Two years ago, I wrote an article titled ‘Why is Supplier Contract Management More Important Now than Ever Before?’. In the years since, the landscape has evolved – and the same question might yield different answers. So, I’m revisiting the topic with fresh eyes, and more experience.
One of the points I covered previously was the growth of globalisation and internationally spanning supply routes. This phenomenon, though by no means a recent development, is significant as it has allowed supply chains to grow to incredibly vast and complicated lengths. Supply chains routinely operate between different legal and geopolitical territories, making the issue of contracted supplier compliance more important than ever. If sourcing from the EU, contracted terms and minimum standards of quality will likely be different from other territories – Asia, for example. Particularly for UK businesses, there will be key legislative factors to consider when drafting contracts for overseas suppliers.
I also talked a lot about risk, and concerningly, this is an element of supplier contract management which has only grown more fraught since the time I first wrote about it. Risks, and risk mitigation, can stem from almost any aspect of a supplier’s business. It’s important to feel like you know as much as you can about a supplier before agreeing to do any business with them – or risk falling foul of hidden issues after the contract has been signed. Depending on the nature of the risk, it could be detrimental to your organisation’s public reputation, your product or service quality, or your bottom-line – sometimes all three. Only recently, we’ve seen examples of the risks which can stem from choosing not to diversify supply chains, with tariffs causing global supply chain chaos. Robust and water-tight contract management and contract drafting procedures help to protect organisations like yours from the risks which threaten them.
Cost, too, has only become more of a focus as economic uncertainties persist. Supplier contracts are crucial to the proper flow of commerce for two main reasons:
- They are a legally binding agreement of payment, subject to terms and conditions being met.
- They are the most accurate point of reference for those terms and conditions, including information such as SLAs and KPIs which ensure the minimum required performance level is met.
Having this data to hand in order to properly track supplier performance against these markers can help to maintain a transparent and positive supplier relationship. It’s also key to being able to negotiate, raise complaints of supplier performance, and resolve those disputes when they do occur. As well as this, there is the collaborative element of contract management, often requiring both the procurement department and the legal department to sign off and approve clauses. Being able to streamline this approval process is paramount to painless, efficient contract management.
Which leads nicely into supplier relationship management. Supplier performance and compliance are all managed through the supplier relationship. This means clear communication channels, good visibility over all supplier data, and documentation of the expectations for both parties – i.e., a contract. Complex supply chains, large supply chains, diverse supply chains, all require a great deal of information to be stored about those suppliers. To effectively manage those relationships and contracts throughout the supply chain, having that data, and being able to trust that data, is second to none. I talked earlier about the recent disruptions caused by tariffs. This is an extreme example, but many supply chains were exposed during that period for their objectively poor management. Those with no alternatives, no leverage, and no visibility were forced to pay over-the-odds for the same product.
Proper supply chain management, with diversification and alternates built-in, supported by well-managed contracts and carefully considered clauses, will become more commonplace off the back of that disruption.
So, in 2025, how can you ensure your contract management strategy is up for the task?
I said it in 2023, and there are only more benefits to doing it in 2025 – digitising contract management processes is the answer.
What’s changed this year, to make the process of managing contracts easier, more secure, and more accurate? Artificial Intelligence.
AI itself isn’t new. But in ARCUS® Supplier Contract Management? AI is coming to make processes more accurate, and more than that – to help guide legal evaluations, identify risks, find specific clauses in 40-page contracts in seconds, and break down legal jargon into easily-understandable, plain English.
This is the change that’s coming – on top of all the existing benefits like automatic renewal reminders, a secure cloud-based repository of contracts, and removing the friction from legal approval. It’s an exciting time to be working in this field; we can’t wait to share what’s coming.