Supplier contract management plays a key role in operational efficiency and profitability across all business sectors. And for good reason - according to PwC, a large group manages an average of 20,000 to 40,000 contracts. The contract process, which is complex and time-consuming, deserves to be optimised. A well-structured contract management system can help reduce risks, maximise partnership value, and improve overall performance. To achieve optimal contract management in business, certain levers and tools are necessary.
Contract management: Definition and key stages
Contracts form the foundation of any commercial relationship between a company and its suppliers. The European Code of Contracts defines a contract as "the agreement of two or more parties to establish, regulate, alter or extinguish a legal relationship between said parties. It can also produce obligations or other effects on only one of the parties.[1]”
This document defines the legal framework for future collaboration between the relevant parties, specifying the terms and conditions of the commercial relationship clearly and precisely throughout the contract lifecycle. Each stakeholder understands their obligations and responsibilities, which reduces the risk of misunderstandings or disputes. In case of problems, referring to this written and approved document is enough.
Contract management, or contractual management, therefore consists of monitoring the entire contract lifecycle, from drafting the document to its expiration. All this while keeping a dual objective in mind: Maximising value and minimising contract-related risks. This is what is known as "Contract Lifecycle Management".
It covers several major stages:
- Data collection;
- Contract preparation and drafting;
- Contract routing and negotiation;
- Approval and signature by parties;
- Execution and monitoring of existing contracts;
- Review and modification of information;
- Contract termination.
Prerequisites for optimal contract management
To make the contract management process more fluid, secure and efficient, there are various best practices to prioritise within companies.
Relying on contract templates
Companies have every interest in creating contract templates with standard clauses (non-competition, confidentiality agreements…) for each type of contract. The teams concerned should be informed and refer to them whenever needed. This accelerates the contract creation process while improving control of legal risks.
Centralising contract management
First, it is important to keep all contracts and associated documents in the same place, in a centralised space. This considerably facilitates access, monitoring and analysis of contracts.
Implementing key performance indicators
It is also crucial to define clear key performance indicators (KPIs) to evaluate the effective implementation of supplier contracts. These can include cost/value correlation, delivery times, or service levels…
Involving key stakeholders
To ensure efficiency and fluidity in contract management, the entire company must adhere to it. This is why it is important to make employees from different departments aware of the contract terms in place and best practices in this area.
Digitalisation for efficient contract management
Beyond these best practices, digital transformation has also taken hold of contractual processes. Optimal management of contracts primarily involves dedicated tools and technologies. These can include contract management software (Contract Management System) that allows electronic storage, tracking and contract management. They may also integrate specific features to simplify the entire process of managing contracts, such as access management, electronic signatures, data analysis, deadline tracking and automatic alerts.
In PwC’s latest survey on procurement digitalisation, it appears that procurement departments are focusing their roadmap on contract lifecycle management. One in two companies plans to invest in the evolution or deployment of such a tool within the next three years. Meanwhile, 22% of organisations already have a mature tool.
Some contract management software can incorporate optical character recognition (OCR) to automatically extract data from paper contracts, or other technologies such as Artificial Intelligence (AI) and Machine Learning (ML) to promote automation of certain tasks such as contract classification and analysis. Generative AIs can even take over the creation of contract summaries, drafting specific clauses, or extracting relevant information from lengthy documents.
The benefits of optimised contract management
Solid contract management through a contract lifecycle management tool significantly boosts process rationalisation and automation. As a result, multiple benefits are available to the company, particularly the procurement and finance departments.
Improving operational efficiency
Firstly, the company reduces the time and resources needed to manage its contracts, thus ensuring better operational efficiency. This saves considerable time on creating new contracts, negotiating contractual conditions, signing contracts, as well as searching for and analysing data.
Reducing costs
Next, digitalisation allows for reducing costs associated with manual contract management processes. Thanks to the controlled templates of digital tools, the company also has quality documents and can more easily monitor contract execution, with its contractual conditions. This helps avoid financial losses related to compliance issues, late penalties, or tacit contract renewals.
Minimising risks
With an electronic system, the company manages contractual commitments and obligations more easily, and also standardises clauses. A contract management solution ensures the compliance and security of signed documents, thus their legal and financial validity to avoid any contractual disputes.
Facilitating supplier collaboration
By clearly formalising expectations between parties and transparently monitoring performance, the company strengthens trust and relationships with its suppliers. Moreover, contract management software has real-time sharing and collaboration features that facilitate coordination.
As Sarah Belaabidia, supervisor at the consulting firm PeersGroup, emphasises: "Contracts offer a solid foundation for mutually beneficial relationships. They protect your interests and help you avoid costly disputes. Regardless of the complexity of your operations, drafting contracts with your suppliers is a wise investment for the future of your company."
Much more than a simple legal document, the contract is therefore a real strategic tool for procurement departments. By equipping themselves with the right software and following best practices, companies can implement optimal contract management, thus maximising their operational efficiency and profitability.
[1] European Contract Code, Contracts in general
