Vendor Contract Management Software: A Handbook
Aug 25th, 2023
Do you know why vendor contract management is important to your company? The more vendors you have, the more contracts you have to manage, and managing those contracts is essential to the performance of your firm. You need to know what you’re signing, when deliverables are due, and to what terms to hold your suppliers. That’s only possible with vendor contract management software that automates the entire contract process and automatically tracks vendor performance.
- The vendor contract management process begins with contract initiation and drafting, continues through reviews and execution, and concludes with contract termination or renewal.
- Vendor contract management software automates all aspects of the contract management process for all of a company’s suppliers.
- Vendor contract management software can streamline the entire contract process, improve productivity, speed up time-to-market, and track vendor performance.
- Vendor contract management software also reduces costs, improves compliance, and provides easy access to valuable contract data and reporting.
😉PS: Discovery how to use contract management software for procurement and purchasing HERE.
What is Vendor Contract Management?
Vendor contract management is the process of creating, approving, managing, and tracking the performance of the contracts a company creates with its suppliers. Without a robust vendor contract management system, a company may not realize the full value of its supplier contracts. A company needs to stay on top of its contracts and vendor obligations to prevent suppliers from missing delivery dates, overcharging, or delivering inferior products.
A company’s vendor contract management process should have the following goals:
- Ensuring vendors deliver as contractually required on time, price, and quality
- Reducing vendor risk
- Developing long-term relationships with vendors
- Minimizing costs
What is the Vendor Contract Management Process?
While every company has its own process for managing vendor contracts, there are seven components common to all businesses. The typical vendor contract management process includes these stages:
- Request and intake: The process begins with a request for a new vendor contact, which includes supplying the information necessary to create the contract.
- Initial draft: Every new contract starts with an initial draft, either written from the ground up or based on previous contracts or preapproved contract templates.
- Collaboration and editing: No vendor contract is perfect out of the box. All contracts must be circulated for input and editing from the appropriate individuals and departments—and then negotiated with the vendor.
- Final reviews and approvals: After the contract has been successfully negotiated, it must be reviewed by senior management and receive all necessary approvals.
- Signatures and execution: Upon approval, the contract must be signed by representatives from both companies.
- Tracking vendor performance: It’s essential that a company tracks the performance of each vendor. Vendors must meet negotiated deliverable deadlines at agreed-upon pricing, and this adherence to the contract must be tracked in detail.
- Archiving and reporting: Every contract a company signs must be archived in a way that facilitates easy accessibility and robust reporting.
- Renewals and terminations: Should a contract with a given vendor be renewed, or should it terminated before its end date? The decision to renew or terminate should be based on the vendor’s performance and how other vendors compare.
This process can be handled manually, which is time-consuming, labor-intensive, and prone to errors. Or it can be managed automatically with vendor contract management software.
What is Vendor Contract Management Software?
Vendor contract management software is an automated solution for managing the hundreds or thousands of vendors with which a company partners. This software automates the entire contract process, from inception through renewal or termination.
The automation process starts with using on-screen forms to initiate the contract request. Writing the contract involves selecting a predesigned contract template and preapproved terms and conditions to include. The collaboration, editing, review, and approval processes are all handled electronically, with contracts automatically routed to the required individuals and departments.
Execution is done via electronic signature, and the finalized contracts are stored in a centralized digital repository, ensuring easy searchability and accessibility. Since all contracts are digital, it’s easy to generate detailed reports and analyses that track vendor performance and guide decisions on contract renewal or termination.
What Are the Benefits of Using Vendor Contract Management Software?
As companies grapple with supply chain shortages, they are expanding their vendor networks. A McKinsey & Company survey revealed that 81% of companies surveyed are now dual-sourcing raw materials, with a similar number increasing inventory levels across the entire supply chain. The more vendors a company has to deal with, the more difficult it is to manage the increasing number of vendor contracts.
This is a primary reason 86% of executives say their companies should invest more in technology to track and measure vendor performance. That includes automated vendor contract management software, such as that offered by Contract Logix.
Vendor contract management software offers numerous significant benefits to companies with multiple vendors, including:
- Streamlined contract process with fewer steps
- Faster contract process, which shortens time-to-delivery and enables more just-in-time inventory management
- Improved productivity so staff spends less time on manual tasks and more on value-adding activities
- Reduced errors, especially human errors, through process automation
- Increased visibility into both the contract process and contracts themselves
- Easier access to individual contracts and data across multiple contracts
- Enhanced legal and regulatory compliance through standardized contract terms and language
- Easier auditing by electronically tracking all stages of the vendor contract process
- Improved vendor performance by automatically tracking all contractual obligations
- Identification and reduction of contract risk
- Enhanced security of sensitive data by storing all contracts in a centralized electronic repository
- Robust reporting and analysis of all contracts stored electronically
- Minimized contract-related costs
- Maximized profitability by speeding time-to-market, identifying unpaid revenue, and improving efficiency
SOURCE: Procurement Central via YouTube
Let Contract Logix Automate Your Company’s Vendor Contract Management
To fully leverage all the benefits of vendor contract management software, turn to the contract experts at Contract Logix. Our vendor contract management solutions help you optimize the entire process, employing a centralized digital contract repository, detailed vendor obligation tracking, in-depth reporting and analysis, and automated contract workflow.
Contact Contract Logix to learn more about vendor contract management software.
Looking for more articles about Contract Management? Check out our previous article “Bulk Data Extraction – Solving the Contract Software Data Migration Challenge“.
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