The three phases of contract management include: pre-contract, execution, and compliance.
Pre-Contract
The pre-contract phase starts with identifying needs that can be requested with a purchase requisition. A purchase requisition for standard production materials can be generated by materials requirements planning (MRP) with predetermined suppliers who have existing agreements. These orders can be automatically developed via electronic data interchange (EDI) so the first two phases happen quickly.
For new materials or materials not standardized, the purchase requisition might require a request for proposal (RFP) or request for quote (RFQ), in which price and delivery are the primary concern and focus of the negotiations. For other types of materials, such as in strategic sourcing, a request for information (RFI), RFP, RFQ can be initiated as a starting point to precede the negotiation process in which price and delivery are only two of multiple considerations.
Material Requirements Planning – A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials. It makes recommendations to release replenishment orders for material. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase.
Electronic Data Interchange – The electronic exchange of trading documents, such as purchase orders, shipment authorizations, advanced shipment notices, invoices, and using standard document formats.
Execution
Execution is when the agreement is communicated to the selected supplier and internal buyers. This might be conducted by the buyer, or by a person in contract management.
Compliance
Compliance ensures the terms of the agreement are adhered to by both the buying and selling organization. The goal is to maximize performance and minimize risk for all parties. Similar to execution, these might be part of the buyer’s responsibilities or they might be conducted by a person in contract management.
Regardless of the reporting structure of who is accountable and responsible for execution and compliance, these activities, to some degree, must occur.