ERP contract management does benefit contract managers in a few ways ranging from access to automation and analytics to enhanced collaboration and visibility.
However, considering that Enterprise Resource Planning (ERP) systems are not built explicitly for contract management, it is not surprising that many contract managers struggle to get the best out of them.
The contract management functionalities in ERPs are typically basic and unsuitable for complex contracts. They also lack the scalability and flexibility to effectively manage contracts at increasingly high volumes.
Among other things, using non-specialized tools like ERPs for contract management can expose you to risks of non-compliance, missed opportunities, and security vulnerabilities.
In this guide, we dive into the details of ERP contract management, its challenges, and how you can supercharge your productivity with a CLM integration.
What is ERP contract management?
ERP contract management simply refers to the process of creating, negotiating, monitoring, and maintaining contracts within an ERP.
An ERP is a suite of software tools that integrate and automate various operational and management processes in an organization. It streamlines processes like contract management, procurement, sales, finance, and customer relationship management.
The goal of managing contracts within an ERP is to eliminate manual processes in the contract lifecycle, providing organizations with better control and visibility over their contractual agreements. However, this is not always the case, as these systems are often not robust and flexible enough to match the ever-increasing complexities of modern business contracts.
Contracts can involve intricate terms, conditions, and legal obligations that vary across industries and jurisdictions. ERP systems typically provide basic contract management functionalities like document storage, version control, and simple approval workflows. These features can be helpful for simple contracts with straightforward requirements. Beyond that, they begin to fall short.
What’s wrong with using an ERP for contract management?
As already established, ERP contract management is only feasible for simple contracts with simple requirements. However, things start to take a turn for the worse when complexity, volume, and intricate requirements come to play.
Let’s look at some of the challenges you might face when managing your contracts with an ERP.
#1 Data security and privacy are always at risk
“The thing about privacy is identifying what data is involved, how we are sharing it, and how we are going to be compliant in that sharing.”
~ Ken Priore, ex-Director of Privacy, Atlassian
Mastering the Intersection of Law, Technology, and Privacy
Data security and privacy is a major concern for contract managers. This is because contracts involve collecting, processing, and sharing sensitive personal information or proprietary data, which must be in accordance with various regulations like GDPR, HIPAA, SOC-2, and more.
ERPs do come with certain features that help with data security and privacy compliance. However, your ability to stay compliant with these regulations largely depends on your ERP vendor’s infrastructure for handling data across the board.
Because ERPs consolidate multiple systems into one unified platform, any data breach in one component can put other components, including your contract management module, at risk.
Also read: 8 Top Contract Management Software Platforms
#2 Managing complex contract terms and negotiations is inefficient
Contracts involving government agencies, construction companies, and research organizations can be complex due to the presence of multiple parties, sensitive data, and several compliance requirements. ERPs typically offer basic contract management functionalities and don’t have the capability to handle contracts of this nature.
Improving ERPs to meet these requirements can be expensive and require additional expertise.
#3 There are usually limitations to customization
ERPs often have predefined workflows and structures for contract management. But these are only efficient for basic contracts.
When dealing with complex contracts that require customized processes or unique terms and conditions, the system may not provide the necessary flexibility. This can lead to workarounds or manual interventions, undermining the benefits of automation.
#4 ERPs may not meet scalability requirements
As the volume of contracts increases, ERP systems may face scalability issues. Performance can degrade, leading to slower processing times, delays, or system crashes. This can be particularly problematic when managing a large number of complex contracts simultaneously.
#5 Integrating ERPs with other contract-enhancing systems can be tedious
In many cases, contract management involves integration with other systems such as CRM, finance, or procurement. Integrating complex contract requirements and data across multiple systems can be challenging with an ERP, especially if it lacks robust integration capabilities or requires significant customization.
#6 ERPs lack compliance mechanisms for complex contracts
Complex contracts often involve intricate legal frameworks, regulatory requirements, and compliance obligations that change from time to time. ERPs typically don’t offer advanced compliance features that enable you to consistently monitor and maintain compliance with evolving legal requirements and contractual obligations.
How does integrating your ERP with a CLM make it more efficient?
A Contract Lifecycle Management (CLM) system is a suite of tools designed to streamline and automate processes throughout the stages of a contract's lifecycle.
