, including quality standards, delivery timelines, pricing, and any specific requirements. By clearly defining these expectations, vendor contracts reduce ambiguity, optimize performance, and protect companies from reputational, commercial, and financial risks.

3. Risk Mitigation

Vendor contracts should help to mitigate risks in their supply chain and purchasing contracts. They may include clauses related to performance guarantees, confidentiality, intellectual property rights, liability limitations, indemnification, and termination conditions. 

4. Supplier Relationship Management

Vendor contracts can serve as a foundation for managing the vendor relationship effectively. They outline the terms of engagement, communication protocols, and dispute-resolution mechanisms. By setting out these details in advance, contracts facilitate better collaboration, minimize risks, and promote a healthy working relationship between the organization and the vendor.

5. Compliance and Governance

Vendor contracts often include provisions related to regulatory compliance, data protection, privacy, and security requirements. They help ensure vendors adhere to applicable laws, regulations, and industry standards. The GDPR requires companies to significantly change data storage, management, sharing, and transfer. This is an example of how regulations can have a profound impact. The consequences of being out of compliance can be severe. Yet, despite the severe penalties for non-compliance, many organizations are unprepared.

6. Performance Monitoring and Evaluation

Vendor contracts should provide a basis for monitoring and evaluating the vendor's performance against the agreed-upon terms. Key Performance Indicators (KPIs) and Service Level Agreements (SLAs) can be defined in contracts. This makes it possible to assess the vendor's performance objectively.

Achieving procurement goals with contract management software

Contract management software empowers businesses to achieve procurement excellence by streamlining the entire contract lifecycle. By automating tasks, mitigating risks, and providing valuable insights, these platforms enhance negotiation outcomes, strengthen supplier relationships, and ensure compliance. With features like risk assessment, obligation management, and performance analytics, businesses can make data-driven decisions, reduce costs, and ultimately drive overall business performance.

Let's take a detailed look at how it can accomplish those objectives:

Obligation Management

A good contract lifecycle management (CLM) software helps businesses mitigate the risks of missed obligations and contract non-compliance. A great one helps businesses do it at scale. Advanced platforms enable teams to automate high-volume contract reviews by flagging risky clauses that deviate outside your company playbook. It can surface risks in a customizable, intuitive dashboard. Users can chat with it and get instant insights into where these risks reside in their contract portfolio. It earmarks agreements that don’t require further review and identifies and helps you address missing or noncompliant attributes so you can focus on growing your business. 

Negotiate better outcomes

Contract lifecycle management software can help companies better manage their contractual commitments and fully realize the value of their entitlements. Negotiations move faster with a robust clause library with fallback and dependent clauses, version tracking, localization support, one-click approvals, and support for all major mobile platforms and devices.

Manage contractual risks

CLM software can protect companies from operational, financial, and reputational risk through proactive risk assessment, discovery, and monitoring. One of Icertis Platform’s most powerful capabilities lies in its ability to help you track risk and compliance across your entire organization. Risk analysis reports, compliance and obligation tracking, and customizable notifications and alerts keep you ahead of potential problems. Users can quickly pull up associated contracts or documentation, like Master Service Agreements and subsequent statements of work, to get a holistic view of each agreement and its dependencies. And all this information is available from a simple, configurable dashboard.

Build stronger supplier relationships

A CLM platform can extend contract access to outside organizations for more effective collaboration throughout the contract lifecycle. It enables more efficient, secure communication with suppliers, customers, and partners than traditional communication methods. It enables businesses to handle standard supplier management challenges unique to their business cases, processes, and policies. This type of platform allows users to seamlessly manage end-to-end supplier onboarding, performance management, contract governance, compliances, and disengagement.

Manage contract compliance

A contract management platform helps you identify non-compliant contracts, creates and standardizes contract language such as the data protection addendums (DPAs) that ensure compliance for data processors, and tracks obligations to ensure comprehensive GDPR and other regulatory compliance across the entire contract lifecycle.

Monitor contract performance

CLM software enables businesses to analyze multiple contracts at once and generate actionable analytics. This empowers businesses to make real-time decisions and actions. Indeed, if contracts touch every aspect of a company, CLM drives speed, performance, and compliance into those systems and processes, and ultimately, business performance.

Start Your Journey to Better Contract Outcomes

Achieve the peace of mind that comes from having all your vendor contracts in one place, accessible to anyone who needs access. The Icertis Contract Intelligence digital CLM platform gives you a complete picture of all your commercial agreements. No matter the size of your operation, you can instantly see details like the number of active contracts with each supplier and other associated agreements. This transparency empowers your organization to manage risks more effectively, identify opportunities for better deals, and bundle services for improved performance. You'll be able to leverage all your contractual entitlements to their fullest potential.

Get more out of your contracts