Mark - the Australian Coomonwealth, through the Defense Materiel Organisation, has been leading a number of efforts in the area of Relational Contracting - which is gaining great uptake as a collaborative approach to contracting.
A key contract component in the Relational Contracting portfolio in known as the Relational Charter. The Charter enables the parties to focus on the key areas in a relationship such as communications, continuous improvement, problem solving, setting mutual objectives, etc.
If you are interested in speaking with some of those in DMO who are leading on these projects, we can certainly make an introduction.
The example you mention is sadly common - though given typical company politics, probably not unique to SRM. The problem seems to be when SRM is a bottom-up push, rather than a top-down pull. If there is a powerful executive sponsor who beleives SRM is important to the business, organizational issues will be pushed into the background. The focus will be on developing capability and a suitably connected project owner will have the resources and support needed to drive towards a consolidated model.
When the sponsorship is weak, or mid-level managers are trying to grab more control, the sort of rivalries you mention are inevitable. In these circumstances, the whole concept of meaningful SRM is undermined. No one has the support or authority to develop a worthwhile program, it has no value to the business or to the supplier, so everyone ignores the self-proclaimed 'Supplier Relationship Managers'.
Hi Chris, a huge question! but you could start with defining what you mean by SRM, as the practice in many respects can be owner agnostic i.e. procurement teams canand do manage succesful SRM programmes. That said I've found there are differences in approach that surface, with procurement trained SRM's often focusing on the 'I' aspects, with an eye primarily on the money and more operationally experienced but non procurement SRM experts focussing on the 'we' and the wider value. A very generic statement but true IMHO. For some good insight into current SRM thought leadership check out the latest (and last years as well) State of Flux report 'The SRM Dividend' (you can get a copy from their website) or if there is anything more specifc you are after or what to compare notes on SRM let me know.
• Nabucco International Pipeline Company
As pointed out above this indeed a tremendously big area to discuss. I would point out a couple areas that are important for Supplier Relationship Management in the development phase:
(i) it is unlikely that SRM would be established with all suppliers. Your organisation will need to assess which products and/or services are critical from an effective operations (business integrity & continuity) and a cost perspective.
(ii) you will need to assess your supplier's capabilites in effectively working on SRM as it is very much a two way relationship. On that note, keep in mind that in a good SRM programme the supplier is also tracking the 'performance' of the customer - a KPI for on-time payment would be an example.
Hope this helps and regards,
• Ministry of Justice ICT
Many thanks for the responses, I will certainly find time to read the report mentioned. I appreciate it was a large question and maybe it is that of different approaches that I am keen to understand.
All too often the relationship is driven by price, whilst value seen as something theoretical or harder to achieve. Whilst this statement is simple it can be attributed to methods and practices seen from procurement specialist versus a relationship manager. Is there a view that this will change or that both approaches are separate but mutually beneficial?
• Consortio Consulting Ltd
I agree with comments from Jamie and Arian above. In simplistic terms a Sourcing approach to SRM would be to focus on utilising the relationship to get the best price and quality from the Supplier and then measure the Supplier based on KPI performance and use competitive pressure to obtain the best result. They will typically ignore the human side of the business relationship. Coordination with Supplier is typically silo'd. The Sourcing person will typically engage with the Supplier on an "I and You" transactional level.
Whereas the Relationship Management approach would be to leverage the relationship with the Supplier as if the Supplier were an asset to their company, and would look at things like "mutual" total value creation, capture and maximisation. He/She will take a coordinated approach in working with the Supplier and will make sure that building trust and transparency will be a critical enabler to making the relationship work.
I have a lot more on this topic as I am very passionate about this subject, so feel free to contact me.
I would chip in here to say that, we have looked at the split between procurement and relationship led SRM. A recent review by State of Flux showed that the area that I work in, which is non-procurment led graded out as considerably more mature.
While I wouldn't say that this is necessarily due to the approach, I think that there is an important providential control added through non-procurement led SRM. In particular I look at the split as ensuring that no one is "checking their own homework". Who is going to flag major issues with a contract that they were responsible for procuring?
In addition, our experience shows that the early relationship benefits from having the difficult conversations during contracting done by someone other than the inidividual who will be managing the relationship (not that the relationship manager shouldn't have copious input)!
If you do an internet search, you will find you can have access to a range of checklists since a number of major corporations provide this as public domain information to assist potential vendors to understand requirements.
From a clients perspective (myself), I can only confirm Tim's response above.
It would also depend a bit on the TCV - ie. whether it is worth a discussion at all.
"Termination rights for global agreements for breach of a local agreement" rather defeats the point of having a global agreement in the first place?...
This structure is common in telecoms with Operating Companies (OpCo`s) signing up to a Master Services Agreement. Each OpCo Agreement has a "carve-out" Schedule for local laws.
Termination of Global Agreement? No.
Separate P&L; obligations; territory - this is two separate contracts effectively so the question has to be asked why include the UK entity (if other than to enter guarantee undertakings).
In the event of material breach my question to you is who would you sue :UK or US?
As we discussed, unless there is interdependency between the various services or project elements, it is not reasonable to create a contingent liability of this type. My understanding is that these are independent contracts that happen to be covered by common master terms; and afurther, that the client is not entering into any global agreement in terms of their obligations. Therefore you should resist this request, unless the customer would like to pay a premium for the right of such termination.
