Sourcing and Procurement
Strategies for effective contract management
Contracts are at the heart of every business. Almost all operations, such as production, procurement, marketing, and sales, depend on contracts with vendors, employees, and clients. The efficacy of contract management teams greatly influences an organisation’s bottom line and reputation.
What is effective contract management?
Effective contract management involves proactively monitoring contract generation, execution, and analysis to improve operational and financial efficiency while minimising risk. Good contract management strategies bridge the gap between intention and execution.
Strategies for better contract management
Every business owner realises the importance of streamlining and monitoring each phase of the contract lifecycle — from request to renewal. And yet, companies lose up to over 9% of their annual revenue year on year due to bad contract management. For larger organisations, the numbers can escalate to 15%. Here are six proven contract management strategies to optimise process outcomes.
Build a centralised repository
Whether manual or digitised, contracts stored in multiple locations lead to disorganisation and loss of documents. Studies reveal that 71% of businesses lose 10% or more of their contracts, leading to multiple difficulties during the contract lifecycle. Decentralised documents hamper internal coordination among teams. They can also pose security threats by making confidential data accessible to unauthorised personnel. With a centralised repository, companies can:
- Enable contract categorisation.
- Limit access to sensitive information with secure accessor verification.
- Increase visibility into documents that need continuous review.
- Enhance searchability.
- Facilitate data analysis by establishing a ‘single source of truth.’
Drafting contracts from scratch costs legal departments unnecessary time and effort. In reality, there is little need to individualise each contract when several contract elements, including non-negotiable terms, stay consistent across various contracts. An effective contract management strategy uses standardised templates that cover non-variables while providing flexibility for need-based alterations. For instance, procurement contract management teams can use a standard quality and compliance check template for most products. With standardised contract templates, organisations can:
- Automate and streamline contract creation.
- Make contracts easier to edit and review since review teams need to focus only on the variable data.
- Use standardised language to avoid ambiguity, simplify negotiations, and avoid potential legal complications.
Write a strong scope statement
The purpose of a scope statement is to establish a clear understanding between the involved parties about the business needs, constraints, and outcomes. If the scope statement lacks specificity, it may result in disagreements, delays, and failed outcomes. A good scope statement should include not only the project timelines and outcomes but also specific clauses about exclusions and change requests. Any ambiguity here can compromise your company’s projections and budget.
Track your contracts
Active monitoring is crucial for effective contract management. A casual approach can spell failed outcomes and added spend. Contract tracking includes:
- Tracking key dates and milestones.
- Setting reminders for contract reviews, expiration, and renewal.
- Enforcing version control.
- Checking compliance and regulations.
- Tracking audit trails and logging.
Over 50% of organisations lose business due to inefficient contract management strategies. Tracking and monitoring contracts enable you to spot anomalies, avoid delays, and optimise project performance.
A contract involves multiple stakeholders, and a slight oversight from an individual or team can result in a loss of business or reputation. Driving accountability among employees is the only way to align teams and processes with the intended outcomes. Here are a few ways to encourage commitment at every level:
- Define roles and responsibilities at the outset.
- Assign ownership for specific goals during the contract lifecycle.
- Establish points of contact to resolve potential crises, bottlenecks, or hindrances.
- Maintain good working relationships and build trust between parties.
Automate contract management
Too many organisations are stuck with manual contract management processes due to a lack of budget or an unwillingness to change legacy systems. In reality, manual systems are prone to errors and oversight, which can result in added spend or lost business opportunities. Strategies for contract management are only as effective as their implementation. The best way to add efficiency to your contracting processes is to automate contract management through AI-integrated software.
Contract management software tracks the contract lifecycle through all its phases — initiation, authoring, approval, execution, compliance, and renewal — and prompts the right action at the right time. It streamlines and automates tedious processes, allowing teams to focus on the substance of the agreement. Here are some key benefits of contract management software:
- Saves time, costs, and human hours for contract generation and signing.
- Adds efficiency to workflows.
- Provides a centralised repository with better storage, sorting, searchability, and accessibility features.
- Offers contract templates with dynamic editing features that legal teams can use for similar or recurring contracts.
- Has collaboration features that break down departmental silos and enable better teamwork.
- Supports automated contract tracking with visual timelines, alerts, and notifications, so you do not miss important milestones.
- Simplifies analysis with artificial intelligence (AI) and natural language processing (NLP).
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How can Infosys BPM help?
Infosys BPM offers complete procurement and contract management services. We manage all aspects of contracting, including solicitation, creation, negotiation, administration, and maintenance.