Understanding Internal & External Contract Management Solutions

When someone talks about contract management software, what particularly are they referring to? In order to answer this question, think of how businesses manage their contractual agreements. These contracts usually outline the conditions of working with vendors, creditors and subcontractors, in addition to defining the liabilities and responsibilities outlined within the company's strategic partnerships. However, it's not merely about managing the complexities of large contracts, but also about how the company manages its internal agreements. What might these internal agreements include? Well, they often include defining the conditions of employing salaried employees , the terms contained within huge labor contracts with unionized workers , and the conditions outlining executive compensation. It could also include the company's standard conditions and terms for purchase orders, its terms on invoices, and the company's standard payment terms with vendors and customers.

An internal department can be devoted fully to ensuring that the company's contracts are fully watched. Granted, these styles of contract departments are usually found in large corporations; their responsibilities include looking after multiple contracts across all of the corporation's business assets. A corporation's contract management systems department is also required to excel in contract life-cycle management (CLM). The department would be faced with mitigating the company's financial risks when entering into contractual agreements with strategic partners, vendors, creditors and subcontractors. Therefore, given the complexities of dealing with a number of contracts, what must businesses look for when deciding to have an internal department solely devoted to contract management? More importantly, what style of companies should consider having a area entirely focused on ensuring its contracts are maintained, clearly defined and properly managed?

- Manufacturers of Custom Designs : Manufacturers must have well-defined contracts that show the liabilities and responsibilities of all parties involved . Most manufacturers are often required to design custom-made assemblies. These custom-made products typically involve special raw materials, which ultimately require contractual agreements with suppliers. Because of this, it's not uncommon for manufacturers to have contracts with customers, and similarly formed contracts with sellers.

- Distributors & Value-Added Resellers (VARS): A VAR, or distributor, is often needed to hold substantial amounts of inventory. This calls for contractual supply arrangements that stipulate how long the distributor, or value-added reseller, will keep inventory for their customers. Conversely, these business models must also have contracts that promise their supply of incoming parts. As such, they must work closely with sellers, and ensure that their contracts are properly checked internally by their procurement department. Also , due to the fact that inventory is extremely expensive, distributors often pursue extensive contracts on financing. The intention is to lower the company's inventory financing spends, thereby lowering the company's overall costs of inventory ownership.

- Integrators & Original Equipment Manufacturers (OEMs): Large-scale equipment producers are often involved in many contracts. These contracts are often created around defining the conditions of working with suppliers, creditors, partners, customers and advertising agencies. It's common for integrators and OEMs to enter into greatly complex contractual agreements, ones that require much analysis and review.

It becomes apparent why contract management is such an integral part of business. It doesn't merely involve managing contracts from vendor-to-vendor, or from customer-to-customer, but it ultimately involves defining the liabilities within all agreements. The hope is for all parties to understand their appropriate roles and responsibilities . Contract life-cycle management dictates that businesses assign a dollar value to the remaining unfulfilled portions of their agreements. These contracts are seen as large-scale orders, ones whose price is determined by the backlog of product that remains to be shipped. Managing the life of such a contract is an extremely involved process, a process that often requires allocating a great deal of internal resources.

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