A recent article in Material Handling Management provided a good overview of why contract management is a critical competitive advantage for today’s supply chain centric organizations. When you consider that a typical fortune 1000 company cannot locate over 10% of its 20,000 to 40,000 active contracts at any given time, the importance of a good contract management application should be immediately clear. But just in case it’s not, here are seven more reasons a contract management solution is important, as covered in detail in the article:
- Standard Contract Templates
This can help to insure consistent contract creation across departments using standard templates with standard terms and conditions sanctioned by the organization’s legal department.
- Organization-Wide Visibility
This allows all departments easy access to contracts created by other departments. Sourcing can immediately query existing logistics contracts, R&D can review existing sourcing agreements, etc.
- Status & Metric Tracking
Certain conditions, such as automatic renewal dates, spend tolerances, limit quantities, and pricing need to be tracked and monitored for compliance. In addition, certificates of insurance, price adjustments, and escalator clauses need to be monitored.
- Maverick Spend Control
With a contract management system that maintains a centralized contract repository, it’s easy to determine if a contract exists for a given good or service, who the suppliers are, what the prices are, and what any associated conditions are. There’s no excuse for off-contract buying.
All your contracts in one place make it much easier to comply with operational policies, regulatory requirements, and corporate performance requirements.
- Internal Controls (SOX)
SOX requires that signing officers are personally responsible for establishing and maintaining internal controls designed to ensure material financial information is known to those officers. Contract Management helps a company meet that requirement.
- Competitive Advantage
For each dollar earned, as much as eighty percent is lost to procurement costs. As most of these costs are external expenditures, the strategic importance of good contract creation, execution, and monitoring cannot be underestimated. A good contract management system will reduce costs, improve compliance, and rope in maverick spend … giving you an edge over your competition.