3 Vendor Contract Management Best Practices You Can't Ignore

Posted by Andrew Keathley on Jul 29, 2021 10:00:00 AM

Procurement Professionals Utilizing Vendor Contract Management Best Practices

Vendor contract management is the process of creating, negotiating, agreeing, storing, and tracking vendor contracts. This process enables teams in legal, procurement, and finance to manage risks involved as well as renewals. 

Poor vendor contract management, defined as not monitoring a contract once it is signed, can create unneeded expenses for a business. In fact, poor contract management often costs companies a portion of their bottom line. Although it is possible to manage contracts in-house, a 2015 IACCM report found that nine out of 10 managers have difficulty understanding contracts. Luckily, there are alternatives to in-house management.

Besides cost savings, outsourced procurement services allow businesses to focus on core competencies to improve cost savings in other areas of the business strategy rather than performing the extensive research required to identify the most affordable vendor. A procurement consultant can identify opportunities for improved profitability previously undiscovered or overlooked, implement the opportunities and measure the net savings.

When partnering with a procurement consultant, your eye is on cost savings from vendor product procurement, but it is also important to understand the fine print of a contract. In this article, we identify three vendor contract management best practices and how procurement consultants navigate contracts with optimal precision. 

1. Keep User Experience in Mind 

Customer experience sits at the heart of successful businesses, and a poor contract experience can slow down—or even stop—the signing process. As relationships between procurer and vendor develop, so too can the complexity and length of vendor contracts, which could introduce friction if practices geared toward user experience aren’t considered. Here are some useful tips:

  • Provide definitions for industry jargon - consider a lexicon bank at the beginning of the contract.
  • Be completely transparent and organized with the costs of products and services.
  • Implement visuals, including graphs and charts, to vary the delivery of information.
  • Use a contract automation platform to populate key fields to generate contracts. A platform allows you to bundle links to keep the agreement concise. 

Also, keep in mind that negotiating is often a part of contract agreements. Although vendor agreements are less negotiated than other business contracts, those involved might still find areas to push back against—including the purchase value and quantity, the parties involved in the contract, and the type of goods or services being sold—requiring contract negotiation abilities on the part of your procurement consultant.

2. Conduct Consistent Invoice Auditing 

Once the contract is signed, the real work begins. As a relationship with a vendor grows, it can be easy to pay the balance and move on, especially if the owed amount is feasible for your company. However, errors on invoices occur and can be incorporated into future invoices, growing the overall loss over time. 

There are a lot of moving parts to a vendor contract, which makes invoice auditing a necessary practice. Often, this is time-consuming, wearisome work; it can take an analyst up to three hours to audit a single invoice, and multiple invoices can add up to months of work.  

At the end of the day, in-house procurement teams performing these functions might not have the bandwidth to take on these additional yet necessary tasks. In this case, the best practice might be to hand off vendor contract management to a team of procurement consultants who use automated tools capable of performing these tasks, allowing you to focus on your core competencies.  

3. Practice Good Contract Governance 

Contract governance is the approach taken to ensure that the agreed-upon outcomes between a business and the vendor are being fulfilled. Without contract governance, businesses are subject to losing the value of the contract. They can also experience damage to their brand and suffer financially.

Typically, bad contract governance is identified by the following:

  • The agreed-upon obligations not being met by either party, thereby diminishing the quality of the contract and, potentially, the overall relationship
  • Poor quality of services and customer experiences
  • Failure to abide by local jurisdiction regulations 
  • Failure to abide by data protection requirements

To practice good contract governance: 

  • Establish consistent and clear communication from the start
  • Mitigate risks and potential risks throughout the lifecycle
  • Conduct performance reviews throughout the contract, especially near the contract renewal period
  • Create boundaries to avoid scope creep or tasks outside of the contract

Good contract governance can determine the outcome of a contract, so taking the right approach to contract management is of utmost importance. 

Consulting Services You Can’t Ignore 

Vendor contract management best practices take time and effort to implement properly, and in-house procurement teams are unlikely to have the bandwidth to take on all that goes into these evaluations. 

When you partner with SRM (Strategic Resource Management), our consultants handle these evaluations for you. By engaging with us, you can experience peace of mind knowing that an expert is evaluating every aspect of the contract to ensure savings and revenue for you. 

To learn more about our consulting services, request a consultation today. 

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Topics: Manufacturing, Vendors & Contracts, Vendor Contract, Vendor Contract Negotiation, Vendor Contract Management, Vendor management