Addressing Common Obstacles to Contract Management in the Manufacturing Industry

Throughout November and December 2016, Contract Logix surveyed 550 U.S. individuals who are responsible for the creation, editing, and/or management of contracts at manufacturing companies.

The survey focused on manufacturing companies with annual revenues between $5 and $250 million and at least 50 employees because these types of companies maintain such a large volume of contracts as to warrant the use of CLM software. Yet, all of companies employing those 550 individuals didn’t have contract management software in place.

If you’re a contract manager who would like to spearhead an initiative to adopt CLM software in your manufacturing company, here you’ll find a useful set of common obstacles within your industry. Let’s review the three most common obstacles provided by Contract Logix’ survey respondents – and how to address those obstacles to increase the chances of success.

Obstacle #1: Lack of Budget

It isn’t a surprise that a lack of financial resources is at the top of the reasons (44.55% of respondents) that manufacturing organizations aren’t utilizing contract management software. However, one important difference is the breakdown of this obstacle among specific types of manufacturing organizations that cited this reason:

  • Pharmaceutical: 30.80%
  • Aerospace & Defense: 24.00%
  • Chemicals & Petroleum: 22.50%
  • Industrial Machinery & Equipment: 16.23%
  • Consumer Goods: 15.38%
  • Electronics: 15.08%

This differentiation is key because it provides some ideas on how to address this obstacle. Here are two examples.

First, in the electronics manufacturing sector, a lack of internal staff to implement is cited as the biggest obstacle for implementation (20% vs 15.08%). So, recruiting a contract manager with the necessary IT skills to lead the effort to define requirements for a CLM software purchase and achieve the tipping point to get the buy-in from executives. The latter action is key because its lack of buy-in from executives is cited by 15.41% of respondents in the manufacturing sector as an obstacle.

Second, respondents in the chemicals & petroleum and industrial machinery & equipment sectors cited “I didn’t know such software existed” with the highest frequency, 7.50% and 7.33%, respectively. This opens up the possibility that some companies within those sectors lack the budget for CLM software because the topic just hasn’t been brought up before during budgeting & planning meetings.

Obstacle #2: Lack of Internal Staff to Implement

Cited by 40.36% of respondents, a lack of internal staff to implement is the second most common obstacle for CLM adoption. However, this obstacle may be easily overcome through two strategies to drive user adoption of CLM software.

First, instead of an organization-wide launch, a manufacturing company could start with a specific department. For example, when the State of Hawaii government office was implementing e-signature software, the project started at the Office of the Governor with a test-run of 2,337 eSign transactions over a three-month period. With the lessons from a small and representative sample, a manufacturing company would be in a better position to know how to prepare for an enterprise-wide rollout.

Second, some CLM solutions have a steeper learning curve than others. For example, Contract Logix’ robust enterprise-level CLM software has MS Word natively built into its system. It fully utilizes any edition of MS Word and all of its word processing features (except save). By leveraging a widely used tool that internal staff already use for contract management, a manufacturing company accelerates the learning curve of users across all levels of proficiency. To learn about other common misconceptions about CLM Sofware, download this presentation.

Obstacle #3: I Think a Contract Management Solution Might be Too Expensive

Cited by 37.46% of respondents, this belief was the most frequently cited by individuals in the industrial equipment & machinery sector. In manufacturing companies within that sector and the chemicals & petroleum sector, this belief may be in part due to larger number of individuals citing that they didn’t know that CLM software existed.

The actual pricing of CLM software varies on a series of factors, including subscription model and deployment option:

  • By leveraging the Cloud, a hosted Software-as-a-Service (SaaS) CLM software could significantly lower the total cost of ownership over time and increase price predictability.
  • Choose a software level that is appropriate to the volume of transactions or number of end users. Think of this analogy: a firefighting team needs a fast vehicle but would be at a disadvantage with a sports car.
  • Evaluate options that can grow as your enterprise grows.
  • Make sure to include in the cost-benefit analysis, the savings from automating compliance processes (e.g. Sarbanes-Oxley compliance processes), increasing system uptime, and reducing contract execution time. Some of these cost savings may significantly accelerate the ROI of your investment on a CLM software.

By choosing a representative from each user group and focusing only on features that address issues at your enterprise, your evaluation committee could considerably lower the price of a CLM software and establish a price that is better aligned with your list of contract management needs and buget.