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IACCM - International Association for Contract & Commercial Management Contracting Excellence Magazine
 

Contracting Excellence Magazine - Nov 2011

 
 

 

The Future of Contracts & Commercial: Defining Our Mission

 
Good contracting starts with defining the best form of relationship to achieve the desired business results. Since ‘the relationship’ will often continue well beyond contract signature, it is essential that the parties include governance principles. Negotiators should think in three phases – first, relationship models; second, contracting models; and third, communication models. .
 
 

 

Good contracting starts with defining the best form of relationship to achieve the desired business results. Since ‘the relationship’ will often continue well beyond contract signature, it is essential that the parties include governance principles. Negotiators should think in three phases – first, relationship models; second, contracting models; and third, communication models. Traditional approaches to contracting tend to be too narrow in their focus. For example, Procurement and sourcing processes typically concentrate on price, rather than value. They are built on assumptions that ‘suppliers take advantage of us’. Many suppliers, on the other hand, feel that customers are ‘confused about what they really want’ and use contracts to protect themselves, rather than achieve clarity. This stand-off frequently results in poorly established relationships and a failure to focus on ’value extraction’.
 
In the future, contract and commercial management will be measured on its ability to deliver growth and value. That demands involvement throughout the contract life-cycle. Since resources must be contained, this enhanced role will be enabled through extensive automation and outsourcing of transactional management; commercial resources (buy-side and sell-side) will provide an integrated overview of market conditions and trading relationship performance. They will identify business inhibitors and propose the changes to policy, practice, procedures and terms that enable competitive advantage and financial performance. 
 
Contract and relationship management must integrate in order to deal with the growing complexity of today’s trading relationships. This transition will face obstacles and challenges, among them is the need for different skills among procurement and contracts staff; another is a shift in measurements; and a third is to address the challenge of organizational models and perceptions – in particular, to determine the connection between relationship management and contract / commercial management.
 
A Charter For Balanced Risk And Value
 
Improvements require a clear statement of goals and purpose. This ‘charter’ is a model that was presented at the recent IACCM Global Forum for Contracting Excellence.
 
The process owner will ensure:
 
Investment in creating contracting competence that works within consistent strategic and operational principles
 
Ownership and accountability for the quality and integrity of the contracting process, measured by outcomes
 
Testing and validation of functional positions to ensure compatibility with overall business objectives
 
The resulting process will seek to deliver: 
 
A reasonable allocation of risk and incentives that engender positive behaviors within the supply network
 
Terms and procedures that establish governance practices to reduce risk probability and encourage sharing of responsibility
 
Terms and procedures that cope with change and enable increased agility and flexibility
 
Proposed terms and commercial models that are appropriate for relationship needs and induce open and honest appraisal of customer requirements and supplier capabilities
 
Clarity and integrity in bidding and negotiation
 
A body of skills and knowledge adequate to support business needs and responsive to shifting demand and requirements
 
This article is an extract from a paper on the role of Contracts and Commercial. The full paper can be accessed at http://www.iaccm.com/userfiles/docs/The Role of Commercial.pdf
 
 

IACCM Inaugural South Africa Members' Meeting

Our first local members’ meeting in South Africa was held 10 November 2011, in Rivonia, Johannesburg. The meeting was well attended by IACCM members from a broad spectrum of industries, both buy side and sell side.

The meeting was introduced by Rigard Geyser, Commercial Manager at ELB Engineering Services, who kindly hosted the meeting on their brand new premises.

Paul Mallory, VP Training and Development for IACCM, gave a presentation on relational contracting and provided an update on the IACCM ‘Future of Contracting’ survey, as well as some of the highlights from the recent Global Forum in Phoenix.

A lively and wide-ranging round table discussion followed, prompted by the topic ‘the Future of Contracting’.
 

 

 

   This meeting was one of a growing number of local country
   events – in the last few weeks IACCM has held meetings in
   Helsinki, Ottawa, Calgary, Sydney, Melbourne, Frankfurt,
   Denver and London, and further meetings will be held
   shortly in Toronto and Ohio.

