Contract management is the
process of managing contract creation, execution and analysis to maximize
operational and financial performance at an organization, all while reducing
financial risk. Organizations encounter an ever-increasing amount of pressure
to reduce costs and improve company performance. Contract management proves to be a very time-consuming element of
business, which facilitates the need for effective and automated contract
management system.
Organisations in
both the public and private sectors are facing increasing pressure to reduce costs
and improve financial
and operational performance.
New regulatory requirements, globalisation, increases
in contract volumes and complexity have resulted in an increasing recognition
of the importance and benefits of effective contract management.
This is some benefit of contract
management
Standardized
Processes and Procedures
This helps to
decrease maverick buying and decrease supply risk while increasing spend
leverage. The net effect is that buys as a whole become less costly and more
valuable and a much greater percentage of negotiated savings are captured by
the business.
Spend Visibility
Probably the most
valuable benefit of a contract
management system – which lets you know if you are buying from the
suppliers you’re supposed to be buying from at the right times, quantities and
prices – it can also help an organization standardize on consistent contract
terms and conditions. Furthermore, it also allows for easy identification of
contracts with suppliers in high risk zones due to natural disasters, political
unrest, or economic uncertainty, which is critical to the development of
appropriate organizational risk management strategies.
Improved Compliance
According to
Aberdeen (Practical Approaches to Contract Management Deployment) compliance
management is improved 55% with a contract
management system.
Solid Foundation
for Spend and Performance Analysis
With all of the
contract conditions and negotiated prices and fees in a central location, it’s
a lot easier to compare actual purchases against contracted buys. This allows
policy or regulation violations to be caught and dealt with immediately and
insures that all spend is known and available to be appropriately leveraged in
sourcing projects.
Rebate Management
Contract Management systems make
it easy to track rebates and insure that all of the savings negotiated in a
sourcing cycle are captured.
Reduced Maverick
Spending
With a contract management system, a buyer can
immediately determine if a contract exists, who the contracted suppliers are,
and what the contracted prices are. No longer is “I didn’t know we had a
contract” or “I didn’t know I wasn’t supposed to do that” a valid excuse!
Evergreen Contract
Elimination
Without a contract management system to automatically
alert a buyer of contracts coming up for automatic renewal, many auto-renewing
contracts are likely to go unnoticed and automatically renew, locking the buyer
in for another buying cycle. With a system in place, the buyer can be alerted
weeks or months in advance, depending on how long a sourcing cycle normally
takes for that commodity or service, and take appropriate action.
