The Ultimate Guide to Vendor Contract Management System
Managing your organization’s supply chain requires building and maintaining excellent supplier relationships.
In order, a proactive approach is required to create and nurture vendor relationships that benefit both sides and empower you to deliver your organizational targets.
That’s where contracts & the process of managing them come into the equation.
A contract is an agreement that spells out the terms of a customer-vendor relationship. On the other hand, vendor contract management covers the process you leverage to create and manage vendor relationships. Contracts are key in the vendor management equation since they help you:
- Spell out how both parties will work together,
- Duties and obligations, and even
- Severance terms in case one party defaults or causes damages.
More importantly, a vendor contract management system offers you an automated tool for managing all the tasks involved in the aforementioned process, such as:
- Creating contracts from scratch
- Engaging stakeholders from both sides while drafting the contract, and
- Organizing your contract management process into an automated workflow
A vendor contract management system enables your organization to streamline the process of creating contracts, which in turn helps manage supplier relations even better.
Long story short, if you’re looking to manage vendors more efficiently or make your relationships with them truly win-win, you need to double down on managing your contracts better.
You need a vendor contract management system.
This article will serve as your guide to making the best choice possible.
Why is vendor contract management essential?
Vendor contract management sets the stage for the ongoing relationship between you and your vendors.
A contract serves as a rulebook for you and your suppliers to adhere to and makes it easy to bring defaulters to book and terminate non-performing suppliers.
Creates one repository where you can store invoices
In many organizations, it’s not uncommon to have contracts scattered all over the place.
You have Word docs stored locally on individual employees’ devices, Google docs on a shared folder, paper documents filed away in cabinets, etc.
The outcome is that there’s no one place where anyone can go and get the big picture. Non-performing contracts expire and auto-renew because no one could track when they were due to expire.
Under-performing suppliers get a long rope to keep causing hitches because there’s no record of the provisions under which they can be terminated.
Late payments and unused contracts attract charges because there’s no one place where you can analyze all your contracts to see what’s working and what’s not.
Contract management changes all that.
With one place where you can have a holistic view of your contracts, it’s easy to track contract terms, manage suppliers better, and invoke contract provisions whenever necessary.
Improve approval lead time with processes
Traditionally, a contract could take weeks or even months, as different levels of input are consulted across your organization and your vendors’.
This is a setback you’ll want to avoid as much as possible. Vendor contract management designed with modern tools ensures that you and your vendors can reach agreements quickly and get down to working.
Using pre-built processes, vendor management software can alert contributors and automatically move data around without direct human input.
Ensure contract compliance with periodic reviews & audits
Managing a contract goes beyond the moment it’s signed. It’s important to ensure both parties stay compliant with the stated provisions in the long-run.
That’s where reviews come into the big picture. Ideally, contract management should plan ahead for periodic performance reviews that will be factored in to determine whether the customer-vendor relationship should continue.
Instead of bearing damages until a contract term runs out, performance reviews written into a contract can help determine whether both parts have been amenable to the agreed terms and as a result, help keep vendors compliant.
Managing contracts across MS Word and email might be a solution that works for your business on the fly.
But it’s definitely not the most secure solution since both (Word docs & email) don’t offer enhanced security protocols required for keeping such confidential agreements secure.
Vendor contract management systems designed around the use case offer better security that’ll keep you and your vendors’ data secure.
Increases spend visibility & reduces maverick spending
Maverick spending occurs often when employees need a particular supply but there’s no contract they can identify that covers its supply.
There could be a contract in place already, but as long as it’s not instantly visible when needed, employees will opt for the easy way out.
They’ll order what they need from any random vendor right away.
And maverick spending, which is simply acquiring supplies on a whim, tends to hurt an organization’s internal operations and waste procurement funds on double purchases.
Managing all your contracts in one place makes it easy to keep track of them.
Employees can stay updated on supplies that are covered by existing contracts and only purchase from those vendors.
Vendor contract management best practices
There’s no switch or lever tagged “Vendor Contract Management” you can simply flip and get everything to fall into place.
Rather, it’s an ongoing process you need to keep engaging to ensure both sides are compliant to terms and that your customer-vendor relationship stays productive in the long-run.
And there are several tips you can apply to make the process efficient and productive, such as:
Plan with a very clear process
A contract is a sensitive document that determines how a relationship between you and your vendors will run.
It lays out the terms and obligations of both sides.
Now, a lot of work goes into creating a contract, such as reviews, notifying authorized signatories, including key provisions, adjusting terms as the need arises.
All this isn’t what you can manage off the top of your head. Rather, you need a process you can always tick off every time you create a new contract.
Better still, an automated contract management tool automatically moves your contracts through the required stages, notifies all those whose input is required, and stores the finished document away when it’s done.
A process gives you a scalable step-by-step pattern you can use every time to create functional contracts that work for you and your vendors.
Manage and store all your contracts in one source of truth
Instead of scattering documents across folders and local devices, storing your contracts in one place is undoubtedly a better option.
A single contract repository makes it easy to keep track of contracts, key dates in their lifecycle (e.g. Expiration dates), and provisions that need to be kept as outlined.
Engage your team throughout the contract management lifecycle
Different members of your team may be required to fill out certain parts of a contract, say middle managers and your general counsel.
If you use an outdated pattern such as emailing them a Word, you’ll have to manually notify each contributor after the other and may even have to start afresh if there’s a mistake at some stage.
Using a vendor contract management tool, you can have everyone involved collaborating on a contract in real-time, build consensus, and reach an agreement in no time.
Enable and enforce compliance throughout the lifecycle of your contracts
Don’t expect every vendor will be super-compliant with the terms set forth in your contracts. While a few vendors will be committed to delivering the best they can, a large number may need a push.
Another group may keep lagging with poor performance and if you don’t replace them, their inefficiency will affect your organization adversely.
Pro tip: enforce terms proactively.
While creating contracts, you can schedule periodic performance reviews for analyzing vendor outlook.
Better still, if you use an automated vendor management system like Kissflow, you can track performance on an ongoing basis.
Performance tracking and periodic reviews ensure your vendors stay agile and that non-performers are removed before you invest a lot into them.
Use Kissflow for procurement awesomeness
Throughout this article, you may have picked up several tips to help you manage vendor contracts better and keep your suppliers reliable.
What if there was one tool that helped you automate all that, starting from:
- Reviewing vendor performance,
- Collaborating on contracts,
- Creating contracts with a clear process, and
- Enforcing compliance?
There is: Kissflow.
Kissflow Procurement Software is built to meet the needs of organizations of all sizes looking to source winning vendors, manage contracts better, and get the supplies they need without the stress.