Contract management is a necessary function for businesses having a high number of active contracts. Overseeing compliance and execution of contracts ensures that obligations stated by negotiated terms are satisfied. Without monitoring, sometimes these obligations are not completely satisfied, and revenues are lost. Loss of income negatively impacts the company’s ROI and profitability.
Contracts may be with suppliers and vendors, partners, and even employees. Tracking predetermined performance metrics, such as volumes, service levels, quality, customer feedback, and more can be time-consuming. However, carefully monitoring performance in detail can save money, improve compliance, and provide data for future negotiations.
Every company has differing measures of success, and every contract will have different critical parameters. For instance, in a manufacturing facility, the ongoing, consistent quality of raw material delivered in a timely fashion is essential to maintaining the quality of the complete finished product. Inconsistent quality affects sales and lowers profitability and ROI.
Documenting variation in raw materials during a contract period can help future negotiations or justify the replacement of a vendor.
Documented input regarding quality irregularities from manufacturing staff, Quality Assurance, or customers can flag a supplier for faulty performance. Tracking this and negotiating credits or other financial mitigation of the problem can resolve the issue and ensure the contract is upheld. Without accurate data, collected through the contract management system, the problem may become nebulous and harder to address.
Contracts frequently involve a particular volume of products at a negotiated price during a defined period. Monitoring invoices and delivery records for accuracy of price or quantity can uncover errors that might require negotiating a solution for credit. Mistakes may not be intentional, but a contract management system can identify these immediately to resolve.
Future Contract Negotiations
The data collected by a contract management system can effectively pave the way for future negotiations. From performance data, companies can compare metrics to determine the most economical and efficient vendors to ensure high-quality products at the best price, further positive impact on the company ROI.
Effective Contract Management Software
Managing and monitoring contracts manually can be time-consuming. Some argue that the cost of manually tracking performance can be more expensive than the benefits gained.
However, a contract managing system with customizable software can improve a company's ROI by monitoring quality, ensuring vendor performance, verifying contracted prices, and assisting in future negotiations.