Effective management of supplier contracts has become a key element in improving the performance of the procurement function. Procurement departments, once seen as purely transactional functions, have evolved into strategic partners within their organisations. That transformation is largely due (with no false modesty) to the impact of "procurement contract management" (or "contract management applied to the procurement function"), which enables companies to maximise both the steering of execution and the value of their supplier contracts.
By managing supplier contracts strategically through contract management, companies can indeed capitalise on the savings secured when the contract is signed, and do so throughout its lifecycle, while also strengthening their resilience in the face of market challenges.
In this article, we explore what makes procurement contract management specific to the procurement function, and the five main benefits it delivers when it is implemented effectively.
What is procurement contract management?
Procurement contract management is a component of contract management dedicated more specifically to managing supply contracts. It covers all the processes, tools and techniques used to manage supplier contracts effectively. Its main objective is to improve the steering of contract execution, maximise the value of contracts and minimise risk by putting their key terms front and centre.
The process leads to a better sourcing, negotiation and monitoring strategy, so as to obtain the best possible terms from suppliers. It also brings clarity to internal and external relationships and answers the needs of the company's various stakeholders (supply chain, sales, and so on), all of which are essential to a high-performing, efficient and secure procurement policy.
The evolution of procurement contract management within procurement departments
Over the past decade or so, procurement contract management has been developing within procurement departments as a way of moving beyond a narrow focus on the administrative side of tenders, price negotiation and basic supplier relationship management. The discipline rests on adopting and taking ownership of proven practices and methods that make it possible to adjust what already exists to meet the company's needs better, right across the supply chain. Deliberately cross-functional, involving the organisation's various players (supply chain, finance, sales, and so on), this approach adds real value for procurement directors.
A majority of them do regard effective management of the contract lifecycle as a priority. From this flows a genuine need to strengthen the strategic role of the function within the company, notably by aligning business and procurement priorities, being better able to measure its performance, and taking decisions more proactively.
Procurement contract management makes that integration into procurement operations easier by encouraging an approach that allows a smooth shift from tactics to strategy, from transaction to collaboration, and from reactivity to proactivity.
Impact and returns of procurement contract management: the 5 benefits
Greater visibility over tier-one suppliers
Various studies show that efficient management and the measurement of procurement performance through the optimisation of supplier contracts deliver worthwhile results for the company. However, where methods and practices are not challenged and reviewed often enough, or where information is siloed and incomplete, the task proves complex.
Implementing a robust procurement contract management policy within the procurement department, supported by the contract manager's procurement expertise, the right tools and a suitable methodology, will therefore deliver greater and more precise visibility over suppliers and over the economic and operational performance of the contract.
Securing commitments and negotiated savings
One of the difficulties identified within procurement departments is a lack of familiarity with the key terms of their supplier contracts. Yet easy access to, and command of, these elements is a genuine shield against operational and financial drift.
Putting reference frameworks, files and monitoring tools in place makes it easier to steer the execution of contractual commitments and helps guarantee that budgets are respected, that deadlines are met, and that the supply chain runs smoothly and proactively.
Strengthening skills
Strengthening skills is fundamental if the procurement function is to meet its current and future challenges. Procurement contract management tends to bring out the needs buyers express: greater agility in contractual practice, training so that the contract can be used as a genuine asset of their function, and clearer roles and responsibilities. Through their expertise, the contract manager can drive this agenda and be a real resource when it comes to passing on knowledge.
Digital transformation
Digital transformation is a necessary step for companies that want to stay competitive. Some procurement departments take the plunge only tentatively and show hesitancy about adopting new technologies, even though the benefits would be undeniable, particularly in terms of visibility, traceability and collaborative contract monitoring.
Automating certain processes also means greater operational efficiency and time saved, allowing buyers to refocus on their core business and sharpen their strategies. That is precisely what procurement contract management brings to the fore in its pursuit of continuous improvement.
Fewer claims and disputes
Finally, the various contributions mentioned above, if properly executed, will have a crucial impact on the management of claims and disputes, by clarifying the terms of the contract and by identifying and mitigating the potential risks attached to it.
As we see it at Prime Conseil, this is a genuine project profitability issue. Even though claims are a normal part of a contract's lifecycle, reducing how often claims and disputes arise through a structured approach to procurement contract management, and to contract management more broadly, makes it possible to avoid needless contentious situations that damage both the finances and the performance of the project.
Conclusion
Procurement contract management is a genuinely strategic discipline that delivers significant benefits in terms of cost, risk management, performance and efficiency. By adopting a structured approach, companies can turn their procurement function into a real engine of added value and competitiveness. For procurement departments, implementing a procurement contract management policy means teams that are even better informed and better equipped to respond with resilience to what the procurement function demands.