Three steps to effective contract management

16 April 2013

It’s surprising how many companies still struggle with contract compliance enforcement and performance tracking. Ineffective contract management costs businesses £100 billion per year in missed cost savings, according to the Aberdeen Group.

What's the biggest roadblock? It’s complicated, hard work that requires buy-in from the entire procurement team. Here are three steps to create a more effective contract approach:
  1. Compile all past and current contracts. It’s far more difficult to do than many think. The scope of difficulty depends on how large your supplier base is, your technology adoption to date and how scattered your contracts are throughout the organisation. The heart of a strong contract management approach is a complete database.
  2. List all the supplier information you want to track today and in the future. Your contract wish list will be lengthy to start, so prioritisation is important. Start with supplier location, billing information, main points of contact, start and end dates, price and delivery terms/service level agreements. Once you have a system for the basics, you can begin to track more advanced details like corporate linkage, ethical requirements, etc.
  3. Make reporting and analytics a priority. Better analytics lead to better sourcing decisions. Much like the wish list of information fields, the reporting possibilities are expansive. Ensure whatever database and contract management system you select can run reports based on specific categories, levels of spend, types of supplier, upcoming renewal dates, etc.
Before embarking on any revamped or new contract management system, have a discussion with the procurement leadership team to ensure that there are enough staff, time and external support allocated to the project. The worst-case scenario is wasting time, effort and money on contract management only for it to fail. Although at first daunting, once supplier databases, procurement processes and contract management are aligned, companies can start using contracts to support bigger business goals beyond cost control and supply assurance. And in my next blog I will share several examples. ☛ Claire Sexton is account director at BravoSolution
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