You’ve invested a lot of time and money. You may even have staked your reputation on backing a supplier. So when is it time to replace them?
At a recent executive meeting, the subject of incumbent suppliers arose. The conversation reflected on both the personal and business investment that can occur when a supplier is selected, from a business stakeholder and a procurement perspective.
Procurement is undergoing a transformation, moving away from process and price and towards undertaking initiatives that demonstrate value for the business. Therefore, when the opportunity arises for procurement to demonstrate its value, you would expect them to seize it in both hands… or maybe not!
We want to share with you a real life situation undertaken this month. We have removed the names of those involved to limit embarrassment; both company names are fictitious, but the scenario is real.
The principle of a North/South divide has been around for as long as mankind has organized itself into societies. It is a term often used within politics to define the ‘North of the country from the South’. It doesn’t matter if you are referening to the USA, UK, or India, the statement is still applicable. It works on the principle things may be considered different between two groups, thereby creating a barrier to collaboration.
The key to the model is achieving the right perspective. For example, we may embrace a North/South divide within our countries yet still passionate about being part of the same country. Overcoming the divide requires a common agenda, one that everyone can get behind regardless of which side of the divide they are from.
Some of you may be aware of smart contracts. They are a new approach to contracting which uses technology to execute and enforce the negotiated terms. In this article we explore what the future of contracting may look like with smart contracts.
In essence it is the creation of a contract using computer code rather than the written word. The computer software is then used to enforce and manage the contract, enabling both parties to utilise the contract as a living breathing document.
“’Smart contract’ can refer to any contract which is capable of
executing and/or enforcing itself.”
It is not uncommon for procurement to receive a bonus payment based on the savings the department has achieved. In this post we discuss if procurement would benefit more from being on a salary plus commission payment structure.
AFTER READING, TAKE OUR TWITTER POLL: Should procurement be paid commission?
The traditional approach for calculating pre-contract savings is to obtain a minimum of three supplier quotes, select the mean as the base point then count the additional savings achieved above the base point. The challenge for the CFO is because the savings are subjective, they are unable to truly identify tangible and quantifiable savings from procurement’s impact, therefore the level of bonus they might apportion directly to procurement is limited.
If you were to review your own procurement team’s achievements and capabilities from the perspective of a customer, would you buy from you?
The principle of using an internal business function which is currently a cost centre, and turning it into an revenue generating business proposition, is not new. Examples can be found in most areas ranging from IT through to Finance. The principle is based on creating such a leading business function others will pay to use.
Scenario 1: The supplier contacts you in writing to state they have submitted the wrong pricing in the bid…what is your first response?
- Tough luck you submitted it
- That’s typical of suppliers, always trying to trick you
- Expect the price is going to increase
- Interested to see if they are submitting a lower price
Scenario 2: The supplier approaches you and states they think they have a solution to deliver the contract more efficiently...what is your first feeling?
- They are looking to upsell
- I don’t believe them
- They are trying to make me look bad
- Want to discuss in a supportive and engaging manner
Scenario 3: The business reduces its requirements 2% in the contract and understandably do not want to pay for what is not required. Do you;
- Tell the supplier to “suck it up” and not re-negotiate the contract
- Re-negotiate the contract to ensure they are fairly compensated
Unfortunately we all know the responses because it is an attitude that is the default towards suppliers; confrontation & mistrust. For many within procurement it is a justified attitude because in the past any leniency has been abused by suppliers.
