8 Benefits of Implementing a CLM Tool for Procurement

Every day, organizations rely on their procurement teams to get them the supplies they need to get the job done. The procurement department should be responsible for enabling other teams, but what happens when procurement processes become an overly complex, time-consuming mess?

Data gathered by McKinsey & Company indicates that organizations waste up to 4% of procurement spending on “excessive transaction costs, inefficiency, and noncompliance.” If businesses want to cut down on procurement costs and inefficiencies and make the lives of their procurement employees easier at the same time, they need to find ways to help the team develop better processes. One of the best tools to assist in that task is a CLM solution.

Why Does Procurement Need CLM?

Procurement often handles a large volume of contracts from different suppliers, each with their own terms, conditions, and deadlines. Without CLM tools, procurement teams may struggle to keep track of all the different pieces in the contract lifecycle, including everything from the status of an agreement to its performance. CLM tools help procurement teams manage supplier contracts more efficiently and improve relationships with those suppliers.

Benefits of CLM for Procurement

CLM tools are invaluable resources for contract management across all departments. Let’s go over some of the many benefits the right CLM tool brings to the procurement department.

1. Centralized Repository

Scattered, decentralized contract management systems are a major source of many of the frustrations that come with inefficient procurement processes. A CLM can help solve these issues by consolidating all contract-related documents, agreements, and supporting materials in one secure location. This gives procurement employees direct access to the most current and relevant information. 

No more wasting time searching for the most recent version of an ongoing agreement or an old historical document! This streamlined access to contract information helps accelerate decision-making processes, thus giving an overall speed boost to procurement procedures.

A centralized repository also promotes consistency and compliance by serving as a single source of truth for contracts. Procurement employees can confidently rely on the CLM repository for access to standardized contract templates, terms, and approval workflows, thereby reducing the risk of errors and non-compliance issues.

2. Enhanced Visibility

CLM tools provide a comprehensive overview of the entire contract lifecycle, from initiation to execution. With this level of enhanced visibility, procurement employees gain real-time access to contract data, including key milestones, expiration dates, renewal options, performance metrics, and more. These insights enable teams to adopt a proactive approach to contract management that eliminates inefficiencies and excess costs. They can anticipate upcoming deadlines, identify potential risks, and capitalize on opportunities for renegotiation.

More visibility inevitably leads to better decision-making as well. Procurement teams can easily see the status of a contract, where it’s currently at in the lifecycle, what the next step will be, and any obligations that still need to be met. Backed by that knowledge, they can then prioritize tasks as efficiently as possible and allocate resources effectively to push the contract forward.

3. Communication with Stakeholders

Lack of internal communication has been the downfall of many contract management efforts, especially for procurement departments. Procurement teams have to manage internal stakeholders’ requests and make sure that all vendor contracts are compliant. Without proper communication, some agreements might fall through the cracks, leading to missed approvals and frustrations all around.

A CLM tool helps to fix this problem by providing a centralized platform for collaboration and communication. All internal stakeholders can gain access to the information they need about an agreement and keep up with the most recent updates. The accountability and transparency that comes with centralized communication in one platform smooths out workflows and improves internal relationships, increasing trust and confidence between procurement and other departments.

4. Risk Mitigation

Risk is an inevitable part of doing business, but it’s important that all departments, procurement included, take steps to actively mitigate harmful risks. CLM tools can help procurement teams identify, assess, and mitigate the risks associated with both contracts and vendor relationships.

Businesses have to pay attention to the regulatory requirements that pertain to their industry. Using a CLM tool allows procurement employees to stay on top of changes in regulatory requirements and ensure that all contracts are created and executed with those needs in mind. The visibility that comes with a good CLM also gives insight into supplier performance issues that could be indicative of future risks.

And, speaking of future risks, CLM tools help procurement teams take a proactive approach to risk management through automated alerts and notifications. By setting up triggers for key events, such as contract expirations or performance milestones, procurement teams can take timely action to mitigate risks and prevent potential disruptions to operations.

5. Vendor Relationship Management

Organizations can have thousands of vendor agreements to manage. Why not make it easier for procurement to keep track of all those contracts with a CLM tool?

CLM tools centralize vendor-related information, including contracts, performance metrics, and communication history, in a single repository. This repository offers procurement teams a holistic view of each vendor relationship, enabling them to track vendor performance, monitor compliance, and assess the overall health of supplier partnerships.

Features like real-time messaging and document sharing also make communicating with vendors much more efficient. The team can quickly share updates on the status of a contract  and collaborate on contract amendments or negotiations directly within the platform. This way, everyone stays clear and aligned on the next steps, accelerating the momentum of agreements.

6. Data-Driven Improvements

As the organization continues to evolve, departments must also improve their internal processes to match that evolution. CLM solutions can serve as an invaluable source of data for procurement departments, enabling them to make necessary improvements to their processes that not only align with the shifting goals of the business, but also incorporate optimizations based on analysis of real contracts.

These tools open the door to a wealth of contract data. Whether you want to track certain KPIs or identify trends in historical contracts, they can help analyze large amounts of data to hone in on the procurement processes that are most in need of improvement. Everything from contract cycle times to supplier performance data can help pinpoint areas of inefficiency or underperformance.

CLM tools also support continuous improvement initiatives through feedback loops that enable procurement teams to measure the effectiveness of process changes over time. By monitoring performance metrics and soliciting feedback from stakeholders, procurement employees can identify further opportunities for refinement and innovation.

7. Scalability and Flexibility

Procurement teams have to be quick on their feet, regularly scaling up and down to meet the needs of the organization. CLM solutions are designed to help with that scaling process, allowing procurement departments to manage an increasing number of contracts and users without sacrificing performance or functionality. As the organization grows or undergoes changes, CLM tools can accommodate expanding contract volumes, additional users, and new business requirements, ensuring that procurement operations remain efficient and effective.

Certain tools can also be adapted to align with the unique requirements of an organization, industry, or regulatory environment. Whether it’s customizing contract templates, defining approval workflows, or integrating with other enterprise systems, procurement teams can tailor the system to meet their specific needs and workflow.

This combination of scalability and flexibility enables procurement teams to support diverse procurement processes. The right tool will be able to accommodate various contract types, procurement methods, and stakeholder requirements, providing a versatile platform for managing the full spectrum of procurement activities, from simple purchase agreements to the most complex strategic sourcing initiatives.

8. Greater Financial Control

Excessive spending is a problem for many procurement teams. Luckily, CLM can help there too, through automation and standardization.

CLM tools often support budget tracking and forecasting capabilities, enabling procurement teams to monitor expenditures against budget allocations and project future spending requirements more accurately. By providing insights into budget utilization, variances, and trends, procurement can make better financial decisions and allocate resources more strategically.

By automating procurement processes, CLM software reduces the time and resources required to manage contracts as well. This can result in significant cost savings, especially for organizations that manage a large volume of contracts. More automation frees up procurement employees to spend their valuable time on higher value work too, which helps propel the company toward business goals.

With a CLM, procurement teams can also increase the consistency of spending with standardized workflows and contract templates. Strict approval workflows make it easier to cut out unauthorized spending while standardized contract templates help mitigate financial risks that could come with errors or non-compliance. 

As businesses continue to navigate increasingly complex supply chains and regulatory environments, investing in a comprehensive CLM solution has become not only a strategic imperative but also a competitive advantage. CLM software helps procurement teams take their work to the next level. Choosing the right solution equips procurement employees with the tools and capabilities they need to boost their performance and make greater contributions to the organization’s overall success.