Its functionalities encompass the entire contracting process, from initiation and negotiation to execution, monitoring, and renewal. Unlike ERPs, CLMs are explicitly built for contracts and, thus, offer better functionalities for effectively managing complex contracts at scale, improving visibility, compliance, and overall contract management productivity.
However, integrating the broad, cross-functional versatility of an ERP system with the specialized functionalities of a CLM comes with several benefits, some of which we’ve discussed below.
#1 Improves data accuracy and consistency
An ERP has several modules catering to the needs of different business units, like legal, sales, finance, procurement, human resources, and more. Contracting processes often require the movement of data between teams during processes like vendor evaluation, financial analysis, legal review, and compliance assessment.
Integrating your ERP with a CLM automatically synchronizes contract-related data, such as financial terms, pricing information, and key dates. This eliminates the need for manual data entry, which can be prone to errors and inconsistencies. The integration improves accuracy and consistency across both platforms, ultimately improving overall data quality.
SpotDraft offers seamless data sync. capabilities, empowering you to leverage accurate and up-to-date data from your ERP during contracting processes. This also enhances the quality of your reports and analytics, helping you make better data-driven decisions.
#2 Streamlines contract creation and negotiation processes
The integration of ERP and CLM systems enables the streamlining of contract creation and negotiation processes. When a new contract is initiated, the integration allows the CLM system to access relevant data from the ERP system, such as customer details, pricing information, or product specifications.
This data can be automatically populated into contract templates, saving time and effort in manual data entry. Moreover, robust CLMs like SpotDraft come with collaboration tools and electronic signature functionalities that further facilitate seamless communication and faster contract approvals, reducing the cycle time for contract negotiation and improving overall process efficiency.
#3 Enhances contract visibility and accessibility
Integrating ERP with CLM allows organizations to host their entire contract document and contract-related data in one centralized repository, making them easily accessible to authorized personnel. Users can access contract information, including terms, conditions, and associated financial data, directly from the ERP system.
This improves visibility into contract details and enables stakeholders to make informed decisions based on accurate and up-to-date contract information. It also enhances collaboration among departments, such as sales, legal, and finance, as they can access the same contract information from a single source, improving coordination and reducing communication gaps.
SpotDraft enhances visibility and accessibility by offering a robust, secure, and searchable repository for housing every contract-related document. Its role-based access control ensures that the right stakeholders can easily dive into the repository, use filters and search tags to find the contract they need, and get instant insights into what’s going on with the contract.
Additionally, its collaborative editor allows stakeholders to keep track of tasks and modifications that occur throughout the contract’s lifecycle.
#4 Makes contract tracking and milestone management more efficient
The real-time synchronization of contract milestones and compliance data between interconnected ERPs and CLMs ensures that critical details, such as delivery schedules, payment terms, renewal dates, and legal requirements, are tracked adequately.
SpotDraft enhances contract tracking by offering functionalities like automated notifications and reminders, real-time monitoring, and analytics. This enables you to proactively manage contract timelines, optimize resource allocation, and avoid potential delays or penalties resulting from missed deadlines.
#5 Automates contract compliance
When ERPs and CLMs are interconnected, organizations can streamline contract compliance activities. For instance, the ERP can compare actual performance data from its database against contractual obligations stored in the CLM. If any deviations or potential risks are detected, the integrated system can trigger alerts and notifications to the relevant stakeholders, enabling timely action.
SpotDraft goes a step further by automatically flagging any potential compliance issues while the contract is still being generated. It highlights improperly placed terms, redundant definitions, and relevant signature formats to ensure you’re operating within the boundaries of relevant regulations.
This automation helps organizations stay on top of compliance requirements, minimize financial and legal risks, and proactively address issues before they escalate. It also provides an audit trail of compliance activities, facilitating transparency and accountability.
#6 Forsters seamless integration of customer data and contract information
The interconnection of ERPs and CLMs facilitates the seamless integration of customer data with contract information. It allows the CLM to access customer-related data such as order history, payment status, or credit information from the ERP.
This comprehensive view of customer data, combined with contract details, provides organizations with valuable insights into customer relationships, enabling better customer relationship management and informed decision-making.
For example, combining your ERP with SpotDraft makes it easier to identify cross-selling or upselling opportunities by analyzing customer purchasing patterns or contract renewal dates. You can also optimize contract terms based on customer-specific data, resulting in more tailored and beneficial agreements.
