Overview
What if you want to enforce approved suppliers, pricing, and terms in the company to avoid maverick spending? Contract management can make it possible. Effective implementation of contract management can ensure that employees cannot bypass negotiated agreements. Let’s understand the role of contract management in the procurement process and how it saves costs for your company.
Maverick procurement occurs when your employees make purchases outside approved purchasing processes or supplier contracts. Simply put, when procurement teams buy outside approved suppliers or ignore negotiated rates, maverick spending in procurement occurs. This can hit your margins hard. However, maverick spending is not always intentional. It can occur due to difficulties in finding contracts and complications in the procurement process.
In our experience, businesses lose 5 to 15 percent of their procurement spend due to uncontrolled or maverick purchasing. This is simply due to the lack of spend visibility, audit issues, and non-negotiated pricing. Here, contract management comes into play. Let’s dig deeper into the role of contract management in the process.
Scope of Contract Management in Procurement
Contract management can control the procurement process actively. An advanced procurement contract management software helps companies-
Centralize all supplier contracts
Enforce pricing, terms, and conditions
Monitor renewals and compliance
Integrate the contract directly into purchasing workflows
In other words, a contract management system can make procurement highly controlled and strategic. It can prevent maverick spending effectively.
How Contract Management Prevents Maverick Spending
Let’s connect the dots. Here are five effective ways through which contract management can prevent maverick spending.
1. Increased Approved Supplier Visibility
When contracts are available in one place, they are accessible to all stakeholders. This can save users time and effort.
2. Enforcement of Pre-Negotiated Pricing
Users can purchase at preset or agreed rates to save costs on every purchase. Such pre-negotiated pricing is useful for managing the process effectively.
3. Integration of Workflow
Users can automatically see the path as contracts integrate into procurement workflows. This integration gives more control and facilitates users in managing the procurement cycle.
4. Real-Time Compliance Checks
Validation of purchases against contract terms can reduce audit risks instantly. This leads to better compliance and auditing for the process.
5. Automated Alerts and Controls
Supplier compliance tracking and contract expiry alerts can give more control. A procurement manager can utilize these alerts to eliminate maverick spending.
It is fair to say that contract management can help companies make proactive decisions.
Let’s go through the quick table containing the before and after, showing the impact of contract management.
Area of Impact | Before Contract Management | After Contract Management |
|---|---|---|
Participants | Unapproved suppliers | Only approved suppliers |
Pricing Control | Inconsistent pricing | Enforced pricing |
Spend Visibility | Fragmented data | Centralized visibility |
Compliance | High audit risks | Automated compliance tracking |
Procurement Speed | Ad-hoc, inconsistent | Streamlined workflows |
The best contract management systems can bring more control to procurement. However, it is essential to implement contract management properly to stop maverick procurement and gain more control.
Contract Management Implementation Tips to Stop Maverick Procurement
Let’s go through a step-by-step process for implementing contract management effectively in the procurement cycle.
Step 1. Centralize All Contracts
You can start by moving all supplier agreements into a single system. You should ensure that no spreadsheets or scattered files are left.
Step 2. Standardize Contract Templates
It is better to create consistent terms across different suppliers to reduce confusion and gaps in negotiations.
Step 3. Integrate with Procurement Workflows
You should integrate contract management software with requisition systems, RFx modules, and purchase orders.
Step 4. Enable Guided Buying
It is necessary to ensure that users can choose compliant options easily. People may bypass the system if the process is hard.
Step 5. Monitor and Optimize Process
Supplier performance, contract utilization, and off-contract spend are important considerations to monitor and optimize to save costs. In our experience, companies that follow all these steps can reduce maverick spend by 30 to 60 percent within the first year. Let’s go through some real-life examples of contact management benefits.
Real-Life Scenarios for Contract Management
Whether you own a startup or are handling an established business, contract management is always beneficial.
1. Growing Enterprise
Every growing business has multiple departments. All these departments buy independently. As a result, the company has to face the issues of duplicate suppliers and inconsistent pricing. A centralized supplier contract management software can ensure that every team uses approved vendors as per the preset negotiation terms.
2. Manufacturing Company
The manufacturing firm requires high-volume purchases across different categories. This is crucial for maintaining the supply chain. However, here is the catch. Even small pricing fluctuations lead to huge losses. Here, contract enforcement and real-time pricing can ensure cost control consistently.
3. Scaling Startup
An emerging startup requires speedy delivery with high control over spending. However, in this scenario, the procurement team may bypass the procurement process to move quickly. Here, automated workflows and guided buying of contract management software is essential for maintaining speed and compliance needs.
A reputable procurement management solution can offer various features, including contract management.
Key Features to Look for in the Best Contract Management Systems
An ideal contract management solution should have the following features:
Centralized contract repository
This can save contracts for easy and quick access.
AI-based contract search and insights
Users can easily search contracts and get insights.
Integration with procurement tools
Seamless integration with procurement tools can increase efficiency.
Automated alerts and renewals
Real-time notifications and alerts can help companies manage processes with more control.
Compliance monitoring and audit trails
Simply put, robust procurement contract management software can store contracts and drive behavior.
A feature-rich contract management solution with seamless functionality can help your company get rid of maverick procurement.
Concluding Lines
Maverick procurement directly affects profitability, and companies may need to spend more due to it. Here, contract management can change the game by bringing visibility, enforcing control, and driving consistent decisions. As a result, you can reduce costs, improve supplier relationships, and follow compliance in a better way. Simply put, contract management can make the procurement process a strategic function rather than a reactive one.
