There are many talks on the invincibility of Contract Management within the end to end procurement process. This article aims at reinstating how even excellent Procurement is highly inefficient without proper Contract Management software in place.
The Importance of Contract Management in Procurement
Consider the following arguments to convince your Procurement organization about the effectiveness of Contract Management.
- While in individual business areas and functions, executives are interested in managing contracts, they lack the appetite in owning the overall process ownership that’ll drive the practice across the organization. For example, we need to have standard systems, training, governance and reporting well coordinated. Who else but Procurement can own it up because of its clear over-arching interest that offers some logical solution.
- We know that Contract Management is inevitably an essential part of the entire end to end procurement process. In this context, contract management builds on the supplier selection, negotiation, and contracting process steps that meet the central objective of Procurement.
- More than the regular contract users who enjoy a sure incentive for their Contract Management usage, the function of Procurement has a more significant incentive. In this case, Procurement can’t be blamed (as commonly heard) for choosing a wrong supplier.
- The ownership of Procurement involves a close check on oversight, strategy, tools and processes, governance, and skills, and not every aspect of Contract Management.
Seven Points for a Contract Management Business Case
- It is true that many executives still do not understand the entire game of Contract Management (CM). For that, include an explanation to justify the investment. Show how it fits the bill of all procurement activities and structures. Do note that investment made is not only one-off but recurring charges too. So finance here encompasses resource, tools, and technology.
- Make mention about the various risks that an effective CM can deal with and solve. The risk mitigation factor is dear to any serious businesses to prioritize investment in it over any other investment.
- From a productivity point of view, some key features of an excellent CM system include Process Efficiency, Collaborative Negotiation, Compliance Management, Approvals Workflow Management, Risk Aversion, and Barcode Automation & Security.
- From the revenue optimization point of view, some key features of an effective CM system include Cost Control, Revenue Assurance, Return on Investment, and Financial Reconciliation.
- For Accessibility, a sound CM system allows to Access Contracts from Anywhere, Reliable Enterprise Search, Strong User Uptake, and Security Permissions.
- For Metrics and Tracking, management can easily have access to Business Insights and Analysis, Comprehensive Revision History, and Performance Tracking.
- And finally, for Deliver and Rollout, management will benefit from Flexible Delivery Options, Tailored Solutions, and Seamless Integration.
Difference between SRM & CM
Now, let’s discuss the difference between a Contract Management system and Supplier Relationship Management (SRM). Both are a part of the same continuum that connects with supplier and contracts post-contract offer. An SRM defines actions taken on a supplier’s entire portfolio of contracts. Such actions are strategic and monitor the potential of long term activities. Contract Management, on the other hand, is the foundation on which we build such strategic relationship, innovation, or joint ventures. CM enforces discipline, underlines the terms of the relationship, and their performance.