The Role of Contract Management in Procurement

Contract management will help your organization efficiently manage its obligations. This saves time and resources, enabling invested parties to commit to activities that directly contribute to better productivity.

Contracts play a pivotal role in key business strategies and relationships. Securing a contract is one thing, agreeing to suitable terms and effectively managing contracts is another.

Many companies fail to properly monitor the contracts they’ve entered into, failing to fulfill contractual obligations which can result in hefty fines, costly litigation, and strained business relationships.

The thought of this happening is enough to encourage you to embrace contract management with open arms. An effective contract management system will automate various essential functions, helping you do better business and secure long term supplier and customer relationships.

Contract management and procurement processes are interlinked, both being critical to a company’s financial integrity and operational efficiency. A coherent procurement strategy will help your business establish long-lasting relationships with vendors. Procurement is intrinsically linked with contracting, regarding the execution, delivery, purchasing, and supply of contracts.

Your company’s contract management procedure will strongly influence procurement management. The right contract management strategy improves procurement in the following ways:

Improves Audits

Audits are valuable because they’ll allow you to evaluate important processes. By doing so you can determine areas of improvement, to establish new approaches that directly improve bottom lines. 

Auditing is critical in business environments where compliance is everything, with contracting and procurement being a perfect example. Auditing is vital because it will enable you to improve performance while ensuring your company practices are in line with what’s legally required given the rules and regulations of your industry.

The contract management process must be audited regularly, to ensure contracts are being managed the right way. The intrinsic link between contract management and procurement means the auditing process ensures a comprehensive overview of procurement, something that’s essential to help your buying process run smoothly.

The factors assessed during your audit, including pricing, quality controls, payment schedules and more, are essential to both contracting and procurement. When you address these factors, you’ll improve procurement and contracting simultaneously. With a more thorough auditing process, you can fine-tuning procurement and contracting for better performance.

Better Risk Management

Contracting and procurement are synonymous with evaluating, allocating, and mitigating risk. Contract management reduces operational risks, enabling you to eliminate human errors and overcome some of the complications associated with conventional business practices.

When you enter a new contract some risks are unavoidable. One of the keys to risk management is leveraging strong organization and oversight, to ensure things are running smoothly with the correct level of maintenance. Contract management systems are great because they offer full transparency, exercising the importance of visibility.

Modern features make analysis simple, where you can effortlessly run reports to analyze performance, compliance and identify potential issues as early on as possible. These can be identified swiftly and addressed effectively to avoid recurrence. With a sturdy approach to risk management, issues like delivery delays, tardy payments, and inadequate inventory accounting won’t negatively influence your business operations in the same way.

When not addressed, these can result in major production disruptions. Strong contract management aligns with better procurement management, which will ultimately eliminate the influence of risks.

Centralized Data

Contract management collates data in a central location, making it easily accessible and modifiable. Procurement contracts usually involve considerable volumes of documents, which is why your strategy should involve a stringent approach to document retention and management.

Modern contract management software creates a central repository for all documents, which can be easily managed from a single location. Procurement can be managed separately but it will likely be more efficient if it falls under the same umbrella as contracting. By including these contracts with your general portfolio, you can streamline your management processes.

This will secure coordination and communication between contracting and procurement teams, created via a robust approach to both practices.

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