6 Key Strategic Ideas for Supplier Contract Management
Many organizations depend on outside suppliers for smooth, day-to-day operation. Working with the right suppliers is critical to manage costs effectively and keep projects on time and up to quality standards. Supporting suppliers with thoughtful management at various points of the relationship can help the organization derive the greatest benefit from its supplier contracts.
Know Who’s in Charge
A simple lapse in communication can result in expensive delays. Start each supplier relationship with a clear idea of who is in charge of managing the project, and who will act as a primary contact person on both sides.
An organization may find it helpful to designate someone (or a small team) to take charge of supplier procurement, contract management, logistics during project execution, and other management functions. Depending on the organization’s needs and resources, it may make more sense to make supplier contract management part of an employee’s permanent role or assign this responsibility on a project-by-project basis. Similarly, a supplier contract management council may make decisions for one region or branch, or across the board of the organization, depending on what works best.
Whatever method your organization uses, assigning a leader to take charge of managing the supplier relationship starts the project on the right foot.
Develop a Standard Supplier Evaluation Process
You’re used to standard language in contracts and work processes designed to optimize operations. You may not have applied the same focus to the process of finding and evaluating suppliers.
Developing a formal screening process offers several advantages. First, it helps ensure that suppliers are evaluated fairly. Many government agencies and organizations are required to follow certain processes to evaluate potential suppliers for this reason. A standard process can reduce some subjectivity or human error. A written process can also serve as a helpful guide for people who haven’t evaluated suppliers for this organization before.
Using a standard evaluation also affords businesses the opportunity to make deliberate, continual improvements to the process. A less successful contract might inspire new questions or factors to consider to improve the likelihood of developing a better supplier relationship in the future.
Organize Contracts Effectively
Getting the most out of a supplier relationship involves careful contract management. Performing best-in-class level contract management using a poorly organized system is a tall order. Even confidently answering yes to a question like, “Can I easily locate the top 100 contracts in my organization?” is a difficult challenge for some businesses to meet without a strong organizational system in place.
Most businesses recognize the importance of organization. One question that comes up often is whether a centralized solution is best, or if it’s better to let individual departments execute their own contract organization.
There’s no one right answer. Different organizations will find different solutions that best meet their needs. Approaches that combine elements of centralized and individual solutions are common. An organization might store contracts on a shared database so that leaders throughout the organization can access materials. But individual branches or departments might have the ability to make and execute some contract decisions independently.
Use Software That Helps You
Contract management software helps organizations work effectively without having to create a system from the ground up. If your organization has been filing paper contracts or using a combination of other programs to form a rough contract management system, transitioning to software designed for contract management may improve the experience significantly. The main caveat is that the software should serve your business, not force you to completely upend work processes.
Ideally, a technological solution should streamline and improve existing work processes. If software requires a convoluted set of steps, it may end up causing frustration rather than alleviating it. Before buying a new software system, evaluate it to see how it will benefit contract management in your organization.
Support the Supplier Relationship
The strongest supplier relationships are a two-way conversation. Organizations that can treat supplier relationships as a partnership may be better poised to work together towards the best opportunities for both parties. After all, suppliers often have more expertise in their niche area than the organization. Developing a strong supplier relationship is based on several key pillars:
- Maintain open, clear lines of communication
- Use contract review to resolve problems or evaluate performance objectives as they arise
- Identify and act on opportunities to develop new goals
Performing contract reviews during the contract lifecycle help accomplish these goals. The production stage of a project may reveal unexpected issues (like a certain brand of a supply being out of stock) or opportunities (such as a publicity opportunity if the project is completed in time for an event). Connect with the supplier to discuss any changes that need to be made, and how both sides can work together to execute the contract successfully.
Handle Auto-Renewal the Right Way
In many cases, contract auto-renewal can benefit all parties involved. Suppliers feel more secure when they don’t have to continually prepare to win over businesses they’ve worked with for years. Organizations save time by avoiding certain bureaucratic requirements for implementing a “new” contract and may enjoy keeping certain stipulations in place automatically. The problem is when companies take an autopilot approach to auto-renewal, missing a valuable negotiation opportunity.
If an organization doesn’t realize a contract has renewed, they may accidentally find themselves in breach of contract. Something simple, like purchasing an order of copier paper, can become a problem if it counts as “rogue spending” against a contract with an exclusivity clause. Failing to negotiate can also trap an organization into paying a rate that should have been renegotiated, or missing out on a chance to drop or add services. Setting auto-reminders prepares businesses for end negotiations or contract termination.