An internal department can be devoted completely to ensuring that the company's contracts are correctly watched. Granted, these types of contract departments are typically found in large corporations; their responsibilities include managing multiple contracts across all of the corporation's business holdings . 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 gambles when entering into contractual agreements with strategic partners, vendors, creditors and subcontractors. Therefore, given the complexities of dealing with multiple contracts, what must companies 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?
- Custom Design Manufacturers: Manufacturers must have itemised contracts that outline the problems and responsibilities of all parties in the contract. 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 common for manufacturers to have contracts with customers, and similarly structured contracts with sellers.
- Distributors & Value-Added Resellers (VARS): A VAR, or distributor, is often required to hold substantial amounts of inventory. This calls for contractual supply agreements that outline how long the distributor, or value-added reseller, will keep inventory for their customers. Conversely, these business models must also have contracts that guarantee their supply of incoming parts. As such, they must work closely with sellers, and ensure that their contracts are properly reported internally by their procurement department. Additionally, because inventory is greatly expensive, distributors often pursue wide ranging 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 often are involved in multiple contracts. These contracts are often structured around defining the conditions of working with suppliers, creditors, partners, customers and advertising agencies. It's common for integrators and OEMs to enter into extremely complex contractual agreements, ones that ask for plenty of analysis and review.
It becomes apparent why contract management is such an important part of business. It doesn't merely involve managing contracts from vendor-to-vendor, or from customer-to-customer, but it ultimately involves knowing the liabilities within all agreements. The hope is for all parties to understand their appropriate responsibilities and roles. 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 cost is decided by the backlog of product that needs to be shipped. Managing the life of such a contract is an massively involved process, a process that often requires allocating a great deal of internal resources.
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