Supplier Contract Management: Everything You Need to Know
Supplier contract management can make a huge difference in your supplier relationships as you need to manage it in regards to what have been agreed on.3 min read
Supplier contract management can make a huge difference in your supplier relationships. Managing your supplier contracts means managing the relationships with suppliers in regards to certain contracts that both parties have agreed on. Instead of applying these policies to a single supplier relationship or contract, you should adopt company-wide approaches that will ensure you get the most out of your suppliers.
If you don't think about or monitor your contracts, it can have a negative effect on your business. Even if a supplier is meeting the terms of the contract, it's very different to have a supplier who is just doing the bare minimum versus one who is delivering outstanding results. If you don't manage your supplier contracts, it's easy for them to display lower performance results.
A lack of good communication can cause poor results. If relationship between you and your supplier are not great, there might not be much motivation on their end to deliver better results.
Best Practices for Effective Supplier Contract Management
- Establish a template: Establish a library of contract templates that will reduce the time and money you spend on the contracting process. Each of your business divisions should have agreed upon standard language that can be easily adapted to the agreement terms.
- Centralizing: Establish a centralized location for storing your documents and verify they can be searched digitally. This will help reduce the amount of time and effort needed to find and review contracts periodically. This is key when monitoring your suppliers' performance and compliance.
- Continued monitoring: You should also measure your company's performance as well, which can help protect you from breaches and verify that the full value of services is received. For example, if there is an exclusivity clause included in the contract but not all your departments are aware of it, one mistake could not only hurt your bottom line, but could be deemed a breach of contract.
- Be proactive: Set reminders or alerts for important milestones which can help you analyze your supplier relationships prior to the contract ending or renewing automatically. An auto-renewal clause can be beneficial for both the customer and supplier if handled properly. For suppliers, autorenewals can allow suppliers to focus on their product or service rather than winning contracts.
Supplier Relationship Management versus Contract Management
Supplier Relationship Management, or SRM, is about monitoring ongoing contracts more intensively. It will give you a central view of all your contracts, which is known as contract administration. This is how you capture and monitor contracts in a central location and deliver excellent service to all internal stakeholders. To reach this goal, the contract manager has to create solid relationships with all relevant stakeholders. This is known as relationship management. Contract administration is where you develop the necessary procedures and file all relevant documents.
Contract management verifies that contracts are executed in accordance with their terms. This process involves both relationship and performance management. This is a segmented approach, so people spend more or less time on tasks based on the contract's importance. Contract management can be divided into three main areas: relationship management, service delivery management, and contract administration.