Contract Management for Procurement Best Practices

Looking to improve your procurement processes? Ever thought about contract management as a way to make them more efficient? If not, think again.

While procurement is a critical business function for virtually every company, senior management often misunderstands it. In general, procurement is usually viewed as a cost center, which can only be marginally improved through the application of information technology.

The primary function of the procurement professional is to evaluate and select suppliers based on availability, reliability and price in order to obtain the highest quality products (or services) at the best possible price. In order to achieve this goal, purchasing personnel need to have expertise in administration, accounting, management, planning, and psychology and contract law. They also need to be able to access and interpret large amounts of data in a relatively short amount of time.

Companies taking groundbreaking attempts at employing technology in procurement have achieved important benefits, including improvement of the procurement function. The vast majority of these early adopters have focused on ways to automate the procurement process itself, such as in the areas of high volume-low value purchases, online catalog access, and internal purchasing approvals. But in reality, improving these processes was the easy part. These systems have not helped the procurement professional manage suppliers, which is the heart of the job.

Many companies still must deal with numerous problems related to the procurement function problems that until recently had no easy solution. The most common issues that procurement professionals must face today are:

" The length of time it takes to identify the right supplier;
" The belief that it is not worth the effort to create a contract when executing a spot buy;
" The inability to locate pricing agreements for specific suppliers;
" Lack of easy access to contract information;
" Lack of visibility into supplier performance based on contract terms;
" The time required to correct problems that occur when a supplier is not in compliance with the contract.

While this is not an exhaustive list, it is representative. Further, these difficulties point to areas where companies should attempt to implement procurement best practices and, from these, generate significant improvements in procurement performance.

Procurement Best Practices

As with every aspect of an organization's activities, there is a number of procurement best practices that a company should strive to implement. These best practices will improve the speed and efficiency of the procurement function, reduce costs and ultimately improve company's bottom-line performance.

For procurement today, the key best practice areas are process management optimization and enhanced supplier performance visibility. Within these areas, there are a number of specific best practices on which companies should focus.

Process Management Optimization

Common procurement data definitions should be established across the company
By streamlining contract data definitions across suppliers and commodity groups, the organization is in a better position to leverage enterprise-wide commodity purchasing requirements to funnel volume purchases to preferred suppliers. Consolidating purchasing reduces the cost of goods and improves procurement efficiency.

Create purchase order templates pre-populated with approved suppliers and supplier profile data
The company should use up-to-date contract information to create purchase orders, rather than running the order creation process through the enterprise resource planning (ERP) system. This reduces costs associated with error resolution and also serves as a contract compliance check.

Improved access to certified/approved suppliers
A comprehensive contract data repository should be created that allows the procurement professional to identify the right supplier for the right purchasing need quickly and easily.
This leads to increased procurement efficiency and a reduction in time spent on sourcing a supplier. It also improves the operation of the company's supply chain as delays associated with identifying a supplier are reduced or eliminated.