Managing vendors is no small task, and today's procurement teams are faced with a large number of contracts to manage on a regular basis. Without the right tools and workflows in place, organizing so many vendor relationships can prove tedious and complex. Often, procurement professionals are working across the company with a combination of one-time, short-term, and long-term contracts. Is this the only way? Surely, we can do better. So, how can procurement experts simplify this process? With AI-powered contract analysis.
Contract Analysis for Vendor Management
Although many procurement professionals utilize a contract management tool, the manual analysis of the terms within these contracts is time-consuming and complicated. These contracts have a variety of term lengths, financial obligations, and other requirements. As a result, traditional contract management tools may not be robust enough to provide the insight required for procurement professionals.
Contract Analysis for Compliance
With regulations like GDPR and the California Consumer Privacy Act (CCPA) in place, having clear records of the terms within third-party vendor contracts is vital. Any oversight can put a company at risk for large fines. As a result, procurement teams must consistently analyze the privacy terms within each contract so that when regulations like these go into effect, they are aware of which contracts need to be amended.
For example, if a vendor agreement allows for the use of consumer data for marketing purposes, it could be in violation of GDPR if the consumer has not provided consent. While companies that don’t have clients in the European Union are safe from violating GDPR for now, it's only a matter of time before regulations like that go into effect, no matter where you operate. When this happens, those businesses will have to be prepared to follow similar practices. For procurement teams, being ahead of the curve when it comes to compliance is both a time and cost-saving approach.
Contract Statistics for Procurement Professionals
During an audit, either by management or an external entity, the ability to quickly produce statistics on the types of vendor contracts is key. Some of the most common contract types include Purchase Orders, Fixed Prices, and Cost Reimbursable contracts. For each of these contract types, the terms within them affect many other business processes.
While purchase orders are the most common contract type for a standard procurement team, managing these terms is important for budgeting purposes. Since this type of contract acts as an agreement between a buyer and a seller for an exchange of goods, the agreed-upon payment terms must be reflected in reporting. These contracts also protect the seller to ensure that payment is remitted.
For fixed-price contracts, the buyer and vendor agree to a total project cost based on the scope of work. Here, the contract is especially important for the protection of both parties, as the work defined must be completed for payment to be transferred. Should the buyer request something outside of the original scope of work, the seller can update the terms or charge accordingly.
With a cost-reimbursable contract, the buyer agrees to reimburse the cost of the materials required for the project after completion. These usually take place if the total cost of the project is unknown or difficult to estimate.
Without proper contract statistics, other departments within a large organization may be affected by unexpected payments or mismanaged cash flow. For procurement professionals, utilizing a contract analysis tool that automates the categorization of vendor contracts is an efficient way to simplify the process.
Proactively managing contracts is a great way for procurement professionals to stay ahead of the curve when it comes to compliance, vendor management, and reporting. By using an AI-based contract analysis tool like LinkSquares, procurement teams can alleviate the tedious manual reporting and focus on more important aspects of managing vendors for their organization. To learn more, schedule a demo with the LinkSquares team.
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