According to a report by Beroe, the global procurement outsourcing market is expected to reach $5.5 billion by 2023. Despite this increase, many companies still rely on legacy methods, such as manual document management, spreadsheets, paper-based approvals, and emails, to manage procurements and related contracts. 

In this blog, we will cover the significant predicaments that companies face when they use legacy methods to manage procurement contracts. We will also shed light on some best practices that companies can follow to streamline procurement contract management and the role that CLMs can play in helping companies in this regard. 

Top 3 challenges in procurement contract management

Legacy methods are not only prone to errors and security risks but also make procurement contract management opaque and inefficient. The biggest problem that comes to the limelight is the decentralisation of contracts. When a company deals with numerous vendors, the absence of a centralised system for procurement contract management leads to multiple issues, including:

• An opaque legal review process: Procurement often loses track of contracts once handed over to the legal department. The lack of visibility leads to the procurement team not knowing the exact status of any contract in the pipeline, causing time inefficiency and delays. 
• Missed renewals: Procurement teams face costly consequences by missing contract renewals due to a lack of visibility and decentralisation, leading to unfavourable terms with auto-renewal clauses. 
• Disoriented approval hierarchies: Procurement teams follow a structured hierarchy for approvals, which vary based on contract values. Lack of visibility into the pipeline makes it challenging to track the current status of contracts. Hence, getting approvals becomes difficult. As a result, deal flows slow down. 

To address these issues, companies are actively looking out for effective workarounds. Here are some best practices following which numerous companies have streamlined their procurement contracts pipeline. 

7 best practices for managing procurement contracts

#1 Define clear contract objectives 

Ensure that the objectives of the procurement contract are clearly defined and understood by all parties involved. This helps to ensure that the contract delivers the expected value and benefits. If the terms and deliverables are well-defined from the onset, the possibility of conflicts reduces significantly. 

#2 Establish a contract management team 

Large organisations could establish a team for managing procurement contracts. This team should include individuals with expertise in procurement, legal, finance, and other relevant areas and develop a comprehensive plan that includes key dates, milestones, roles and responsibilities, and performance metrics.

#3 Communicate regularly with stakeholders

Establish regular communication channels with all stakeholders involved in the procurement contract. This helps to ensure that all parties are informed and engaged throughout the contract lifecycle.

#4 Monitor contract performance

Monitor contract performance against the established metrics and take corrective actions when necessary. Also, conduct regular contract reviews to evaluate contract performance, identify areas for improvement, and make adjustments to the contract management plan as necessary.

#5 Document all contract changes

Document all changes made to the procurement contract, including changes in scope, schedule, budget, and performance requirements.

#6 Use technology to streamline contract management

Leverage technology solutions to streamline contract management processes, improve efficiency, and reduce risk. Some tools that can help optimise procurement contracts are Electronic Document Management Systems (EDMS), ERP systems, SharePoint, and Digital Signature platforms. 

#7 Ensure compliance with regulatory requirements

Ensure the procurement contract complies with all applicable regulatory requirements and internal policies and procedures.

By following these steps, you can manage the procurement contracts pipeline of your organisation seamlessly. However, these practices can be tedious and costly, requiring much mundane work. As an alternative, you can look at using CLMs.  

How to automate your procurement contract management process

CLMs can alleviate many of the challenges procurement or vendor management teams face when dealing with contracts. They can automate and simplify the process and provide greater transparency, allowing teams to achieve their objectives of cutting expenses, enhancing efficiency, and monitoring vendor performance more accurately.

• Contract authoring: CLMs can assist in drafting contracts by providing templates and standardised legal language that complies with regulatory requirements. This ensures consistency and reduces the risk of errors in contracts.
• Contract negotiation: CLMs can enable collaborative contract negotiation, providing visibility to all parties involved. Such negotiation ensures that contract terms are agreed upon and signed off by all stakeholders.
• Contract execution: CLMs can automate contract execution, providing alerts for important milestones and deadlines and facilitating electronic signatures. This helps ensure that the contract is executed in a timely and efficient manner.
• Contract compliance: CLMs can monitor contract compliance and provide alerts for contract renewals and termination dates. This helps ensure that the contract remains valid and compliant over its lifecycle.
• Contract analytics: CLMs can provide detailed analytics on contract performance, helping procurement professionals to identify trends, track KPIs, and make data-driven decisions to improve procurement processes.

Also read: 8 Top Contract Management Software Platforms

Optimise procurement contracts using SpotDraft

SpotDraft facilitates an end-to-end procurement contract management process, covering creation, negotiation, and renewal. By providing this comprehensive platform, procurement teams can reduce risk, improve compliance, and increase operational efficiency.

#1 Contract Repository - Single source of truth for all contracts 

The contract repository in SpotDraft centralises and indexes all vendor contracts, providing procurement teams with quick access to specific contract data in seconds. This feature enhances efficiency and reduces the time required to find the necessary information. Moreover, you can enable role-based access controls, customise views based on datatypes, and link related contracts for enhanced segregation.  

#2 Never miss a deadline for renewing contracts

With SpotDraft, you can be sure you will never miss a contract renewal deadline. The platform's automated email notifications provide all the relevant details, including renewal dates, charges, and updated clauses. This can help you avoid auto-renewals for contracts you no longer wish to renew.

#3 Generate bespoke reports instantly

SpotDraft empowers procurement teams to generate instant contract reports without relying on legal teams. This feature ensures that you are always due diligence ready, with all the necessary information at your fingertips. With the ability to find answers within seconds, you can make informed decisions quickly and efficiently - create reports by sorting contracts via types, dates, status, stakeholder names, and custom tags. 

#4 Define approval workflows to minimise risks

With SpotDraft, you can establish workflows to collect all relevant approvals in one centralised location before entering into an agreement with a vendor. This capability ensures that your agreements are carefully reviewed and approved, reducing the likelihood of mistakes or oversights. You can set up workflows for contract creation, contract approval, collecting signatures, managing contract review requests, and auto-signing standard form contracts. 

Wrapping Up

A report by Aberdeen Group found that companies using CLM software to streamline procurement contract management experienced a 70% reduction in contract cycle times and a 50% reduction in errors. Additionally, the report mentioned that these organisations had a 30% reduction in contract-related costs and a 40% reduction in risk.

In summary, CLMs offer a comprehensive solution for streamlining procurement contract management, enabling organisations to achieve greater efficiency, improved compliance, and increased operational effectiveness. By reducing the time and resources required to manage contracts manually, CLMs also pave the way for companies to focus on higher-value activities, driving growth and efficiency.

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