January 2013 Edition
Tackling Supply Chain Risk
Tim Cummins, CEO, IACCM
The publication Logistics Viewpoints contains an excellent article by Adrian Gonzalez on supply chain risk. He highlights examples of the many and varied risks confronting today's global business operations and calls for management to "make thinking about supply chain risk part of the corporate DNA".
I agree with Adrian that the quality of risk assessment and management needs to improve. He outlines a series of ideas and 'best practice' initiatives, but I think these overlook or ignore some key points.
1. Adrian correctly suggests that there should be greater financial analysis of risk. He cites the finance and insurance industry as a point of reference. I agree that a problem for business today is the way that functional silos have resulted in too little commercial analysis. Finance is left to accountants, when it should be viewed as fundamental to the operations of every business group. Also, financial analysis is too focused on individual deals or relationships and fails to look at risk portfolios. However, to cite the financial services and insurance industry as one where managing risk is a core focus and discipline seems to ignore reality. Should we forget the financial collapse that underlies so many of today's supply chain risks? Should we overlook the rogue traders, the weaknesses in compliance standards and the impact of ill-considered incentive schemes? What about the constant need for regulation, including for supply risk, or the frequent headlines about regulatory breach? I think we need a rather different model on which to base the future!
2. Building on the point about portfolio analysis, one reason that organizations are making such slow progress is because risk management is often positioned as an issue of resource and expertise (therefore an expense). It should be viewed as an issue of business intelligence (and therefore an asset). Armies of risk managers scare the life out of top executives because they tend to strangle the business. Risk gurus often lack the incentive to make themselves redundant. What we really need is far better insight to the actual causes of risk, the things with a high probability that can be eliminated. Many examples are highlighted in IACCM research. The real issues with supply chain management are weaknesses in defining requirements and scope, of managing change, of ensuring open and honest communications and clear allocation of responsibilities. They are also about areas such as performance management (or the lack of it) and developing contracts that share risk, rather than allocating it to other parties and ensuring it is obscured.
3. Improved supply chain performance carries a premium - and buyers are consciously choosing not to pay that premium. If they really cared about supply chain risk, the solutions are available today. They can select more reliable suppliers. They can dual source or identify alternatives. They can develop internal supply management resources to oversee outputs and outcomes. They can increase insurance. But each of these options carries a cost and there is no evidence that organizations are willing to bear those costs.
In the end, the argument for improved supply chain risk faces a massive hurdle. Why would suppliers invest in the enhanced capabilities that Adrian identifies if the message they get from their customers is that price is the only thing that matters? Companies today are essentially saying they don't want to cover the costs of largely unpredictable events - they will take the lower prices and self-insure.
How retooling contract management helped grow one company's profits to the best in 20 years
By Paul Mallory, Vice President, Development and Training for IACCM, Europe and Africa
During our recent IACCM seminar in Johannesburg, Rigard Geyser, Commercial Manager at ELB Engineering Services and IACCM Advisory Council member, told us what ELB did to grow profits in 2012 during a slumping economic climate. The key to their success was their decision to invest in contract management.
What they began to see In their drive to provide solutions that add value, rather than only product sales, the company first recognised that procurement and commercial management, including contract management, are key business functions. The company views contract management as not merely a safeguard against perceived risks, but also as an increase to financial profit.
Rigard is responsible for ELB's contracts over the entire contract lifecycle, from inception. When he joined the company, his task was to build a business case to prove whether or not contract management might be one of their competitive differentiators. Rigard believed in the mission of IACCM: to build a profession in commercial and contract management. For example, one initiative he undertook was to research and build best practice in relational contracting.
As part of a benchmarking exercise on complex projects contracting across national borders, Rigard used IACCM's member networking capabilities to reap comments and suggestions from IACCM member feedback. This proved invaluable. It led Rigard to propose a business case in ELB to build a professional function.
What they did Among his first tasks were to recruit a team of commercially astute contract managers to build his case using IACCM resources. His team are now participating in IACCM's certification program.
Rigard encourages his team to add value to projects through innovative contract models and management of risk. He sees profit as a consequence of these activities. Typically this impact can only be measured and quantified retrospectively. Adding to the profitability of the company is of course a great outcome, but even if the activities of the team just improved relationships with clients of the company, that would be a great outcome for those clients.
What they learned From his experience, Rigard now recognizes the following:
- The downside of 'we vs. they' contracting, including companies going into bankruptcy. This approach to contracting practices can lead to your company gaining a bad reputation, leading to suppliers being wary of doing business with you.