With all that being said, it is important to note that not all CLMs have the capability to seamlessly integrate with ERPs. But for SpotDraft, this is a cakewalk, thanks to its robust REST API and platform-agnostic infrastructure.
Apart from offering some of the best CLM functionalities in the market, SpotDraft allows organizations to integrate their existing business tools into its CLM ecosystem. That way, they get to enjoy the benefits of a reliable CLM without leaving the interface they’re already used to.
Best practices to implementing the ERP-CLM integration
Integrating your ERP with a CLM comes with several benefits, as already discussed. But it can also be counterproductive if you do it the wrong way. There are several considerations you need to make to ensure adequate implementation, and in this section, we've discussed some of them.
#1 Evaluate the compatibility and requirements of both systems
Before you implement the integration, you must first find out how compatible both systems are.
Is the CLM robust enough to simultaneously interchange data with the ERP? Does it have a native integration with the ERP, or would you be required to use a middleware or request custom development? Consult your vendors to verify these.
You should also evaluate how compatible their data formats are and ascertain if there’ll be any data transformation requirements to make the exchange of data between both systems seamless.
#2 Ascertain the suitable integration methods that meet your needs
You should consider the various modes available for the integration. It could be point-to-point (where the ERP and CLM systems connect directly through APIs), a middleware, or a hybrid integration.
Consider factors like scalability, performance, maintenance, security, and the complexity of your integration requirements. Evaluate the capabilities and compatibility of the ERP and CLM systems with the chosen integration approach.
Furthermore, ensure you consult with your ERP and CLM vendors or integration specialists to ascertain how the selected integration method aligns with your organization's needs and future growth plans.
#3 Create a data mapping and transformation plan
Identify the data elements that need to be exchanged between the ERP and CLM. This includes information related to contracts, suppliers, pricing, purchase orders, invoices, and other relevant data.
Create a comprehensive data mapping document that clearly outlines which data fields correspond to each other in the two systems. For example, mapping the "contract start date" field in the CLM system to the "effective date" field in the ERP system. This mapping ensures that data is accurately transferred and synchronized between the two systems.
Establish synchronization processes to keep data updated and aligned. For example, if a contract is created or updated in the CLM system, the integration should automatically update the corresponding field in the ERP system and vice versa. Synchronization can be achieved through scheduled batch updates or real-time processes, depending on the requirements of your organization.
#4 Test and validate the integration before deploying
Perform thorough testing to validate the integration before deploying it into your existing business ecosystem. Test different scenarios, data flow, and functionality across both systems to identify and resolve any issues. You should also conduct User Acceptance Testing (UAT) to involve end-users in gathering feedback and making necessary adjustments.
Furthermore, it is important to continuously review your integration’s performance and explore areas of improvement. That way, you’ll keep productivity in an uptrend for as long as possible.
“If you think that you're doing everything perfectly, you're not going to grow. There's always an opportunity for self-improvement.”
~ Doug Luftman, ex-DGC, DocuSign
The Key to Success as an In-House Legal Counsel & Leader
#5 Create a change management and user adoption strategy
Plan for change management to ensure smooth adoption of the integrated solution. You must communicate the benefits of the integration to stakeholders, provide training to users, and address any concerns or resistance to change.
Define a clear implementation timeline and allocate resources appropriately. You also can break down the implementation into manageable phases, ensuring that each stage has specific goals, deliverables, and milestones.
Getting the best of both worlds
Adopting an ERP for contract management is only feasible when working on basic contracts. But it gets less efficient when your contracts start scaling in volume and complexity, creating the need for a more robust, specialized system.
Integrating an ERP with a CLM allows you to maximize the capabilities of both platforms for contract management. But this is only possible through proper planning and implementation.
SpotDraft is a leading CLM that not only offers the most useful and reliable functionalities for contract management but also allows seamless integration with your existing business tools. This allows you to achieve better results without moving between systems and learning new technical processes.
“I have seen a demo of SpotDraft’s CLM technology and they should be on your short list of vendors to talk to about a contract management system.”
~ Sterling Miller, CEO and Senior Counsel at Hilgers Grabens PLLC
Ten Things: “Cool Tech” For In-House Counsel (2022 Edition)
Request a demo here to see how it can benefit your organization.