It’s hard to imagine how a modern-day company could manage daily operations without its Supply Chain Management (SCM) systems, ERPs, and CRMs. Organizations lean on these applications to manage product orders, customer relationships, and of course, supply chains. Yet, the same companies often rely on antiquated systems that fail to capture intelligence data from these vital agreements with strategic third-party vendors.
This article covers many of the pressing goals and challenges in contract administration and in vendor management. Understanding these challenges provides better insights into the importance of integrating CLM and VRM systems into your daily operations.
Contract Administration Goals to Consider
Contracts lay the foundation for connections with vendors, clarifying expectations for the available products and services. Given the complex nature of these contracts, all parties rely on CLM software to track the terms and obligations buried in the fine print.
Contract administration is about knowing an agreement's terms and ensuring all parties adhere to them. This process includes:
Managing and enforcing terms and conditions
Tracking and analyzing data
Automating renewals and approvals
Every contract is unique, but the following five administrative goals should be top priorities for every organization:
Maintain Compliance with Contract Terms
The terms of your contract are meaningless if you fail to hold vendors to the agreed-upon terms. Late deliveries or sub-par quality products can reflect poorly on your organization. Use alerts and data insights drawn from your contracts to make sure you know your vendors are following their obligations and regulatory requirements.
Sharing data from a centralized platform makes it easier for siloed teams to communicate about contract details that affect the entire organization. Discussing quality expectations and negotiating contracts with vendors can help save money and improve future contract terms.
Seek Opportunities for Improvement
Extract and analyze metrics to find ways to improve your business performance and identify expectations from vendor products and services. To quote Winston Churchill, “To improve is to change; to be perfect is to change often.”
Administrative tasks include finding opportunities to save time and improve efficiency. Standardizing approved terms and conditions is essential in maintaining your elevated expectations while focusing on details that require more attention.
Look for administrative tasks that can be automated so you can focus on the areas of your vendor performance metrics that require more of your attention. Large organizations with dozens — even hundreds — of vendors can easily overlook critical details if they fail to automate processes.
Challenges of Contract Administration
There’s a reason enterprise corporations turn to robust CLM platforms to improve their data insights and reduce inefficiencies. When you miss the finer details, you can run into issues with compliance or quality standards (by the way, check out our blog post on how AI is changing this game). Explore some of the most common challenges of contract administration.
Lack of Visibility
You can’t fix what you can’t see. The enhanced visibility offered through CLM platforms makes it easier to locate term or performance details and make necessary adjustments.
Difficulty Tracking Changes
Contracts often go through multiple revisions and amendments. Without quality tracking of version history or renegotiations, it’s easy to miss opportunities to improve terms.
Keeping Track of Milestones and Deadlines
Whether setting an alert for an upcoming contract renewal or making sure you have partner approvals throughout negotiations, tracking important events can be complex. But failing to do so puts your business at risk, especially when managing a high volume of vendors.
You expect your vendors to deliver on-time, high-quality products and services. But when issues occur, they aren’t always easy to resolve. Effective contract administration often requires striking a balance between maintaining standards and preventing fallouts with valuable partners.
Consequences of Failing to Overcome Challenges
If you aren’t able to stay on top of the myriad challenges in contract management, your business can face serious consequences, including:
Damage to your reputation
Loss of revenue
Issues with regulatory compliance
Loss of valuable vendors
A lot rides on your ability to manage the details of your contracts consistently with strategic partners. But the right software can make this management process a lot easier.
What Is Vendor Management?
According to the Gartner glossary, vendor management is defined as “a discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal life cycle.”
Vendor relationship management (VRM) involves managing vendor relationships to ensure mutual success. The process of managing vendors includes:
Managing and mitigating risks throughout the vendor contracting process
Ensuring proper compliance with contract terms and regulations
Tracking performance and quality assurance
Managing contract renewals and negotiations
What Are the Main Goals of Vendor Management?
Vendor management is about maximizing all the potential benefits from your connection with third-party strategic partners. Every vendor partnership should be mutually beneficial for everyone involved, but ongoing management means there is always room for improvement. Your business goals may include any of the following:
Promoting long-term relationships
Automating quality contract renewals
Negotiating contracts with vendors
Upholding quality expectations and deadlines
Increasing operational efficiencies
Why Are These Goals Necessary for Your Success?
Every product and service you rely on can affect your business. Potential risks (i.e. getting behind on orders or poor product quality) can slow profits or harm your reputation. Positive negotiations and new strategic partners can bring a boost to sales.
Managing, negotiating, and renewing your contracts with vendors efficiently offers a significant competitive advantage, regardless of industry.
Challenges of Vendor Management
Vendor management presents similar challenges to those associated with contract administration. As you add more vendors, the challenges become even greater.
Every contract will be different, but every relationship matters. Holding vendors accountable is challenging if they slip out of compliance, run behind on orders, or deliver sub-par goods. Some find it difficult to address problems for fear of damaging the relationship — but the truth is, the consequences of letting things slide are always worse than those of confronting your vendor.
Consequences of Poor Vendor Management
Failing to maintain proper communication with vendors can lead to numerous unwanted repercussions. The following are just a few examples:
A decline in vendor performance
Legal entanglements from falling out of regulatory compliance
Rising costs of goods
Lost revenue from worsening sales
Systemic drops in performance
Declining company innovation
Missing calculated business opportunities
Strategies to Overcome These Challenges
The solution to the goals and challenges in contract administration and in vendor management is simple: access to the right CLM and VRM software. A solution tailored to your business needs can profoundly impact your daily operations. You need visibility and intelligent insights into foundational metrics to stay on top of contracts and vendors.
Simplify Vendor and Contract Management
Terzo’s VRM platform empowers you to turn your third-party vendors into strategic partners. While many companies only track service-level agreements (SLAs) for KPIs, buyers need a true VRM built for today’s competitive landscape. Our AI technology allows you to extract valuable metadata that helps you build trust with your strategic stakeholders and drive innovation.
Are you ready to learn how we can help you gain greater insight from your contract data and build long-term vendor relationships? Get in touch with us or start your free trial.