8 Ways to Supercharge Supplier Contract Management

In an increasingly interconnected world, the old saying rings truer than ever: no business is an island. To meet evolving customer expectations, deliver high-quality products, and scale the business, all companies must rely on an ever-growing ecosystem of supplier partners. From keeping office supplies stocked to deploying software to providing facilities management, suppliers are integral to success. 

As companies require more and more vendors to keep the business running smoothly, strategic sourcing and procurement leaders are challenged with effectively organizing and managing supplier contracts. 

While sourcing teams recognize that a holistic supplier contract management strategy can save time and money, most businesses still operate via ad hoc processes and on a case-by-case basis. In the changing world of supplier management, however, the old way of managing contracts will no longer make the cut.

What Is Supplier Contract Management? 

Supplier contract management is the process through which procurement teams partner with suppliers to ensure they meet business objectives. While many believe that contract management involves only the papers being signed, it extends far beyond the agreements themselves, including:

• Contract creation: Defining the terms and conditions of the contract, including pricing, quality standards, and performance goals
• Contract negotiation: Ensuring that the contract terms, such as the agreement length and contract renewal options, are agreed upon by both parties
• Contract execution: Signing and completing the contract so that it is appropriately legally binding
• Contract monitoring: Tracking supplier performance against the service level agreement (SLA) to ensure it is delivering on its contractual obligations.

Before even entering into contract negotiations, procurement leaders must first find the best suppliers for their needs. Often done through a request for proposal (RFP) process, this involves the careful evaluation of different options to find the best partners. Sourcing and procurement also need to stay on top of in-process agreements to keep ahead of surprise renewals and deadlines.

Traditionally, supplier contract management has been a manual process with contracts siloed away across different desktops, in shared drives, and in desk drawers. This ad-hoc system often leaves procurement professionals wading through lengthy email chains and clunky systems to find critical contract information. Without clear visibility into contract data, sourcing teams risk losing their leverage and leaving critical dollars on the table.

8 Best Practices for Supplier Contract Management 

Strategic contract management is a critical piece of the puzzle for procurement leaders who are looking to elevate the role of sourcing in the business. When sourcing and procurement leaders can access their contract data, they can better identify gaps, expand partnerships with suppliers, and find savings opportunities across the procurement process.

Here are eight ways you can take supplier contract management from a tactical exercise to a strategic opportunity.

1. Engage Proactively with Key Stakeholders

Too often, partners such as finance, legal, and technology teams are tapped late in the contract process, which can lead to stalled negotiations or even broken agreements. It is essential to meet with these stakeholders before beginning talks with suppliers in order to understand the financial, compliance, and data privacy requirements that vendors must meet before partnering with the business.  

2. Establish Performance Expectations Early

To avoid early terminations or less-than-satisfactory partnerships, be clear about your performance expectations upfront. Sharing your evaluation criteria during the contract process will not only help you weed out suppliers who can not meet your business’ standards, but it will also help establish transparency between your team, your vendors, and your stakeholders. This kind of visibility helps create strong, high-performing partnerships. 

3. Centralize Your Contract Data

One of the largest barriers to strategic contract management is the lack of visibility into supplier data. Procurement leaders must be aware of upcoming renewals, payment terms, and contractual obligations in order to see around corners and plan for the future. By centralizing data, contract management software provides the visibility needed to make better contract decisions and reduce spend leakage. 

4. Create a Hub for Collaboration

Sourcing and procurement teams are the glue between the business and its suppliers. As a result, they often find themselves as the go-between, shuffling communications from stakeholders to suppliers and vice versa. By providing a centralized hub for communication, procurement can connect stakeholders with suppliers directly and ensure that essential information gets delivered to the right people at the right time. 

5. Establish Approvals Workflows

Contracts often get stuck in the sourcing and procurement process because necessary stakeholders have not approved them or, in some cases, have not even seen them. Strategic sourcing teams that have a clear understanding of necessary approvers can save time with standardized workflows that automatically route contracts through all required approvals. 

6. Develop a Regular Contract Review Cadence

When contracts are left without oversight, surprise deadlines strike. Setting up weekly or monthly reviews of all contracts can help you and your team keep track of what requires immediate attention and prepare for upcoming performance reviews and renewals. 

7. Connect Contract Performance to Business Goals

Sourcing can become a more strategic partner to the business by demonstrating how supplier contract management directly impacts the bottom line. Procurement leaders with easy access to their supplier contract data can use this information to make smarter decisions around risk mitigation, resource allocation, and project prioritization. With more insight into overall contractual spend, sourcing and procurement teams can also better report on total savings. 

8. Prioritize Strong Supplier Relationships

Procurement leaders everywhere agree: Cost savings is no longer king. To maintain business continuity amid volatile supply chains and pandemic disruption, many strategic sourcing and procurement teams relied on their strong supplier partnerships. Rather than looking for the best deal for the business, consider terms that are mutually beneficial in order to create long-lasting relationships. 

Supplier Contract Management Is Evolving 

It’s clear that conventional supplier contract management will no longer pass muster as companies continue to rely on a larger pool of vendor partners. To support corporate goals and maintain business continuity, sourcing and procurement teams must leverage their contract data to drive savings, track renewals and deadlines, and ensure that they are delivering on their contractual obligations. 

Without a dedicated contract management strategy, crucial information such as length of agreements, renewal dates, and deadlines can get lost in the shuffle. To guard against these issues, companies are increasingly turning to digital contract management systems that automatically centralize data and provide a hub for collaboration. 

This enhanced visibility empowers sourcing teams to identify strategic suppliers and manage relationships across the business. In addition to gaining deeper visibility into suppliers, strategic contract management also helps sourcing and procurement professionals understand their businesses’ total spend and fill supplier gaps that lead to costly spend leakage.

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This article has been updated since it was first published in July 2022.