 

 

 

 

 

During the meeting, Paul took the opportunity to present Gayle Simpson from Oracle Corporation with her IACCM Certification at Certified Member level. Gayle joins the growing number of members who choose to demonstrate their capability in Contract Management by completing our popular certification program.  More details are available from pmallory@iaccm.com

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Shabby Ethical Examples

 
Good ethics makes for good contracts. Seven Common Technology Service Misrepresentations and How to Monetize Them. At the IACCM Conference in Phoenix, I participated in a Panel discussion about the role of Ethics, Morality and Fairness in Contracting.  The most common question that resulted was practical – how does one monetize good ethics? Gay Gordon-Byrne, TekTrakker
 
 

Good ethics makes for good contracts.

Seven Common Technology Service Misrepresentations and How to Monetize Them.

At the IACCM Conference in Phoenix, I participated in a Panel discussion about the role of Ethics, Morality and Fairness in Contracting.  The most common question that resulted was practical – how does one monetize good ethics?

The following are examples from my particular expertise in break-fix service agreements where OEM  (Original Equipment Manufacturer) marketing tactics, lovingly known as FUD (Fear, Uncertainty, and Doubt), are deliberately deceptive and therefore not good ethics.  Many of these tactics have become enshrined in terms and conditions so commonplace they are glossed over as “standard”. 

Once exposed, monetary value can be assigned to the opportunities that are unleashed.  OEMs that do not engage in these ethically shabby tactics then have quantifiable advantages over competitors.   Those that resist can be avoided, or pricing adjusted in compensation for quantifiable restrictions.

Deceptive Marketing of Extended Warranties.

This isn’t about the Big Box Retailer upselling an extended TV service contracts, or an Auto Dealer upselling “undercoating”, but the deliberate presentation of extended warranties as “standard” when in fact the true warranty term is brief.  

Buyers should care because these constructed agreements are entirely to the benefit of the OEM and not the end user. Longer term warranty services effectively dissuade end users from even considering service alternatives, thus removing competition in pricing.  It is also the case that warranty services are rarely negotiated aggressively so the pricing behind the agreements is always a honey pot for the OEM. 

A very common example is a technology purchase where the “standard” warranty is presented as parts and labor for 3 years. The procurement team negotiates the service level agreement and the discount off list price, but is not offered the option of the basic warranty.  Most end users and also most sales representatives do not understand that this longer warranty is a by design a lucrative pre-paid services agreement feeding the services arm of the OEM. The basic warranty it intentionally short so as to allow the OEM to recognize the revenue from the sale as quickly as possible.

Monetizing Tip:

Demand disclosure of the true warranty period associated with the sale. Negotiate any post-warranty coverage as you would any stand-alone services agreement.

1.      Warranties In Lieu of Quality

The best warranty would be for equipment that never broke, rather than a long warranty for a product prone to failure.  Technology warranties are a wonderful foil for deflecting concern about product reliability, since offering a “generous” standard warranty takes the issue off the table.  The thought process is that since the OEM is taking care of the equipment, there isn’t any reason to think further.

Incorrect assumptions about warranty hide very real problems that should be monitored aggressively by equipment owners. So long as an OEM can market an extended service agreement for themselves to fix problems that shouldn’t happen, then they are very happy.

Users should not be complacent about needing to buy service contracts. Failures of equipment are often exceedingly costly.  High availability is currently being achieved not through high reliability but through redundancy.  In these cases, equipment warranties are being used to hide failures which must be measured in order to be managed.

Monetizing Tip:

Monitor equipment failures and compare to the pricing of the services performed.  Extravagantly lucrative services contracts can be brought to light and negotiated.  Practical alternatives can be seriously considered based on rationalizing services pricing to service need.  Considerably more on this subject is available at www.tektrakker.com

2.      Failure to Publish Warranty Reserves

Reserves for warranties are required to be published in financial statements as manufacturers offering warranties must show stockholders how much money is associated with the future services obligation as distinct from the profit from the sale.  There is a publication devoted to digging up the warranty reserve information for manufacturers in general on the web at www.warrantyweek.com

Revenue recognition for the full value of sale does not include the reserve, so warranties are always short to maximize rev-rec.  There is an observable trend of companies skipping this requirement which is not just unethical, but also in violation of US FASB rules if not laws.  The absence of a published reserve (excepting products with a 30-day warranty) is an indication of either intention deception, or outright incompetence.  Neither reason is flattering.

