The Importance of a Good Contract Management System

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Published: 11th November 2010
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Today’s business world is a very challenging and intricate one. The supply chain brings together a multitude of business partners and processes, as well as complex trading relationships. These include numerous inherent factors like price, quality, payment, discounts, shipment, rebate policies, to name just a few. The larger the business is, the more contracts and business relationships you have to manage. And if these change constantly, it only means more resources and time that need to be allotted to managing contracts and relationships within your business. This is the reason why a good contract management system is essential to the smooth running of your business processes.

A contract management system covers all the activities that derive from engaging in business transactions with business partners. One does not have to be a scientist to acknowledge the importance of such a system. Whenever you complete a contracting process, you need to make sure that all terms and conditions agreed upon in the contract will be met. A good contract management system will ensure that such obligations are fulfilled by both parties and that all the aspects that the contract covers are met to your satisfaction.

The procurement activities of any business rely primarily on contracts, which stipulate numerous important terms and conditions, such as prices, service levels and supplier relationships. The role of a contract is also to ensure that a company will receive regular supplies, be they direct or indirect. The contract management system of a company encompasses all these important details, in addition to controlling the risk of vendors not performing appropriately.

A good contract management system enables a company to monitor, coordinate and report the multitude of business processes within the supply chain. Effectively managing each contract throughout its lifecycle is the core of any contract management system. This includes many important stages such as planning, negotiating, maintenance, storing and analysis.

In terms of what a sound contract management system should include, it is safe to say that its primary function is that of storing the company’s standardized contracts. In addition to this, a good contract management system should also include tools that facilitate and manage the drawing up and execution of new contracts.

A company’s contract management system should also be flexible, so as to cope with vendor relationships and all their inherent interactions. Calendars should also be part of your company’s system, setting out the milestones that the vendors should meet.

The activities and information within the contract lifecycle should be managed as effectively as possible and this is the reason why a contract management system should also include check lists that facilitate this process.

Other important features of a good contract management system include prices and budgeting for each product line and vendor, compliance monitoring, agreed delivery schedules, document depositories, claims administration, event management for any problems, alerts to indicate deviations from expected behavior and so forth.

The contracting process, which enables a company to purchase products and/ or services at the most convenient prices whilst maintaining accountability and fiscal controls, is the core of any business. As important as the contracting process may be, a sound contract management system is equally vital to the efficiency of all business processes.

To learn more about the contract management system please visit Get Your Free Special Report on Contracting Process "Contracting Process Do's & Don'ts"

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