Procurement Training- Getting ready with Contract Management

DELIVERED BY:Business Services Support LimitedVisit www.businessservicessupport.com Tel: 0845 226 4315

CONTRACT MANAGEMENT BUSINESS SERVICES SUPPORT TRAINING COURSE

http://www.businessservicessupport.com/

COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011

OBJECTIVES

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PROVIDE PARTICIPANTS WITH SKILLS FOR EFFECTIVE CONTRACT MANAGEMENT

PROVIDE A BASIS TO ENABLE THE ORGANSIATION TO ACHIEVE STRATEGIC PROCUREMENT GOALS

PROVIDE PARTICIPANTS WITH AN INSIGHT TO THE LEGAL, HUMAN & COMMERCIAL ISSUES ASSOCIATED WITH A LEGALLY BINDING CONTRACT

PROVIDE PARTICIPANTS WITH STEPS FOR DESIGNING & DEVELOPING ROBUST PERFORMANCE MANAGEMENT SYSTEMS


STRUCTURE & OUTLINE

Supplier performance is crucial to an organisationA supplier that performs well can:

Help your organisation be more efficient Produce higher quality products or services Reduce costs, and increase profits

A supplier that performs poorly can: Disrupt your operations Make your organisation fail in the eyes of our customers Increase your costs, and threaten your profits

Managing the performance of suppliers, then, should be a strategic focus of every organisation

Yet, it is unbelievable how many organisations fail to recognise the importance of supplier management

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STRUCTURE & OUTLINE

Very few companies have formalised systems in place to measure their suppliers’ performance

And fewer companies have a strategy to motivate suppliers to improve their performance

This course will teach you how to measure your suppliers’ performance and how to achieve optimal supplier performance

After this course, you will have enough knowledge to implement a supplier measurement and management program at your organisation


KEY OUTCOMES

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ONGOING MONITORING OF PERFORMANCE

NEGOTIATION SKILLS DURING THE PROCESS

COMMUNICATIONS STRATEGY

LEGAL & COMMERCIAL AWARENESS

CREATING AND DEVELOPING A TEAM CULTURE


PEOPLE IMPLICATIONS?

ROLE OF THE CONTRACT MANAGER:Once a contract is awarded, the contract manager will agree budgets and timescales, and gain approval of costs and processes. Throughout the life of a project the contract manager will act as the main point of contact.

The exact nature of the work will depend on the size of the employing organisation, but key processes would involve the following:

Meet with clients to gain a full understanding of their business and needs;

Present project proposals to client; Maintain communications with in-house

departments and external contractors; Make improvements to contract

processes and procedures6


LEGAL IMPLICATIONS?

COMMERCIAL VS LEGAL IMPLICATIONS:

There are literally thousands of different clauses that can be applied and most are dependant on the type of contract

Contract clauses are usually small statements within the contract.

These clauses can work to the detriment of other statements made within the contract and can be used to limit any liability or obligation on the part of the person offering a service

In many contracts there are clauses known as penalty clauses

These clauses are designed so that when a party breaches a contract a financial penalty can be applied

One of the main reasons behind this type of clause is that if a contract is breached then the non breaching party will be able to claim a financial penalty without taking the dispute to court

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WHY CONTRACT MANAGEMENT?

Three Key Elements: Measuring your suppliers’ performance involves implementing a supplier rating

program at your organisation

A supplier rating program can be simple or complex, manual or electronic. You will need to decide the option that works well for you

We’ll call SUPPLIERS, RATERS, and PERFORMANCE measures the three key elements of a supplier rating program

The suppliers, raters, and performance measures that you decide upon for your supplier rating program are critical to the success of your program

We will talk about each of these three key elements now

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Suppliers Raters Performance Supplier Rating Program


ELEMENT ONE: SUPPLIERS When selecting the suppliers to evaluate, you have to determine a

reasonable number of suppliers

It is usually not worthwhile to evaluate suppliers who receive few orders from you or with whom you do not spend a great deal of money

Whatever number of suppliers you choose, the group of chosen suppliers should include: (a) Those suppliers with whom you spend a lot of money