- Better buying practices and better relations with suppliers pay off. ELB had experienced suppliers declining to participate in projects, when faced with one-sided deal terms, so the terms had to be reviewed and made fairer to improve relationships.
- The IACCM approach works. Rigard aims to get his full team of ten people IACCM-certified. He is keen to see IACCM's membership in South Africa grow and prosper, and wants to see contract management more widely regarded as a profession. In his view, businesses are taking more notice of IACCM now, for example corporate members often prefer to deal with other corporate members, with similar values and ethical approach. This can lead to people playing by the same rules in negotiation, and making relationships smoother through the contract lifecycle.
- IACCM certification tools and program are unique. In South Africa no degree course exists in Commercial Management that covers the whole contract lifecycle. An unexpected benefit of his team undergoing the certification program as an in-house corporate course is that they have been using the message boards facility extensively, to discuss internally their examples of best practice and learning.
- IACCM's international member forum gets results. One of the team's messages was posted on the main IACCM message forum at www.iaccm.com and received many responses, including one from India. The team quickly realised the power of the forum. The ability of the team to consult their peers in other companies and countries provided an exciting prospect. A sense of belonging and value-add was apparent to the team, overcoming a sense of isolation that can arise when a contract manager is focused on one contract for two or three months.
- It is important to start dialogues, share experiences, share challenges. Members who are passionate about our common profession need to network. Rigard plans to help IACCM in leading the setting up of more member meetings in South Africa to do this. Often, contract managers are self-starters, who don't do the job for thanks! But often we don't publish our wins. Rigard believes we should be proud of what we achieve and our companies should know about it. For example, if we are successful in reducing the number and duration of disputes, that should be celebrated (handling disputes has a cost).
The senior management of ELB see contract management as a competitive differentiator. They continually intend to improve their profitability in three ways:
- by applying good commercial practice,
- by ensuring the company builds the products and services it sold,
- by managing performance to contract.
Best results in 20 years This more professional approach has already contributed significantly to the bottom line of ELB. The company's financial results in 2012 were the best in 20 years, in a difficult economic climate.
Contract managers need to constantly look to add more value to the business and to share their successes. Our fellow members in South Africa seem to be on the right track to doing so!
ABOUT THE AUTHOR
Paul Mallory joined IACCM in 2008, having spent 30 years in commercial management. His career path spans many industries including avionics and radar in the UK defence industry, computing; software systems integration; telecoms and IT outsourcing. Just prior to joining IACCM he worked at a training company specialising in leadership and sales training, where he developed a portfolio of commercial training programmes, and his responsibilities included business development.
Paul devotes all his passion to helping IACCM members become leaders of their organisations and discover real fulfilment and passion in their work. He enjoys reading, playing guitar and chess and entertaining his four children.
Professional Resolution for a New Year
Tim Cummins, CEO, IACCM
As recently as 140 years ago, it was argued that science was not a professional field and that teaching of sciences in schools or universities would have little value. The cognoscenti of the time believed that there was no merit in learning method or techniques; the advance of science depended on enquiring minds, which would best be achieved through training in the liberal arts. The arguments then sound very similar to those that are advanced now with regard to the 'professionalization' of contract and commercial management.
Within my blog, I have consistently illustrated the case for improved contract and commercial management. As with science, a growing body of research points to the value that professional standards can deliver. An increasing number of senior executives have grasped this point and they are frustrated by the low quality of practice within their organizations.
As society has emerged from the narrowness of thought – and indeed arrogance of established experts – that constrained the development of science, it has increasingly recognized the merits of 'professionalism'. That is, the value of developing levels of expertise through a combination of research, universal and established techniques and a documented and teachable body of knowledge.
There are few today who would question the need for training scientists. But as we look at the field of contract and commercial management, it is at a similar crossroads to the challenge facing scientists in the 1870s (or indeed of professional accountancy in the 1880s or project management in the 1980s). There are acknowledged experts in contract and commercial management, but they have mostly emerged from a background in other disciplines and many still argue that this is the route to the future – that you become expert through an enquiring mind and 'liberal' training, rather than through specific teaching in the commercial discipline. Some go so far as to deny that contract and commercial management can be taught - it is quite simply a 'personal talent'. Quite recently I attended a meeting where those who should be leading professionalization were instead insisting that this is not a field for undergraduate study.
