Below we take a look at what contract management actually is, and why a reworking, or indeed an implementation of, contract management frameworks is integral to successfully navigating H2 2020.
It seems we can’t have a conversation these days without the dreaded ‘c’ word coming up, and while a few ‘c’ words are considered the ‘c’ word, 2020 is a standout year for one in particular – Coronavirus.
Needless to say the month of March left many reeling, with every single industry impacted in some way, with those in the corporate services, supply chain and procurement space especially feeling the pressure of meet increased demand for specialised products. And while certain sectors immediately come to mind – FMCG, healthcare – the fact of the matter is that every sector, from education and retail to BFSI and utilities had to shift their operations quickly to ensure they met changing demand, fast.
After the initial shove off the cliff we’ve begun to resurface and can now take a moment to reflect back on the first six months of the year. What has become glaringly obvious is that we need to do the basics better.
What do we mean by that? Well as Covid-19 continues exerting acute economic pressure across all geographies, industries and sectors at the same time, combined with the obvious human and health concerns, is creating an extremely volatile situation for businesses to navigate.
Central to navigating the next six-odd months successfully will be accurate assessment of contract obligations and risks, as well as sensitive relationship management and tight control over cashflow. The easiest way to achieve this is not by automating or investing in new technologies – which are expensive and time consuming exercises, but instead by reassessing supply chain options and by revisiting contract and supplier management practices.
What Is Contract Management?
At first glance, supplier management seems like an easy thing to sum up. In very broad terms, it refers to the management of relationships with third-party vendors that supply your organisation with essential goods and services.
However, as with many things in life that seem simple to begin with, the truth is there’s a lot more to supplier relationship management (SRM) than that.
“Procurement should focus on relationship management to add value to organisations, rather than purely buying.”
Additionally contract management gets lumped in with buying, but really, to operate effectively and efficiently SRM requires its own guiding frameworks within procurement. According to Supply Management, over the years in the public sector we’ve seen a focus on buying things – whether capital investments, ICT or simply stationary – you need things for your department to operate, but you don’t necessarily need to manage the contract.
Organisations don’t tend to invest in the life cycle of a contract – you invest in the procurement and once you’ve got a supplier in place, we expect them to get on and not cause any problems. While this ‘muddling’ along works fine when all is smooth sailing – if anything were to disrupt BAU, a global pandemic say – the result is potentially crippling.
Frameworking Contract Management
Many organisations do not give their supplier management framework enough thought or dedicate enough time to defining it, which can lead to them being hit by unpredictable supplier behaviour or problems with their supply chain, and this of course can happen at anytime – it’s just that the current climate has increased volatility.
HICX say that to cover as many bases as possible when defining supply management within your department, you need to do the following:
- Define internal policies for how you’re going to govern your suppliers
- Agree legal contracts between your organisation and its suppliers
- Clearly outline what your expectations are and what you expect to receive from third-party vendors
- Make sure you actively manage your relationships with suppliers, rather than simply looking at their performance
- Maintain accurate and complete records (supplier information management)
Adding to this as a response to Covid-19 it’s worth considering:
- How COVID-19 is affecting your key suppliers
- Determining the knock-on effects of supplier issues on your organisation
- Developing approaches for mitigating supplier issues
- Advising all customers about the effects of COVID-19 on your organisation
- Assessing risk in your key contracts
Why Does Matter?
Contracting and supplier management plays a significant role within the context of a department’s procurement efforts, with organisations that have clearly defined contract compliance processes achieving greater cost savings, reducing the time and costs associated with auditing supplier compliance and maintaining strong supplier relationships.
Even if your department or organisation has been successful in mitigating risks and delays caused by Covid-19, a reassessment of longstanding contracts and SRM frameworks is key to maintaining effective operations in 2021 and beyond.
Good suppliers (and good supplier relationships) allow your business to thrive and increase its profitability. Inefficient or unreliable suppliers, on the other hand, can cost you money – and, potentially even worse, your reputation too. In the public sector, where taxpayer dollars and scrutiny come into play effectively managing this is integral.
In part two of the contract and supplier management in the age of Covid-19 blog series we take a look at strategies being harnesses by A/NZ procurement leaders to overcome recent disruptions and transform SRM for the future.
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