Back to Blog

Alleviate Rising Costs By Improving Your Supplier Contract Management Practices

     

Saving money is a constant concern for many organizations. Taking a critical look at what the organization spends on necessary--or unnecessary--supplies is a good place to start. Organizing the supplier contract management process can reclaim potential savings and minimize unnecessary expenses.

Establish a Central Contract Management System

One of the biggest challenges for many contract managers is simply locating contracts, never mind comparing them to similar supplier contracts or communicating effectively. Different organizations may appoint a central board of contract managers or let departments handle contracts more independently. No matter which management structure suits your organization, all managers need easy access to contracts. A secure, shared system gives managers in different departments or branches a convenient way to centralize strategy and planning, but manage independently.

Set Intermediate Review Points

When contract management is struggling, managers spend more time dealing with contracts in crisis than optimizing terms. Improve organization, and time often opens up. One smart trick is setting auto-reminders for reviews throughout the life of the contract. This lets managers correct any issues more easily as they arise, instead of discovering them when something goes wrong. It also gives managers an opportunity to reach out to suppliers to set performance goals that appeal to both parties and explore new possibilities within the relationship.

For example, many organizations miss out on savings promised within their supplier contracts. It’s not necessarily a matter of an unscrupulous supplier. Contracts may outline cost-saving measures or potential discounts that get forgotten, or require “opt-in” action from the organization. When contracts are lost or ignored, these easy savings may be forgotten, too.

Review On-Contract and Off-Contract Purchases

One mistake that creates extraneous costs for an organization is unnecessary and redundant supplier accounts. In the course of contract review, use tags to search for all supplier contracts within the organization. Compare the types and costs of products different departments or branches are purchasing on supplier contracts. Collecting this information lets managers assess whether to end a supplier contract and expand another, cheaper option. Managers should also consider comparing off-contract purchases. If several departments are buying the same products off contract, the organization may be able to negotiate a discount within an existing supplier contract.

Improve Tactical Purchasing Strategy

More effective organization, cross-department communication, and review processes help contract managers improve purchasing strategy. A shared system makes it easier for all decision-makers to understand the organization’s supply needs. Improved search capability lets managers conduct important contract assessments. Does the organization really benefit from an organization-wide contract if only two out of five branches order from the supplier? Which perks in a supplier contract are truly valuable? Excellent contract management leaves managers poised to negotiate contracts that serve the organization better from the beginning.

Incorporate Tried and True Strategies

Chances are, if you’re in charge of contract management, you’re interested in improving organization. You could probably identify aspects of your current system that aren’t working efficiently. There are likely also at least a few things working well. Don’t throw the baby out with the bathwater in pursuit of the “perfect” software solution. Transitioning to new software may go much more smoothly if team members can still incorporate processes that were effective in “the old way.” Customizable tags, for example, can allow managers to search according to familiar parameters instead of conforming to a default set of tags.

Download How to Use KPIs for Successful Contract Management