CLM Software for Manufacturing Enterprises
In the manufacturing industry, the inability to extract key data from contracts for tracking and reporting purposes is the most frequently cited challenge among those individuals responsible for contract management processes.
For example, imagine that a clause specifies a number of units that triggers a price drop of 20% but the party that could benefit never realizes the potential discount. Even worse, the newly appointed contract manager to that client doesn’t have an effective way to find out about the discount clause. He’s handling 30 accounts on a paper-based system, after all.
Let’s review 3 ways in which improvements in CLM software now allow contract managers in the manufacturing industry to make better decisions.
- Increase Profitability of Consumables with Limited Shelf Life
Enterprises in the food and beverage sector know that their products have a limited shelf life and that excess production could lead to unsold stock and waste. While a manufacturer wants to produce just enough extra in case of additional demand or last-minute orders, the enterprise is generally better off by producing the right amount.
By allowing a contract manager to review the difference between contractual ranges of production against actual sales, CLM software aids in optimizing production to adjust to current business conditions. Through OCR technology, CLM software allows you to complete text-based searches even on scanned copies of old contracts. Through the continuous input of contracts into the centralized contract database, contract managers are able to increase the available data points and fine-tune the production ranges of consumables with limited shelf life.
- Improve Regulatory Compliance
To ascertain the most pressing issues in contract management in the manufacturing industry, Contract Logix surveyed 550 U.S. individuals who are responsible for the creation, editing, and/or management of contracts at manufacturing companies. 62.36% of individuals reporting contract management challenges indicated that they had issues with regulatory compliance. Due to increased pressure from government agencies, companies are spending more time and more resources on compliance processes.
By examining historical data of clauses related to regulatory compliance, an enterprise can take steps to increase its protection against liability and make sure it meets guidelines set by government agencies. For example, a contract manager could review the clauses of contracts, which were part of traffic accidents during transportation of the product. By analyzing the clauses related to damages, responsibilities, and remedies, a contract manager could take proactive steps to mitigate the exposure to risk. One way would be to adjust existing coverages with insurance companies and another would be to require proactive training for drivers considered to be at-risk. At the same time, conversations with the trucking or transportation company used in those contracts could improve the operational performance and safety record.
- Address Scope Creep
When asked to rate the extent to which certain contract management issues present a challenge within their organization’s management of contracts, 61.95% of respondents put lack of visibility into scope of contracts as the most pressing issue. (Note: the percentages cited throughout this article don’t add to 100% because respondents were allowed to select multiple answers.)
Handling scope creep is one of the biggest challenges for contract managers, but it’s top of mind for those in the manufacturing industry. Setting expectations for change requests, stipulating what is a new project request, and budgeting for small discrepancies are some of the strategies to handle scope creep in contract management. Given that all of the survey respondents were not using CLM software, it can be inferred that the current tools used to manage contracts aren’t providing that valuable insight into contract scope. The top three tools used by individuals to manage their contracts were email (79.60%), spreadsheets (68.85%), and paper (62.11%).
Implementing CLM software is one of the most effective strategies to address scope creep in contract management and keep compliance costs within acceptable ranges.
The Bottom Line
From a survey of 550 contract management professionals across multiple segments of the manufacturing industry, Contract Logix discovered the top challenges in contract management at manufacturing companies. Using CLM software would help a manufacturing company address these and other contract management challenges.