Contract activity is an important business aspect that requires proper oversight. Contract Lifecycle Management (CLM) is the proactive, methodical management of a contract from initiation through award, compliance and renewal.
It can lead to significant improvements in cost savings and efficiency. Understanding and automating CLM can also limit organizational liability and increase compliance with legal requirements.
A contract’s lifecycle begins when an organization’s management, department personnel, or customer requests a good or service; it ends when that good or service is received or delivered.
Between order and delivery there are usually opportunities to save money, improve delivery and obtain products that may work better for you at a potentially less expensive price. There are also ways to lose money, waste time and end up with a subpar product. CLM can make the difference between these two scenarios.
Reasons to Implement Contract Lifecycle Management
- Avoid litigation from contract non-compliance: A major issue in many contracts is compliance. If contractual obligations are incomplete, the potential for litigation can increase.
- Save money: Penalties for non-compliance, missed opportunities from special terms and rebates, and payment errors incurring fees and penalties can be avoided with good contract administration.
- Deliver greater value to customers: Fulfilling and exceeding customer expectations through proper contract performance enhances an organization’s value and leads to future business.
- Reduce costs and time involved in contract administration: Streamlining processes in contract administration has a direct affect on labor time and costs.
- Prevent contract managers from functioning as contract administrators: Contract managers, dealing with details and delays, are best doing just that, while contract administrators focus on higher-level management activities, such as developing important relationships with suppliers and customers.
Costs Associated with Inadequate Lifecycle Management
- Failure to enforce negotiated supplier terms: Organizations must be diligent about receiving everything agreed upon. Money “gained” through time-consuming negotiations can be quickly lost through poor contract management.
- Inadequate delivery to customers: Establishing a project timeline, production schedule and delivery process is crucial to meeting customer expectations.
- Time lost from disorganization: Without proper organization, looking for contracts, schedules, notes and data wastes staff time that would be better spent analyzing data and seeking new contract opportunities.
- Errors and additional work due to inefficient processes: Regulating processes with proper tools is crucial. Ad-hoc processes and tools are not designed to provide the necessary functionality, visibility, reporting capabilities and compliance necessary for efficient use of resources and reduced errors.
- Being reactive, rather than proactive: A reactionary approach to contract management leads to missed revenue opportunities, time waste and inflated costs.
CLM Helps Organizations Avoid Common Contract Difficulties
- Establish timelines for each step in the contract lifecycle
- Properly allocate staff workload and additional resources
- Create an accurate audit trail for approvals
- Govern organizational rules and processes
- Measure compliance, deliverables and performance on contracts and suppliers
Contract Lifecycle Management Means Measureable Results
Contract managers typically rate their jobs as “challenging.” CLM can alleviate some of the stress by creating an orderly process for each task, resulting in more efficiency and high productivity.
Additionally, contract lifecycle management results in reduced liability, increased cost savings as well as quality of delivery and enhanced business relationships.
The results are tangible, measurable and sustainable. Contract management costs continue to increase, along with demands for accountability, proper governance and transparency, making it clear that understanding and automating an organization’s CLM has become a must-do project.