Sourcing and Procurement

Crafting Success: The strategic framework for superior vendor contract management

Businesses today rely on outsourcing more than ever, requiring them to build and navigate a complex network of vendors to access necessary goods and services. With such extensive and complex vendor networks, vendor management can be a daunting task, especially when businesses could make the mistake of underestimating the strategic importance of vendor contract management.

But what exactly is vendor contract management, and why is it important?

What is vendor contract management?

Vendor contract management is a process that oversees vendor contracts – or vendor agreements – from the point of creation to execution, encompassing stages like contract creation, negotiation, agreement, storage, and tracking. It also enables various teams – like legal, finance, or procurement – to manage contract risks and renewals effectively for business continuity.

In short, the vendor contract management process aims to create a standardised and robust strategic framework to help manage the four Rs – risk, revenue, renewals, and relationships – when it comes to vendor contracts. This process usually comprises seven key phases, including

• Creation
• Collaboration
• Approval
• Negotiation
• Signature
• Tracking
• Renewal

Vendor contract management best practices

Modern businesses spend a significant amount of time and resources on vendor management, making it an essential element of sustainable success and competitive advantage for any organisation. Here are some of the best practices you can incorporate into your contract management workflow to ensure effective vendor contract management and contract compliance:

• Start with a clear process and expectations be it roles and responsibilities of different team members, expected outcomes, or plan to communicate and collaborate with the vendors. This can help set up a clear roadmap for effective vendor management.
• Engage your legal, finance, or procurement teams throughout the contract management lifecycle to ensure effective performance monitoring and compliance with contract terms.
• Set up policies and protocols to monitor vendor performance and compliance throughout the contract lifecycle. This can help you secure a win-win for you and the vendor and get out of non-performing contracts.
• Maintain a single source of truth with a centralised contract repository for a holistic view of all vendor contracts.
• Stay agile to make sure you can react quickly to any vendor disruptions or changing market conditions.
• Create a risk management and mitigation strategy as a backup plan in case of any unforeseen disruptions or operational modifications.
• Automate contract workflows wherever possible to reduce lead times, eliminate manual errors, and free up your team to focus on more critical aspects of vendor management.
• Invest in a contract management system that aligns with your vendor management goals and can help you manage and improve vendor relationships.

Need for vendor contract management system

Although ERP packages or workflow automation tools can help teams collaborate with vendors and manage vendor contracts, a specialised contract management system can help streamline the contract creation and management process and improve the ongoing relationship between you and your vendors.

Here’s how a contract management system can help you improve vendor management while enhancing vendor relationships and ensuring contract compliance:

Centralised repository

It is not uncommon to have contracts and related documents scattered across different devices, shared folders, and file cabinets. As a result, it becomes difficult to maintain and access a single version of the truth. A contract management system changes that with a centralised repository for a holistic view of your contracts.

Improved approval lead time

A traditional vendor contract management process could take anywhere between a few weeks to a few months to navigate different stakeholders across the organisation and secure contract approval. Modern contract management systems have tools that can expedite this process so that you can start working together quickly.

Contract compliance

Vendor contract management goes beyond contract negotiation and signing and ensures all parties involved stay compliant with contract terms. Through periodic reviews and audits, a contract management system can help ensure compliance with contract terms and monitor performance to determine whether the vendor relationship should continue.

Improved security

Managing contracts across emails, shared folders, and paper copies may work on the fly, but it is not a suitable solution to manage and secure confidential agreements. Vendor contract management systems offer better data security and privacy protocols to ensure your and your vendors’ data remains secure.

Increased visibility

A centralised repository for a single version of truth accessible to every stakeholder ensures enhanced visibility across the vendor contract lifecycle. This can help curb maverick spending and optimise procurement efforts by working only with vendors covered under existing contracts.

How can Infosys BPM help you optimise the vendor contract management process?

Infosys BPM contract management system allows you to leverage AI-based solutions to reassess your vendor contract management processes, improve contract compliance, and reduce cycle time. Managing every aspect of the contract lifecycle, from solicitation, creation, and negotiation to administration and maintenance, we can help you reduce TAT by 30%, improve the response rate from 65% to 90%, and reduce administration efforts by 25%. From a centralised repository and regular reports to enhanced visibility and improved controls for risk mitigation, transform your vendor management with Infosys BPM.