How can excellent vendor contract management practices lead to a competitive advantage? Maximizing the productivity of a vendor relationship reduces wasted time and resources, allowing the organization to get the full value of their investment. Read on to learn how your company can boost productivity.
Saving project costs starts well before the project formally begins. The vendor procurement process has the potential to make or break a project. Selecting the wrong vendor for the job, or incurring too many delays and being forced to rush a project schedule, can doom a project before it starts. A well-organized, streamlined procurement process lets an organization capitalize on the time and resources it has to complete the project effectively.
Take contracts and associated paperwork, for example. Apttus found that 37% of legal professionals could prepare an NDA in less than a day, whereas 50% took a week or longer. Utilizing cloud-based software to organize all necessary documents can make it easier to access, prepare, and deliver materials to a potential vendor. Electronic signatures can further streamline the procurement process by eliminating postal mail lag time or the logistics of arranging a face-to-face meeting.
Storing standard procurement guidelines on a shared system can ensure that contract managers and project leads can review the procedure they should follow. This can help minimize skipped steps in evaluating and signing a new vendor. Overall, saving time and following proper procurement due diligence saves the organization money and lowers risk.
Organize Documents Effectively
Over the course of a complicated project negotiation, or a long-term relationship with a vendor, it may be necessary to make various amendments to a contract. How certain are you that if you pull up a vendor contract, it will be the right version, every time?
Organizing contracts effectively after signing is critical to maximizing the productivity of a vendor relationship. During the procurement phase, you carefully negotiated the best terms to protect your company and derive the most value from the contract. Neglecting the contract later means all that work goes to waste. Instead, upload and organize contract versions so you can track developments throughout the vendor relationship. An unusually high, or low, number of contract versions could be a warning sign of a vendor not performing at its best. It might be worth a closer review to assess whether the contract is revised too often for not meeting expectations, or too rarely (indicating a possible neglected relationship that is auto-renewing without a proper review and renegotiation).
Avoid Contract Leakage
A 2014 report from the Project Management Institute found that more than $100 million was wasted for every $1 billion invested in projects. Failure to meet project goals accounts for much of this, and irrecoverable costs for a failed project are a serious concern for any business. Minimizing contract leakage, or the gap in value between what the contract promises and what it actually delivers, can help reduce waste.
Contract leakage and value discrepancies can occur in virtually every aspect of a contract. During a vendor contract review, it’s important to consider performance in all of the following areas:
- Products and services covered under contract: Are all essential services covered? What happens if the organization needs something not covered under contract, or mistakenly orders a contracted product or service from another company?
- Quality variances: Are specified brands and materials being delivered on time? Is service meeting or exceeding quality specifications?
- Pricing variances: Is the organization paying the agreed-upon rates? Are there issues with duplicate invoices or insufficient invoice review before processing?
- Shipping discrepancies: Are delivery terms being met?
- Missed rebates or discounts for volume: Is the organization capturing all value promised in the contract? If not, why not, and what steps must be taken to recover savings?
- Insurance discrepancies: Is the vendor complying with any requirements to provide insurance for goods and services? Are there situations where a vendor’s failure to insure itself or workers sufficiently could add liability for the organization?
The 2013 CHAOS Manifesto found that only 39% of projects were completed on time and within the stated budget. The Project Management Institute found that high-performing companies, on the other hand, report nearly 90% success. What’s the secret to driving these success rates? Organizational agility and close alignment between projects and the business’ strategic goals play important roles in project success.
Compare and Evaluate Vendors
Continually refining and reevaluating vendor relationships helps organizations catch slipping performance early. Look for contract management software that allows you to tag similar vendors with the same parameters, so you can pull them up quickly for a side-by-side comparison.
During vendor reviews, it’s helpful to look for the following:
- Vendors performing identical or nearly-identical services
- Vendors consistently underperforming or exceeding expectations
- Vendors the company has ordered less from than expected
- Off-contract spending: What’s being purchased, and how often
It may become evident that some contracted relationships are redundant, and the organization can terminate one vendor agreement instead of renewing at the next opportunity. Sometimes, organizations may find that a particular vendor has turned out to be a star performer, consistently exceeding expectations. If the vendor is able to scale up and still meet excellent quality standards, it could be worth considering scaling back another vendor’s workload or dropping an underperforming account and rewarding the high-performer with additional business. Nurturing vendor relationships can benefit the organization’s overall productivity by prioritizing the suppliers who have proved willing to go above and beyond to support the organization’s goals.