A procurement contract is a legal document that binds the buyer and seller to perform their contractual obligations. The act of procurement contract management can be defined as a set of activities performed by an organization to ensure the smooth execution of that procurement contract.
The agreements typically include purchase orders, requisition orders, blanket orders, task orders, delivery orders, etc.
Organizations (should) actively manage their procurement contracts to ensure the purchases and sale of goods/services without any disputes. A reliable mechanism to execute the agreements also provides legal protection to both parties (i.e. the buyer and seller).
Procurement contract management also enhances communication between the different stakeholders, eases pricing assessments, and decreases opportunities for errors.
Key Factors To Performing Procurement Contract Management
- Allocate responsibilities and authorities: Which personnel from both parties will be responsible for tracking, executing, and enforcing which aspects of the agreement(s)?
- Planning: Organizations should then follow best practices such as project management methodologies and aligning contracts to operational strategies or business plans.
- Negotiation: Be sure to negotiate for optimal terms and review the final agreement for any hidden fees or renewals.
- Execution: The execution phase of a contract mainly involves activities such as order placement, receiving goods and services, payment, separation, and renewals. Ensure that you have adequately performed all due diligence processes before placing an order, to avoid any disputes during this phase.
- Monitoring and Control: From the outset, stakeholders should monitor that all parties involved are following the terms and conditions set forth in the contract. Personnel should be keeping an eye on compliance measures for each step in the procurement process, while purchasing departments should measure their compliance by looking at their Key Performance Indicators (KPIs).
Procurement Contract Management Best Practices
To get the best out of your procurement contract management, you need to follow certain best practices such as:
Using e-procurement tools
You can use online softwares to automate the entire process of managing your contracts. It will help you find suppliers, receive quotes, create tenders and sign deals online.
Developing an effective supplier scorecard
To make sure that all your sourcing needs are met within a limited budget, it’s important to develop an effective supplier scorecard (and to follow it implicitly), which lists out all the key performance indicators (KPIs) for your suppliers.
Keeping contracts simple
Make sure that any contract or agreement signed with your suppliers is structured in such a way that both parties clearly understand the content. It should also contain easy-to-understand terms and conditions so as to avoid disputes during the execution phase.
If your business is involved in sourcing, Procurement Contract Management should play a key role in your daily operations. Follow the steps mentioned in this article so that you can ease your business processes and increase transparency in your agreements with suppliers.