(b) Those suppliers who have the most impact on your operations

Determining what is meant by "suppliers with whom you spend a lot of money" and "suppliers who have the most impact on your operations" is subjective and can vary from organisation to organization

Here are some guidelines to help you determine the suppliers who meet these criteria in your organisation

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Suppliers Raters PerformanceSupplier Rating

Program


ELEMENT ONE: HIGH SPEND SUPPLIERS For spending, let’s default to the time-honoured 80-20 rule

As it would apply to suppliers, 80% of your spend is with 20% of your suppliers

Find out your total spend and the amount you spend with each supplier

Sort your list of suppliers from highest spend to lowest spend. Is the spend with the supplier at the top of the list equal to or greater than 80% of your total spend?

If not, add the spend with the first supplier to the spend with the second supplier. Is the sum equal to or greater than 80% of your total spend?

If not, add one supplier at a time (in order) until the combined spend is approximately 80%

Your supplier rating program should probably include these suppliers unless your company does not follow this pattern and it takes more than 20% of your suppliers to account for 80% of your spend

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Program


ELEMENT ONE: HIGH IMPACT SUPPLIERS

For impact on operations, ask yourself the following questions about each of your key suppliers:

If this supplier delivered late, would it shut my company’s production line down?

If this supplier delivered late, would my company be unable to meet its obligations to its customers or otherwise lose sales?

If this supplier provided a product or service that was of unacceptable quality, would it shut my company’s production line down?

If this supplier provided a product or service that was of unacceptable quality, would it result in a failure of my company to meet the quality standards of its customers?

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Program


ELEMENT ONE: HIGH IMPACT SUPPLIERS (CONTINUED) If this supplier raised prices, would my company continue to purchase the

same products or services from that supplier, resulting in a reduction of profit?

If this supplier provided poor service (e.g., failure to promptly answer a question), would it result in my company providing unacceptably poor service to its customers (e.g., failing to promptly answer a customer’s question)?

If you have answered "yes" to any of these questions for a supplier, that supplier should be included in your supplier ratings program

After reviewing these questions, you probably get the idea for the type of questions to ask about suppliers

Because you know your business better than any third party, feel free to create your own type of questions to determine whether a supplier has a significant impact on your operations

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Program


REVIEW?

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ROLE PLAY


ELEMENT TWO: RATERS The next key element to decide upon is the raters – who are the

individuals who will participate in the evaluation of your suppliers?

Obviously, your organisation’s purchasing and supply management staff should participate because that staff is ultimately responsible for the performance of your suppliers

But do not stop there! It is extremely important to get the input of other stakeholders in the organisation

If you work in a production environment, be sure to involve your engineers and quality staff

These folks have a vested interest in the performance of your company’s product or service and usually are more than happy to give their opinions on how well suppliers support their goals

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Program


SUPPLIER SCORECARD:

Supplier scorecards are a common starting point for organisations who wish to have some method of rating their suppliers

The supplier scorecard approach gained popularity in the 1980’s

Each rater will receive one scorecard for each supplier being evaluated

Each scorecard represents a survey of the rater’s opinion of that supplier’s proficiency for the selected performance measures

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FRAMEWORK FOR MANAGING CONTRACTS

(K.P.I’S)


WORKING TOWARD IMPROVING SUPPLIER RELATIONSHIPS

Working toward improving supplier relationships:

An example of these three points being formalised in the resolution of a quality problem is:

a) The supplier will have its production machinery recalibrated

b) By Monday of next week

c) That the supplier will test the first 10 components produced for you prior to shipping to ensure that they function in accordance with contractual tolerances

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If your efforts to correct performance problems through collaboration fail, you should seek to replace your poorly performing supplier with one who can meet your expectations

However, it is never safe to assume that switching suppliers eliminates problems

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You may end up with the same or worse problems when switching suppliers

Always perform due diligence and ask prospective replacement suppliers with evidence that they are better than your incumbent

Evidence can include customer testimonials, on-site demonstrations, product samples, and so forth

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Education

Procurement Training- Getting ready with Contract Management