Contracts with suppliers: every organisation has them, but are they also managed? We see organisations dealing with such questions as:
- With which suppliers do we have contracts in this procurement category?
- What have we agreed with this supplier?
- Where can I find our supplier contracts?
- Where is the contract that requires authorisation?
- Are we benefiting from contractual agreements, or is there a lot of non-contract purchasing?
- When does this contract expire?
- Who is responsible for contract management?
To get answers to these questions, contract management is essential.
What is contract management?
Contract management is the process whereby supplier contracts are managed and monitored, often with the aid of Contract Management Software(CMS). The aim of contract management is to make supplier contacts orderly and comprehensible so that the most can be made of contractual agreements and, ultimately, costs can be cut.
Who is responsible for contract management?
To facilitate the process of contract management as efficiently as possible, it is important that everyone in an organisation should know who the point of contact is when it comes to contracts. Many organisations appoint a special contract manager who is responsible for all supplier contracts. In other organisations, contract management may be one of the duties of a buyer; yet other organisations opt to make heads of department responsible for the contracts of their specific department.
Advantages of contract management
Among other things, the advantages of contract management are:
- More oversight of the status of contracts;
- Fast and simple authorisation of contracts;
- Reduction of non-contract purchasing;
- Monitoring of contractual agreements and improvement of supplier performance;
- Cutting costs;
- Better risk management;
- Cancelling or renewing contracts on time.
Improved contract compliance, thanks to contract management
For many organisations it is important to make optimal use of the contracts they have with suppliers. This is because, by purchasing within the ambit of contracts as much as possible, an organisation is better covered against legal and economic risks. After all, you then have contractual agreements to fall back on if anything goes wrong with delivery or during the partnership.
Organisations therefore have to aim for maximum contract compliance: the purchase volume that is realised with suppliers with whom you have a contract.
In VendorLink’s Contract Management Software, contract compliance is a standard KPI. In a comprehensive chart you can see how your contract compliance has developed over time. You can see how high your contract compliance is per procurement package, and who is responsible for which purchase, and from which supplier. This also enables you to identify which cost centre is responsible for non-contract purchasing, and take the individuals in question to task for this.
We notice that there is still a lot of non-contract purchasing by organisations. This is also known as maverick buying. There may be various reasons for maverick buying in your organisation:
- Poor internal communication by the procurement department: Are colleagues aware of procurement procedures that apply when a product or service is to be purchased? If employees do not know exactly how the procurement procedure works, maverick buying is unavoidable. You should therefore always make sure to have a good communication policy relating to procurement, which is accepted and applied throughout the organisation.
- The procurement procedure is perceived as complex: If employees perceive the procurement process as slow or complicated, they logically choose to order directly from a supplier of their own choice. This has the result that contractual agreements with suppliers are not properly exploited within that procurement package. In that case, get a clear picture of employees’ needs and wishes, and optimise the procurement procedure.
- Stubborn employees: Even when your internal communication and procurement procedure are in order, you still have to deal with stubborn employees who ignore the procedures you have drawn up. By using Contract Management Software in combination with Spend Analysis, you can find out which cost centre is responsible for which expenses. In this way you can precisely identify which employee has incurred which purchase expenses and point out to this person that he/she is not purchasing according to the correct procedure.
Contract Management Software
Before organisations switch to a Contract Management Software solution, we notice that they are frequently already using another system. Excel is the most common solution in this respect. It is a fine first step towards efficient contract management, but we often see that requirements quickly change, so that Excel no longer offer the functionalities to match the requirements.
The move to a Contract Management Software solution is often made when the requirement grows to:
- Be able to share contract data;
- Process contract data with multiple people simultaneously;
- Link contract data to spending;
- Safeguard communication about contracts;
- Automate the contract creation process;
- Expose the expiry period of contracts.
VendorLink’s software makes it possible to store contracts in one location, process them, and make them accessible to all the relevant users. In the software you can give users authorised access, allowing them to see only the data that is relevant to them.
Contracts can also be quickly and easily authorised in the software, eliminating the need for endless email correspondence. Moreover, you can set a notification for each contract to remind you when they are about to expire. This means you are never likely to forget to cancel or renew a contract.
Contract management per branch
In practice, we see that organisations use contract management for a variety of purposes.
Contract management for local authorities
For local authorities, contract management plays an increasingly important role because, since 2015, they are responsible for their own purchasing of healthcare products and services. Smaller local authorities benefit from the advantages of scale by jointly taking out contracts with healthcare providers for the procurement of healthcare products or services. This means that good contract management is essential for them.
Contract management for banks & financial services
In the financial services sector, contract management play a big role; for example, in risk management. Banks have to be able to show which suppliers they have contracts with, what risks are involved, and what measures they have taken to protect themselves against these.
Contract management in education
In education, too, contract management is becoming increasingly important. Educational institutions must be able to demonstrate that they are purchasing lawfully, and Contract Management Software makes it easier to make this open to scrutiny.
Contract management for commercial organisations
Commercial organisations mainly use contract management for the ultimate goal of cutting costs. Thanks to the combination of Spend & Contract Management Software they can gain insight into what is being spent on each contract and whether price agreements are being kept. They can then use this information to remind suppliers or the internal customer of contractual agreements.
Do you also want to make a start on Contract Management?
Want to experience for yourself how our contract management software works? Interested in the benefits for your organisation? If so, register today for a free trial.