• Mark Hope Consulting Limited
It seems to me that the customer and yourselves will have agreed to include the US in with the UK deal for some valid business reason (may be the only way to close the sale) and having decided from a sales and management perspective to combine them, essentially as a global type offering, then it sends out a very negative message to argue that they are separate. Altenatively they could have been separate and you would have had to come clean and make it clear that you aren't structured to do global deals.
You mention governance is common but I'm not sure whether services are too, e.g. service management layer over the IT infrastructure, and other aspects such as service levels, innovation and continuous improvement, account management etc. Obviously the more it looks like a global deal the more it is.
Of course as always the devil is in the detail. May be some breaches should only give a partial termination right whilst others give a right to terminate the whole deal. A good example of the latter would be if there was a material breach in the performance of common service management services or governance. Of course if the deal is to be treated as global with termination rights of the whole for breach of part, then you as the provider should have reciprocal termination rights. Practically very pertinent in the case of non-payment of part.
As regards separate P & L then an intra company agreement could address this. This is obviously a common problem but if you purport to be providing global deals then in my view you need to find a way and a way that is invisible to the customer.
This deal is only 2 countries but where there are multiple countries then such tewrmination rights are common. For instance if there were 20 countries and there was a materiqal breach in 3 of them at the same time, then it wouldn't be uncommon for a termination right of the whole to arise. That's global contracting in my view.
In short my view is that you either combine and treat as a consistent global/2 country offering and contract or keep separate and well, keep them separate, although I have of course made a number of sweeping assumptions about the deal so if I have got the wrong end of the stick please forgive me.
On a slightly different note, if there has been a decision in your company to make this a global/2 country deal for a good informed reason, then I think it is incumbent upon us in commercial contracts to support this strategy albeit keeping risk to a reasonable minimum but to be out of step with the business strategy doesn't seem like a good idea to me.
Continue to shop for other vendor management systems. Our experience with Ariba has been very disappointing.
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• Mott MacDonald
Are the above unbiased suggestions? Have any members used either of the above and can confirm their suitibility for the "vendor management system?"
My recommendation would be to be able to clearly define what objective you are trying to accomplish. Supplier Management is a broad term that I've learned can have multiple definitions depending on who you talk to. It could range anywhere from the RFQ process, Supplier Selection, SRM, Scorecards, Supplier Qualification and Development and other activities as well.
I have no horse in the race to sell software solutions, but have expensive experience implementing full blown SRM solutions for major corporations and speaking about it at Universities and other companies. Supplier Management is a component of SRM.
I would start by defining the current state of your activities, strengths and weaknesses - what works - what does not seem to work. From here define a vision for the futire state - 6 months - 12 months - 18 months and 23 months out. This can become your roadmap of sorts. Get organizational and stakeholder buy-in. Now with this data and vision you can begin to determine the best approach for your organization and begin to understand how some of the software or other solutions might support that vision.
The problem is, without having a clear vision - you cannot compare solutions or strategies to your specific situation, needs and budget.
If you want to talk some specifics - feel free to e-mail me at email@example.com
• State of Flux Limited
We've spent the last 7 years developing a Supplier Relationship Management System and think we have something that does the job well. Feel free to have a look for yourself - http://srm.stateofflux.co.uk/srm-system/
What we have found is that the SRM System alone is not enough to help organisations implement SRM and more importantly get the organisational culture change that is needed to make it work. It can be a great 'change catalyst' but you also need to look at Process & Governance, People and the change programme.
Each year we partner with IACCM to do a global study of what is best practice in SRM and what do the leaders do to make it work. You can request a copy of the 2011 SRM Dividend report via the following link www.iaccm.com/members/library/ feel free to email me.
1. Include the right to reorganise schedule in the contract.
2. Include clause of net cost under stand by.
3. Renegotiate the contract in advance when aware of owner delay.
Identify standby time as an hourly rate line item in the RFP, along with an estimated max quantity. The competitiveness of the procurement could drive down the rate, and the max establishes the reasonableness of the expectation.
Gail stated, it is key to have rates established for standby, hourly is often preferred but depending on the nature of the work and other elements day rates, unit rates etc may be better suited.
Before providing an answer with further detail to this question I would need to know what the commercial structure for the Contract and also what the agreed to commercial terms of the Contract are.
For example, if it is a lump sum contract which includes verbiage along the lines of "lump sum price is inclusive of all non-productive time howsoever caused" maybe you can argue that the Contractor included contingency for late delivery of material, or "lump sum price is inclusive of all non-productive time caused by Contractor or its Subcontractors" if this is the case you probably want to track delays caused by the owner but negotiate the delay settlement at the end. The reason for this is that the price and schedule included contingency/risk for Contractor or its Subcontractor caused delays. If the contract is completed within the time frame of the baseline schedule, with no additional hours worked, and no additional labour or equipment added, it could be argued that the late delivery of material had no cost impact to the Contractor and no standby charges are paid. The stanby charges could also be offset due to Contractor and its Subcontractor caused delays.
• Karan Builders,Pune,India
The suggested option/s available to owner to minimize standby claims :
1)To have adequate level of inventory as stand by measure at start of project and/or
2)To get quote or include an item rate in BOQ with material supply by contractor as an alternative to the items with client supply of material.