Monetizing Tip :

Warranty reserve information is a powerful negotiation point. If an OEM sets aside 4% of the equipment cost for delivery of a 1 year warranty, then additional years of warranty would be logical at the same rate.  This is an excellent starting point for a warranty uplift discussion.

3.      Undisclosed Service Team Sub-Contracting

Most OEMs market their hardware break-fix service as superior based on their specially trained and uniquely qualified technicians. This is hogwash because most OEMS routinely subcontract for technicians from independent service providers – the very same types of providers that they argue should not be used.  

It has also been the trend for over 40 years that products are designed for less and less complex service in the field.  This has supported the dispatch of low-level technicians with parts to swap at dramatically lower net cost to the OEM.   Claims of superior support should be investigated regardless of the name of the OEM.

               Monetizing Tip:

Cut out the middle man and deal directly with the service providers.  Disclosure of the nature of the sub-contracting should be made clear and the service level agreements adjusted accordingly. One should always know the layers of margins involved in these agreements.

4.      Restricted Access to Parts, Diagnostics, and Microcode

The largest difference between the products which can be effectively serviced by an ISP and not the OEM is access to parts and diagnostics.  OEMs manipulate access to parts and diagnostics in order to prevent competition for their lucrative service contracts. Restrictions on access to parts and diagnostics also extend, incredibly, to the equipment owner.  This is akin to buying an automobile and then being denied the option to purchase parts at the Dealer, auto-supply, or internet.   

Access to microcode and other types of non-licensed code (see below) is also frequently restricted by the OEM as another compulsion to buy service exclusively from the OEM. 

Monetizing Tip:

Insist on ready access to parts, diagnostics and microcode as the equipment owner and designated agent. The OEM should not be permitted to your block access to any of these purchased items.  If the OEM claims that such items are unavailable as their Intellectual Property (IP) – see below.

5.      Confusing Tangible Hardware with Intellectual Property

The intersection of the totally separate worlds of tangible hardware and intangible software is colliding inconsistently in the treatment specialized bits of code that are embedded in hardware.  Several major technology vendors have bamboozled buyers into accepting that their hardware is their IP as well as their licensed software.  These vendors have their end users caught in a contractual trap which is both illogical and unethical.

Technology hardware is tangible. Buyers of hardware can turn around and sell their equipment. They can borrow against it. They carry insurance to replace it.  They report on hardware in their financial statements as a capital investment and take depreciation.  Software is intangible and licenses cannot be sold. One cannot borrow against a license. 

Escaping the trap will yield enormous benefits including supporting the residual value of owned equipment, improving finance options and prices, and removing the monopolistic lock of OEM control of services pricing.  These deceptions run deep and require a dip into the details of how hardware and software interact at the machine level to understand.

a)      There are very few true custom products with proprietary hardware.  The vast bulk of electronic products today are assemblies of off-the-shelf parts sourced from all over the world to a set of specifications. The most proprietary part of the hardware design is often the plastic case.

b)      Hardware much first start up before any operating systems (Windows, Unix, Solaris) can be loaded. This is the job of specialty code called variously Firmware, Microcode, BIOS, imbedded code, onboard code, etc.  They all share the characteristic of being shipped standard with the hardware without licenses.  For ease of discussion we call this “Non-Licensed Code” or “NLC”.  

Without NLC, the machine doesn’t work. It has been understood in almost all areas except IT products that whatever makes the machine work is part of the machine. Programmable dishwashers do not have a software license agreement, nor do appliance manufacturers sell software services agreements separate from hardware warranties.  Within the IT environment the treatment of similar code is both inconsistent and illogical.

