Eliminating the pain out of Contract Management

Explore Procurement as a Strategic Advisory

PurchTips Edition #439

The effective management of contract management is a major responsibility of the Procurement Function. Procurement Professionals are expected to protect their organizations from risks related to spend management and the support of operations. The identification of Critical Points of Failure (CPFs), mitigation strategies, and tactics deployed to protect our supply chains from the negative impacts of risks is a must.

Contract Management

Contract Management is a powerful mechanism to realize the required risk management competencies to keep modern supply chains intact. We will be remiss if we do not examine the reason why supply chains exist. Supply chains are the mechanism by which organizations realize their purpose, mission, vision, and reason for existence. Supply chains have supplier selection processes, procurement activities, manufacturing/conversion processes, inventory management and logistics functions. All of which pose significant risks for the modern business.

The following are ways to reduce pain points from Contract Management:

1.) Understanding stakeholder needs and requirements with a purpose: This is the most important factor in removing pain points in the deployment of effective contract management tactics. The key is to identify and prioritizes the requirements of all key stakeholders especially customers or end users. This enables procurement professionals to laser focus and aligns the capabilities of their suppliers in meeting these requirements. All contractual agreements must be underpinned by these requirements as critical targeted criteria. A clear purpose around stakeholder requirements must drive all contract management processes.

2.) Selection of suppliers with Expert Process Capability: This is critical after understanding stakeholder needs and requirements the selection of suppliers with a high degree of process capability and performance is key. High process capability reduces the risk of defective inputs, late deliveries and supply disruptions. This in turn, increases the probability of success in contract management initiatives. Leveraging superior supplier and customer contract management capabilities can be of great benefit in reducing contact management pain points.

3.) Contract Management Skills: The acquisition of contract management skills is essential in eliminating pain points and reducing supply chain risks. Procurement leaders must assure that their staffs can design, implement and manage all contracts under their influence. This is a core element in reducing supply risks, stress points, and reducing the high cost of legal issues.

4.) Technology: Once stakeholder requirements are understood, capable suppliers selected to deliver critical inputs, procurement staffs are equipped with the necessary skills, effective technology must be put in place. These technologies should be robust, easy to use, support stakeholder requirements, and enhances collaboration across value chains.

5.) Accountability: Once the above mechanisms are in place, all supply chain stakeholders must be held accountable. Part of this accountability involves managing supplier performance and the performance of procurement staff. This will require effective contract management metrics and scorecard mechanisms being in place. Non-conformance to contractual criteria must be measured in terms of severity of impact, the degree of occurrence and ability to detect non-conformance and effective remedies deployed to mitigate risks.

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Copyright 2019. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By David Millington, SPSM, SPSM2, SPSM3 - Director of Education (Next Level Purchasing Association)

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