How contract management can advance procurement at your organization

Have you ever faced the frustration of a project grinding to a halt due to an ambiguous contract clause? Have you also wrestled with unexpected costs, stemming from poorly managed supplier agreements? These common headaches originate from a critical truth—the journey from sourcing to delivery is paved (and often, obstructed) by the quality of your contracts.

For procurement, where every interaction with a supplier is underpinned by a contract, effective contract management becomes an essential discipline. More than just an administrative chore, contract management profoundly impacts and optimizes various stages of the procurement process, from initial vendor selection and negotiation to ongoing performance monitoring and dispute resolution.

But how exactly does contract management affect procurement, and how can you get your organization to manage its contracts better? Not to worry: we’re here to answer your burning questions about all things procurement and contract management.

What does contract management have to do with procurement?

Simply put, it’s because contracts are the very backbone of supplier relationships.

Every interaction and transaction with a supplier, from the simplest purchase order to the most complex strategic alliance, is governed by a contract. These documents legally define the scope of work, deliverables, payment terms, quality standards, and responsibilities, acting as the definitive blueprint for collaboration. Without effective management, these blueprints can become sources of confusion, dispute, or missed opportunities.

While procurement’s primary objective is to acquire goods and services that deliver maximum value to the organization, contract management is the mechanism that ensures this value isn’t just promised, but realized. It transforms negotiated terms into tangible outcomes, safeguarding against non-compliance, ensuring favorable pricing is maintained, and continuously aligning supplier performance with organizational goals.

In other words, the ultimate goal of procurement is to generate value, and contract management helps realize that value.

What are the benefits of good contract management for procurement teams?

By seamlessly weaving contract processes into the procurement workflow, businesses can reap a multitude of benefits that drive efficiency, reduce risk, and maximize value across the entire organization.

1. Increased efficiency and speed

Integrating contract management streamlines the entire procurement lifecycle.

• Reduced cycle times: Automation of contract creation, review, and approval processes drastically cuts down the time from need identification to a fully executed agreement.
• Less manual effort: Eliminating repetitive data entry and manual tracking frees up procurement teams from administrative burdens, allowing them to focus on more strategic activities like supplier negotiation and relationship building.

2. Enhanced visibility and control

A centralized and integrated system provides unparalleled insight and governance over all contractual agreements.

• Centralized repository: All contracts, along with their associated documents and communication histories, reside in a single, easily accessible location, eliminating silos and lost information.
• Real-time insights: Stakeholders gain immediate access to contract status, key performance indicators (KPIs), obligations, and expiration dates, enabling proactive decision-making and preventing missed deadlines.

3. Reduced risk and improved compliance

Effective contract management is a powerful tool for safeguarding an organization.

• Proactive risk identification and mitigation: Automated alerts and standardized clauses help identify and address potential risks (e.g., non-compliance, financial penalties) before they escalate.
• Adherence to regulatory requirements and internal policies: Ensures all contracts meet necessary legal, industry-specific, and company-specific compliance standards, minimizing legal exposure and reputational damage.

4. Greater cost savings and value realization

Beyond just preventing losses, integrated contract management actively contributes to the bottom line.

• Preventing maverick spend: Ensures that all purchases are made under approved contractual terms, eliminating off-contract spending that erodes negotiated savings.
• Maximizing rebates and discounts: Automated tracking of volume commitments and performance-based incentives ensures that all earned savings are realized.
• Optimized pricing: Continuous monitoring of pricing against market benchmarks and contract terms prevents overcharges and identifies opportunities for renegotiation.

5. Stronger supplier relationships

A study published by Harvard Business Review highlighted the growing importance of transparent and cooperative relationships, a sentiment affirmed by over 80% of contract negotiators.

• Building trust: Clear, unambiguous contracts and transparent performance tracking build confidence and reduce misunderstandings between buyers and suppliers.
• Fostering collaboration: A defined contractual framework provides a basis for productive engagement, dispute resolution, and joint initiatives, leading to more resilient and mutually beneficial long-term partnerships.

How can I level up our contract management for my procurement team?

At this point, you’re probably thinking about how you can make your procurement team’s lives easier—but successfully integrating contract management into procurement requires a strategic approach that considers both technological solutions and organizational readiness.

Investing in a robust Contract Lifecycle Management (CLM) software is often foundational. Such platforms provide the necessary tools for automated drafting, negotiation, execution, and post-award management, acting as the central nervous system for all contractual activities.

Empowering procurement professionals with the knowledge and skills to navigate contract terms, identify risks, and utilize CLM tools effectively is just as important. Comprehensive training will ensure adoption and maximize the system’s potential.

Once the foundational considerations are in place, adhering to specific best practices will ensure the ongoing success and optimization of contract management within procurement:

• Centralized contract repository: Establish a single, secure, and searchable digital repository for all contracts. This eliminates disparate storage locations, ensures version control, and provides a “single source of truth” for all contractual data.
• Automated workflows and alerts: Implement automated workflows for contract creation, review, approval, and renewal processes. Utilize automated alerts for key dates (e.g., expirations, milestones, payment due dates) to ensure proactive management and prevent missed opportunities or penalties.
• Robust reporting and analytics: Leverage the data within your CLM system to generate comprehensive reports on contract performance, compliance rates, spend analysis, and risk exposure. These analytics provide valuable insights for strategic decision-making and continuous improvement.
• Integration with other systems (ERP, SRM): Ensure seamless integration between your CLM system and other critical enterprise systems, such as Enterprise Resource Planning (ERP) for financial data and Supplier Relationship Management (SRM) for comprehensive supplier profiles. This connectivity enables end-to-end visibility and data consistency.
• Continuous improvement and review: Regularly review contract templates, clauses, and processes to identify areas for optimization. Incorporate lessons learned from past contract performances and market changes to keep your contract management strategy agile and effective.

So, what now?

Hopefully, it’s now clear that contract management is more than an administrative chore, and has now become an indispensable strategic pillar for the procurement team of today. For organizations seeking to transform their contract landscape, eliminate inefficiencies, and confidently navigate complex supplier relationships, a robust Contract Lifecycle Management (CLM) solution is key.

That’s where Agiloft comes in: by providing an intuitive, highly configurable platform that automates workflows, centralizes critical data, enhances visibility, and ensures compliance across the entire contract lifecycle, Agiloft empowers procurement teams to move beyond manual burdens and focus on strategic initiatives. Invest in a technology leader and best-in-class CLM for Procurement to streamline your operations, mitigate risks, maximize savings, and forge stronger, more profitable partnerships, ultimately driving your procurement success to new heights.

Learn more about how Agiloft’s industry-leading CLM platform can streamline procurement workflows at your organization.