Contracts form the backbone of all internal and external relationships in business. They are tools that bind all parties to jointly-agreed frameworks that set clear expectations, assign responsibilities and obligation, and define the scope of agreements. In short, contracts ensure people behave across the entire lifespan of a business relationship.
According to Gartner, Contract Lifecycle Management (CLM) is “a solution and process for managing the life cycle of contracts created and/or administered by or impacting the company. These include third-party contracts, such as outsourcing, procurement, sales, nondisclosure, intellectual property, leasing, facilities management and other licensing, and agreements containing contractual obligations now and in the future.”
Building an efficient CLM process, however, represents a major challenge to many of today’s businesses. With businesses, employees, vendors, partners, and other stakeholders operating in a 24-hour, highly-connected constantly changing world, a sheaf of stapled-together papers posted through the mail and deposited in a drawer just won’t do. How can organisations build better CLM systems today - and where is CLM heading in the future?
Digital CLM - productive relationships across the entire contract lifecycle
The beginning of the year is the time when procurement departments plan the upcoming year’s strategy, select the vendors they wish to work with, and make predictions for their needs across the next 12 months. Contract management is a central activity during this period – yet there can be a tendency to leave these contracts in the metaphorical file drawer once they have been signed.
This causes a number of issues. If no system is in place, it quickly becomes extremely difficult to track when contracts are due to expire, or if you are stuck in an automatically-renewing contract that you no longer need. A fully-digital Contract Management Lifecycle System makes this information easily available to all relevant parties and notifies users about important upcoming events such as contract expirations or renewals.
Transparency, traceability, liability
A digital CLM system also allows all parties to archive their actions throughout the duration of their relationship. Where no CLM system is in place, both vendors and procurement teams may find it difficult to reference and follow the obligations set out in their contract. This may also lead to liability issues or scenarios in which both parties feel they have acted above board but have inadvertently stepped outside of the conditions set out in their agreement.
CLM gives vendors and procurement teams the ability to archive all actions taken in a central location accessible by everyone. This makes compliance and traceability easy to prove and also allows both parties to see the progress made in terms of service delivery. If issues arise, the chain of evidence is already in place and everyone involved can work together to find a speedy resolution to the situation.
Structured Data, AI, strategic planning
A critical benefit of a fully-digital CLM system is the creation of structured data sets that can be utilised to improve the effectiveness of your procurement efforts. Data points such as seasonal fluctuations in demand, delivery success, and vendor availability can all be used to help plan procurement activities in a more strategic way, predicting needs in advance, and building procurements that reduce waste and improve in efficiency over time.
As your data sets become more enriched, it will soon be possible to leverage AI to further ramp up efficiencies. Natural Language Processing can be used in combination with Machine Learning (ML) to, for instance, automatically retrieve all instances of obligations within contracts and ignore simple mentions of parties. Going even further, ML algorithms can also automate the process of creating contracts that offer the best terms, the most value, and the most security to vendors and procurement teams.
To future-proof your procurement operations, you should invest in a CLM system that brings transparency to all CLM activities, allows for the collection of structured data that enables deeper strategic planning, and has the potential to leverage exponential technologies so you can stay competitive and profitable, both today and tomorrow.