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How Contract Management Can Improve Procurement Management

A well managed procurement process is vital to a company’s operational efficiency and financial integrity. The procurement team must employ a coherent strategy to establish long lasting relationships with vendors and secure high quality goods and services based on reasonable terms and affordable prices. Procurement is inextricably intertwined with contracting, as procurement generally entails the negotiation and drafting of purchasing and supply contracts. As a result, the strength of a company’s contract management strongly influences the results of its procurement management, and vice versa. Here is how the right contract management strategy can improve procurement management:

Centralizes Data

Establishing a coherent contract lifecycle management system is critical to ensuring meticulously organized records. Virtually all contracts, including those related to procurement matters, involve a substantial amount of documentation. For this reason, it is imperative for a company’s contract management strategy to incorporate a specific plan for document retention and management. Utilizing online CLM software makes this incredibly easy, as it allows for a centralized contract repository for all of a company’s contracts as well as all related documents. 

Although the overall procurement process may be managed separately, many of the documents associated with procurement actually fall under the umbrella of contracting. Thus, for the sake of organizational efficiency, these types of contracts should also be included within the company’s general contract portfolio to help streamline both management processes. More than likely, a company with robust contracting and procurement practices will need to ensure that there is coordination and communication among the two teams.

Facilitates Audits

To evaluate progress and improve outcomes, it is always important to conduct periodic audits of the way in which a company’s affairs are being handled. In general, this is accomplished via auditing. Given the importance of compliance in both contracting and procurement, occasional audits are critical to both improving overall performance and ensuring that the company is acting in accordance with the prescribed rules and regulations. 

As mentioned, there is a symbiotic relationship between contracting and procurement, and thus incorporating audits into a company’s contract management process essentially ensures that there is a comprehensive review of its procurement matters as well. Certain things such as timeliness, quality controls, pricing, and payment schedules are crucial to both contracting and procurement, so assessing how these things are faring is key to keeping them on track.

Improves Risk Management

A huge component of both contracting and procurement is evaluating, mitigating, and allocating risk. There will always be some unavoidable risks when a company enters into a contract with another firm or establishes a business relationship with an individual or entity for the provision of a good or service. As with most types of management, the key to risk management is strong organization and oversight. 

Purpose-built contract management systems understand the importance of visibility and offer features and tools that make data analysis quick and simple. Companies should run reports to analyze contract performance and compliance to identify potential issues as early as possible so that they can be addressed and resolved quickly. In procurement, delivery delays, tardy payments, or inadequate inventory accounting can result in massive disruptions to production, creating unnecessary risks and likely avoidable consequences. Thus, strong contract management inevitably allows for strong procurement management, mitigates the risk of breaches of contracts, and reduces the likelihood and impact of some of the other potential risks.

The Master Checklist for Contract Review & Management

Tips and best practices for a successful contract management process.

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