Contracts Are More Critical than Ever for Manufacturers – Are Contract Processes Keeping Up?

4 big takeaways from a new benchmark report on contract management in the manufacturing and processing sector

October 23, 2024 By Susan Becker

Manufacturers today operate in a market defined by rapidly changing demands and volatile supply chains.

This increased complexity is reflected in manufacturers’ contracting processes, as demonstrated by World Commerce & Contracting’s latest benchmark report for the manufacturing and processing sector.

The report shows that manufacturers are turning to their contracts to orchestrate environmental, social and governance (ESG) programs and performance-based pricing, among other advanced practices. 

However, with these complexities come longer cycle times and bigger workloads for contract managers—trends that threaten the value that these new contracting initiatives provide.

The report’s findings underscore the need for a new approach to contract management that leverages automation and AI to streamline workflows, accelerate business, and ensure that contract value is fully captured.

Here are four big takeaways from the report:

1. Operational Workload is a Barrier to Strategic Progress

One of the most significant insights from the report is the challenge of operational workload, which acts as a barrier to achieving strategic priorities. In the manufacturing and processing sector, 62% of respondents reported that operational workload hinders their ability to focus on strategic initiatives, compared to a cross-sector average of 53%​.

This indicates that the manufacturing sector is lagging in freeing up resources for higher-value activities. CCM teams are often constrained by time-consuming transactional tasks, which leaves little bandwidth for supporting business transformation initiatives. The report suggests that streamlining and simplifying contract processes is crucial for enabling these teams to focus on strategic priorities. Emphasizing automation and adopting tools to minimize manual contract management efforts could help overcome these barriers, allowing contract teams to contribute more effectively to business goals.

2. Expanded Role in ESG Initiatives

The report highlights the expanded role of contracts in environmental, social, and governance (ESG) initiatives, which is becoming a significant priority for manufacturers. As sustainability takes center stage across industries, the role of contracts in enforcing and ensuring compliance with ESG goals is expanding. The report shows a growing emphasis on integrating ESG commitments into contractual obligations and making these commitments enforceable across the supply chain​.

This expanded role is critical as manufacturers navigate increasing regulatory pressure and the growing expectation of stakeholders for responsible sourcing and sustainable practices. Contract management teams must therefore not only understand the implications of ESG but also ensure that contractual terms reflect these goals—and then fulfill those terms in practice—to support the company's broader sustainability agenda. Simplifying contracts and ensuring that ESG clauses are clear and actionable will help manufacturing companies fulfill their commitments and reduce risks associated with non-compliance.

3. Increasing Bid-to-Contract Cycle Times

Another important trend reported is the increase in bid-to-contract cycle times, which have lengthened by approximately 20% since 2014. This increase is largely due to the shift towards more complex contracting models, such as performance-based and outcome-based contracts, which require detailed planning and negotiation. Moreover, as manufacturers increasingly focus on mitigating risks and building resilience in their supply chains, the complexity of the terms being negotiated has increased, contributing to longer cycle times.

These longer contract cycle times can lead to delayed product or service availability, increased costs, and frustration among stakeholders. The report suggests that addressing this issue through contract simplification, improving internal review processes, and implementing digital solutions could significantly reduce these cycle times. Streamlining the negotiation process can help ensure that opportunities are not lost due to prolonged contract finalization.

4. Shifting Focus to Post-Award Value and Monitoring

Traditionally, contract management has primarily focused on pre-award activities, such as negotiation and drafting. However, the report points out a shift towards a broader focus that includes monitoring value erosion and managing post-award disputes​. This shift reflects the understanding that value is not only created at the contract signing stage but must be actively monitored and preserved throughout the lifecycle of the agreement.

More companies are now focusing on post-award performance metrics, such as compliance, value realization, and mitigating disputes. This approach helps ensure that contracts deliver the intended benefits, reducing the risk of value leakage. For the manufacturing sector, where supply chain disruptions and market volatility are common, the ability to monitor and enforce contract terms effectively is crucial. The adoption of advanced contract analytics and integrated data systems is therefore seen as a key enabler for monitoring post-award activities, ensuring that the expected value is consistently realized.

Conclusion

The 2024 WorldCC Contract Management Benchmark Report for Manufacturing reveals several critical areas where contract lifecycle management can evolve to better support strategic business goals. Addressing operational workload through automation, expanding the role of contract management in ESG initiatives, reducing bid-to-contract cycle times, and emphasizing post-award value monitoring are all essential steps for manufacturing companies. By focusing on these areas, manufacturers can ensure their contract management practices are not just keeping pace with industry changes but are actively driving business success in an increasingly complex and regulated environment.

To learn more, access the full report.

ANALYST REPORT

How does your organization’s contract management practices compare to industry peers? 

Manufacturing is a contract-intensive industry, with commercial relationships defining both buy-side and sell-side operations. Revealed in the World Commerce & Contracting Benchmark Report for Manufacturing, the manufacturing and processing industry as a whole lags behind in its contract management capabilities. Download this report to learn how you can create a plan for change.

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