The years ahead offer a time of great opportunity to the contracts and commercial community and in particular to those individuals who grasp the chance for professional leadership. For some, that may mean increased commitment to volunteering their time and effort in raising the profile of the community as a whole. For most others, the start point will be a resolution to raise their personal standards by gaining certification and operating in accordance with the methods, techniques and body of knowledge critical to any high-status profession.
As we enter another new year, the progress of contracts and commercial professionalism is indeed gathering pace. At IACCM, we are seeing unparalleled interest in 'volunteerism', as evidenced by our new Editorial Board for Contracting Excellence, a refresh in our country-based Advisory Councils, new leadership for industry forums and for topical initiaitves by our Communities of Interest. There is also a surge in the number applying for personal Certification, to ensure their credentials and status are formally acknowledged.
If you are interested in either a volunteer role within IACCM, or in gaining your personal certification credentials, please contact firstname.lastname@example.org for more information.
Resolution for 2013: Get IACCM Certification Online - Join Our Webcast Feb 13, 2013
Click on the link below and join live demonstrations of the training and certification program to see why your peers are currently learning and/or becoming certified with IACCM. Over 4,700 individuals are studying online towards IACCM certification.
- Participate in the only global training and certification program specifically designed to enable contracting and contract management professionals to raise their skills and knowledge in contracting, as well as attain an increasingly sought after certification. Invest in your future today.
- View the program that recently caused one participant to say “I was really impressed by the quality of the online training which was given by real life professionals (when some training sessions are sometimes too academic). Great value!"
- Raise your personal standardsby gaining certification and operating in accordance with the methods, techniques and body of knowledge critical to any high-status profession.
This demo will cover these integrated program elements:
- Skills assessment tool
- E-Learning modules
- Articles and white papers
- Message boards
Register now for an introductory session
Wed February 13th 3-4 PM GMT/UTC - register at https://www.gotomeeting.com/register/208691370
Wed February 13th 6-7 PM EST - register at https://www.gotomeeting.com/register/528148434
The years ahead offer great opportunity to the contracts and commercial community and in particular to those individuals who grasp the chance for professional leadership.
Most Read Blogs in 2012
I have received a number of requests asking which Commitment Matters blogs were read the most in 2012.
Here is the list of the top 12, with the most popular having almost 30,000 unique readers. You will observe that there is a strong focus on issues of role and purpose, followed by questions around organization and aspects of negotiation.
This list reflects areas of universal interest to our community, as opposed to topics that may be of great importance, but are of more niche appeal - for example, some of the articles on issues such as outsourcing, performance management, benchmarking or fianncial modelling.
The articles on the role of contracting - while updated through subsequent blogs - have demonstrated real staying power. The first of these goes back to 2008 and has attracted well over 100,000 readers in total. It has been accessed by people who simply want to benchmark what they do with 'norms'; by managers who are building or reengineering the function; by individuals exploring whether this would be an attractive career path. Similarly, the articles about the role of lawyers reflect the questions regarding overlap between the contracts and the legal function, sometimes collaborative, sometimes not. It also represents the interest many lawyers have in performaing a wider commercial role - or sometimes the internal battle over who is best equipped to 'own' and perform the function.
The appearance of 'Contract Management in India' as the fourth most read is indicative of the growing presence of contract managers in that country and their great enthusiasm for the work of IACCM. Not only are they avid readers of the Commitment Matters blog, but they are also the biggest users of the IACCM Member Library. Just one more indication of our fast-changing world .....
- The Role Of A Contract Manager
- The Role Of A Contract Manager - Revisited
- The Purpose Of A Contract
- Contract Management In India
- Contract Exit Strategies
- The Terms That Matter
- Should Lawyers Become Contract Managers?
- IT Contracting: Should it be part of Procurement?
- Contract & Procurement Metrics
- The Purpose Of Negotiation
- Why Is Communication So Important?
- The Role Of Lawyers In Contract Management – Part II
If you would like to be a recipient of the regular articles posted in the IACCM blog, simply visit http://contract-matters.com/
Who are we at IACCM?
This is the first in a series of Q&A articles profiling, every month, one staff member of IACCM. What they say about their work and personal lives represents one team with great diversity and dedication.
Tim Cummins, CEO and Founder of IACCM leads off the series. What he says about his dream for readers will likely inspire you. What he believes about marketing will surprise you. But what he says about happiness – specifically, his own – speaks the loudest. And it has nothing to do with business!
“There is rarely a day I do not enjoy.” … Tim Cummins, CEO
Q Tim, tell one highlight about your earliest years.
