A solid contract management process extends beyond negotiating and drafting effective contracts. In this blog, you’ll learn how vendor contract management helps you achieve key procurement goals. We’ll also provide the steps you need to implement to create an effective contract management process.
What is vendor contract management?
Vendor contract management has many different definitions depending on your needs and goals. At a high level though, it’s the process of overseeing the negotiation, approval, and execution of supplier agreements with regular reviews to ensure vendor compliance. Contract management is generally owned by the procurement team, though you may collaborate with the legal department to draft and negotiate new contracts.
Contract management has three primary objectives:
- Reduce vendor risk.
- Ensure suppliers are contract compliant.
- Develop a long-term vendor relationship.
What is the contract management process?
In the typical contract management workflow, there are several stages. However, every company’s contract lifecycle management process will look slightly different, depending on goals, procurement type, and internal regulations.
Use this workflow as a starting point, and adjust as required for your specific organization.
- Drafting the contract – after a series of conversations between the vendor and the procurement team, an initial contract is drafted. Depending on your arrangement, this may be drawn up by your legal team or provided by the vendor.
- Negotiating vendor expectations – though the entirety of an agreement can be negotiated before the drafting stage, it’s common to draw up an initial contract to provide the basis for negotiation discussions.
- Approving the final contract – the contract approval stage involves all stakeholders reviewing and approving the final contract.
- Signing the contract – when all parties have agreed to the terms of a contract, signatures must be captured. Today, digital signatures are most common. Digitizing this step allows stakeholders from both sides of the table to legally authenticate a contract without having to print the whole document out and obtain the physical signatures of everyone involved.
- Implementing the contract requirements – payments are made, items are delivered and approved, software is implemented, and the appropriate employees are trained in its use.
- Tracking vendor performance – throughout the length of the agreement, your contract management team is responsible for monitoring performance against expectations and holding vendors accountable where required.
- Renewing the contract – at the end of the contract term, you may decide to part ways with the vendor or continue working with them by renewing the contract. This serves as an opportunity to renegotiate any terms, such as pricing or performance guarantees. Where renegotiation is the case, the contract management process begins again from step one.
Contract management best practices
- Ensure your expectations are communicated clearly – establishing and communicating your goals, priorities, and expectations is critical to successful vendor contract management. In many ways, that’s what the contract is for, though many contracts aren’t as detailed as they should be.
- Keep contract performance reviews objective – objectively report on performance against contract expectations. Focus specifically on the KPIs you’ve set during the negotiation phase.
- Upskill yourself in contract negotiation – contract negotiation is a skill that you’ll improve on through practice, but it’s always wise to upskill yourself before you engage in a negotiation.
- Utilize a vendor management platform – contract management software offers several features to help streamline manual processes and improve profitability. Invest in a vendor management system to get the most out of your third-party vendor relationships.
SCS is your 100% independent vendor management and software audit and compliance partner
At SCS, We use our background as former reps to take a generic benchmark to the next level with strategy. Ensuring you get the best possible pricing, terms, and conditions is our focus. In preparation for vendor negotiations/contract renewals SCS can provide unbiased, conflict-free, current and historic market perspective and leverage points around vendor pricing, discount, and contract terms that your team can leverage to maximize savings and optimize contract terms. Contact us today!