No one can deny that sound management of long term service supply contracts is essential, but how can this best be achieved? The current approach varies widely from company to company but broadly falls into three distinct camps – procurement does it, the business unit does it or nobody does it!
The last case of course is the worst possible scenario, but it is surprising how often one hears: “If it ain’t broke don’t fix it” when enquiring how businesses manage their longer term contracts. Whilst no one would dispute the sentiment behind the adage, in the supply and service contracts world, this by no means holds true. In fact, the absence of obvious issues and problems is no indicator that a contract is running efficiently and is continuing to deliver good value for money. In many cases, it is exactly the opposite and suppliers are cashing in while they can.
Like any business function, regular review and housekeeping of the services delivered by external suppliers is essential to ensure that they are keeping pace with the company’s needs and delivering what is required, when it is required and at a fair and appropriate cost. Equally it is important to ensure that whatever goods or services are being supplied, they are making the best possible contribution to the efficient functioning of the business as a whole.
This is where we look back at the first two common approaches, e.g. either the business unit or the procurement department looking after things individually. Each approach has some merit for specific types of contract, e.g. for procurement it could be commodity suppliers such as stationery and office support items. For the business unit, outsourced services and consultancy services might be appropriate.
However, for the vast majority of service and supply contracts TONIC believe that a dual approach is by far the better at achieving an ongoing level of contract management that is capable of delivering the best possible value for money to both the client and the supplier.
But why should we care about the supplier? In our view, good business is achieved when both parties are receiving a fair return and any associated operating costs are kept to a minimum. In like manner the relationship between the procurement function and the business units it supports, must operate in a constructive and collaborative manner if it is to be fully successful. Procurement should be seen as an enabler not a hurdle to overcome.
TONIC firmly believe that in the vast majority, if not all, cases the business unit does know what is best. However, all too often they lack the expertise and processes to manage effectively the contracts associated with the services and supplies which underpin their business function. This is where procurement can play an invaluable role, by supporting the business unit and providing the expertise, tools and experience as and when they are needed.
All very good on the theory, but how does one begin to make this happen? A good starting point is to formally appoint key supplier contract managers from within the business to manage those contracts which directly affect them; with of course, a named contact within the procurement function providing support. This will typically take the form of facilitating regular supplier contract reviews, running tenders, supplying pricing data and any other useful information from within the procurement community. It is worth noting that whoever is appointed from within the business area must have this responsibility formally recognised as part of their job role and responsibility. This will not only ensure their contribution can be recognised and rewarded where appropriate but it will also serve to illustrate to all the staff that good procurement and contract management practice is important and can deliver a very valuable contribution to an organisation.
On a final note, no matter which level your organisation’s employees interact with suppliers, good contract management and procurement practice should be part of business as usual and the procurement function should be there as a resource, ready and willing to help.