A I was born in Dorchester, UK– a small town founded by the Romans in around 50AD. I lived there until I was 18. Not much happened in Dorchester. At the time, I thought it was a terrible place to live. Now, I think it is wonderful and visit whenever I can!
Q Regarding your education, what aspect of college do you remember most vividly?
A My degree is in History, from University of Manchester. The aspects I remember most vividly are rarely going to lectures and wishing that I was doing something more productive. I find education much more interesting now than I did then.
Q Describe your career path and name one thing you loved the most.
A I am not sure it can be described as a ’path’. I stumbled into the world of banking and decided it wasn’t very interesting.
I moved to the automotive industry and Corporate Finance. That was where I discovered my ability to deal with corporate politics and I had some fascinating roles, mostly with little connection to Finance. And that is where I moved into commercial management, overseeing export markets.
From there I transitioned to the aerospace industry. I was told it would be at least a year before I would be sent out to lead a negotiation. Within a month, I was on my way to Australia, then the US, then China.
Looking for a role that wouldn’t take me away from my family so often, I moved into the technology sector, still dealing with contracts. Within a year, I was posted to European HQ in France(but at least my family came with me) and then to Corporate HQ in the US(where I spent most of my time flying to the country subsidiaries).
About 15 years ago, I worked with my wife to develop a business in the travel and events industry; we sold part of the business and I founded IACCM. I couldn't escape the 'bug' of commercial management.
What did I love about my career? I guess it has been the ability to make a difference. In most of the roles I performed, I can point to things that changed because of actions I took. Most of the changes were beneficial!
Q What prompted you to launch and build IACCM?
A Commercial management can be a powerful source of value. It can accelerate and enable good decisions that generate not just business benefit, but wider social benefit. But it was undefined, its success often depended far too much on talented individuals rather than functional capability. I wanted to change that. My work –especially at IBM – offered insights to the growing complexity and risks of our world today and led me to a conviction that this is a profession of the future. I wanted to establish a true career path for all those who are struggling to be recognised in this field.
Q What do you like most about working with IACCM, in your case, working for yourself? What is your biggest challenge (dislike the most)?
A There is rarely a day I do not enjoy. To be a commercial manager, you actually need to enjoy the unexpected. If you are after a predictable life, it probably isn’t the career for you. And as CEO of IACCM, I rarely know what each day will bring. I guess the downside is that I have little time for the many other things that interest me and sometimes I am conscious of how the demands of IACCM keep me from other important activities.
Q Would you share one incident you remember the most in building your new company?
A Balancing the books! As an entrepreneur, the start-up is tough. You have to be prepared to be live frugally, to work incredible hours, to be driven by your ability to collect cash. I remember how my wife and I would go home at 6pm, feed 6 kids, put the young ones to bed, then drive back to our office at 9pm and work until 2 or 3am. They were hard times, but good times because we built a business.
Q How did you go about marketing IACCM internationally?
A We have never really marketed IACCM. Our marketing budget is zero. The whole concept of the association was international. It was about crossing the boundaries that still constrain other associations, about enabling global business to operate in a more seamless way. So our early members came to us precisely because we grasped globalization, internationalism, cross-border trade.
Q Can you describe briefly your office surroundings when you began the company and where you are now?
A That is something that has not dramatically changed. Back then, we co-habited with the original business my wife and I had set up. Today, IACCM headquarters remains in Ridgefield, Connecticut, but most of the staff work from home and we use the technologies that drove our creation. The range of technologies has changed a lot. Over the last 10 years, it has become so much easier to operate ‘virtually’ and lead a multi-national team. Today, I spend almost half the year travelling, meeting with members in the 150+ countries where we have presence. When I work from home (as now) it is in a conservatory in the New Forest; otherwise, it is in my office in Ridgefield.
Q If there is one thing you could change about your world, what would it be?
A I would love to double my life span! There are so many things I would like to do and I am conscious that there isn’t enough time to get them all done. Failing that, perhaps we could just double the length of the day!
Q What do you want most for readers?
A There is a joke about a newspaper that called various Ambassadors the day before Christmas and asked them what they wanted for Christmas. The US Ambassador said he wanted wealth for all; the French Ambassador said he wanted liberty and equality; the Indian Ambassador called for world peace; and the British Ambassador asked for a pair of warm socks and bottle of whisky. After hearing that, I am hesitant to answer – but of course, our goal is quite clear. I want our members to feel they are equipped to tackle the business and career challenges that lie ahead of them; I want them to feel confident that they can achieve recognition and status from their work; I want them to feel they are part of a dynamic, enthusiastic community that cares about what it does and what it achieves.