There was a time when procurement wasn’t seen as its own distinct role. This used to be the process referred to as “purchasing.” Depending on the company, it was either handled by the executives or an administrator-level role. These days, procurement has come into its own as a professional field. A procurement manager represents the company as a consumer, shopping for and negotiating the best possible deals for the company.
This brings a procurement management plan into focus as an integral part of a successfully managed business. For each project or bid, the company must ensure that it benefits from the most optimal possible arrangements and that the terms of the contract are faithfully executed on the part of the other party. Numerous issues can happen with procurement in a company of substantial size, as the contract pool becomes too large to manage manually.
Effective procurement planning involves anticipating the needs of the company, timing the resources so that they are on time, ensuring the right quality and quantity, and not being wasteful of company funds or resources. It becomes crucial to standardize and streamline the procurement contract process in order to improve efficiency and mitigate risks of liability for noncompliance.
What Should a Perfect Procurement Contract Management System Look Like?
In the first place, it should be automated as much as possible. Recent developments in software technology and artificial intelligence have greatly expanded the realm of “possible” as we formerly knew it. It is now possible to have a contract management software which not only electronically stores contract data for easy visibility and retrieval, but to have one which is capable of reading and processing contracts, automatically tagging and flagging key terms and clauses, so that critical information is easily accessible to the procurement specialist.
This software solution to procurement contract management needs to be seamlessly integrated with the rest of the software infrastructure. Ideally, the system is populated by importing contracts from many sources: signature software, cloud storage, files on a server, email, and, of course, paper documents.
Procurement specialists care about contracts in different ways from other professions. They’re handling the vendors, suppliers, subcontractors, and more. Their focus will be on contract types like:
• Master Services Agreement
• Statements of Work
• Purchase Orders
• Technical and Pricing Addendums
• Licensing Agreements
Within each of these contracts, the system has to recognize vendor names, prices, and payment, time frames from the effective dates, necessary confidentiality, limitations of liability, and more. However, the context is just as important because the meaning of these terms can change in a blanket purchase order compared to a fixed price order. Having a contract management solution that can be trained to identify these custom clauses is critical.
From this breakdown, it’s evident that the system needs a lot of flexibility in the terms it recognizes and different contract forms it can handle. This is one of the key strengths of deep learning artificial intelligence in contract management. Brand new terms can even be taught to the system, and it will start recognizing the new terms everywhere. Instead of every new instruction being programmed from scratch, the system can be shown “here’s an example and here’s the result we expect” and the AI system will follow along like learning to ride a bicycle.
Functions of an Effective Procurement Contract Strategy
One of the chief challenges of procurement, in general, is effective communication with the rest of the company so that procurement doesn’t become a bottleneck. There are several times when the rest of the company needs to communicate with procurement, such as:
• Requisitioning – Department X needs resource Y, here is their order.
• Payment processing – Does accounting know about this invoice?
• Analysis – Be sure we’re not ordering a new pallet of widgets when we have one sitting in the warehouse.
• Supply-line management – We need this resource coming at a steady volume every month, but not too much here or too little there when our needs change.
• Sourcing – We have to talk to vendors too.
In addition, there are scenarios where the procurement team might have to pay more attention to another metric, such as government regulations. Procurement professionals cite regulatory compliance as a hassle 65% of the time. If a company’s supply chain reaches an international scope, then the procurement department has concerns about trade agreements and tariffs. Companies who subcontract for the government, have a whole family of laws to worry about. In the health-care industry, regulations there add a layer of complexity to every move they make.
This makes it necessary to have 24/7 transparency in all procurement contracts so as to make them available for revision, auditing, and maintenance.