Hardware “IP” claims for assembled products are weak, if not outright deceptive, on several levels.  

·        First – most NLC is provided by parts suppliers, such an Intel, and such code is intended to be transferrable as part of the hardware.  If any claims would be valid for IP, it would be for the IP of the parts manufacturer. 

·        Second – the process of assembling parts in China does not add IP any more than an assembly line in a Ford plant adds IP to the vehicle.

·        Third – OEMs claiming hardware IP are not disclosing the terms under which the hardware IP can be used in a license agreement – thus the term “Non-Licensed Code”.  

Thus, if a hardware product is IP, then it isn’t tangible and cannot be treated as anything other than a license.  Many “appliance” type products fall into this category but are being mis-represented by vendors as hardware, and then dangerously categorized in financial statements as hardware.  

               Monetizing Tip:

Legitimate IP must be disclosed and documented in a license agreement.  Any remaining NLC should be clearly part of the hardware and readily transferrable.

6.      Firmware/Microcode “Upgrades”

OEMs often lockout access to updates to NLC using the spurious claim that such updates are “Upgrades”.  This is also hogwash – since firmware is never upgraded – only fixed.  The only reason to make such lockouts is to force end users into break-fi x and support agreements which they would not otherwise want or need.

Firmware are the instructions built into the hardware (thus the word “Firm” as in “Tangible”) in order to make it run according to the specifications. Parts manufacturers provide patches (fixes, or updates) to firmware to resolve specification issues.  This is akin to the automobile recall where vehicles with known flaws are voluntarily repaired at no charge to the owner outside of the warranty agreement.

Upgrades to functionality are provided with enhanced versions of the product and are marketed as such. Manufacturers do not give away their upgrades any more than Ford gives away leather in a car if cloth seats were damaged and the vehicle was under warranty.

Monetizing Tip:

Differentiate between patches and upgrades in contracts. Patches should be freely available at all times. Upgrades should provide new functionality with an optional price.

 

Gay Gordon-Byrne, TekTrakker

 
 

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Contract Terms: A Re-Balancing

 
“In the last couple of years, things seem to have got worse.”  That sentiment about the unfairness of risk allocation in contracts is one I have encountered many times during discussions in recent weeks. There is a feeling that large corporations and major public sector bodies have become more risk averse and have used current economic conditions to exert their strength – liabilities, indemnities, IP rights, termination provisions, performance criteria and (in the corporate sector) payment terms have been areas of focus. And despite their insistence on ‘the integrity of contract’, these same organizations think nothing of using their power to force unilateral renegotiation when conditions change.
 
 

 

“In the last couple of years, things seem to have got worse.”

 That sentiment about the unfairness of risk allocation in contracts is one I have encountered many times during discussions in recent weeks. There is a feeling that large corporations and major public sector bodies have become more risk averse and have used current economic conditions to exert their strength – liabilities, indemnities, IP rights, termination provisions, performance criteria and (in the corporate sector) payment terms have been areas of focus. And despite their insistence on ‘the integrity of contract’, these same organizations think nothing of using their power to force unilateral renegotiation when conditions change.

 Overall, I think things have become worse. Ironically, on one hand economic conditions have forced many corporations to take added risk (new markets, more rapid product development, supplier consolidation are examples), but at the same time they have sought to clamp down further on their established suppliers, without much regard to the business consequences.

 Some legal and procurement staff stick to the belief that harsh terms drive performance. Short-term and for commodity acquisitions, that may be right. But for any more complicated or long-term acquisition, all the evidence points the other way – that unfairness undermines loyalty and commitment, leading to poorer outcomes and therefore added risk.

 However, while things may have become worse, I see growing light at the end of the tunnel. I have the impression that an increasing number of organizations are starting to question their approach. This is leading to a number who have renounced liquidated damages; some who are questioning how they can be more intelligent in protecting (and exploiting IP); others who are looking for shared approaches to governance through better change provisions, escalation procedures and added flexibility through mechanisms such as ‘hardship clauses’. I believe the door is opening for those suppliers who engage early and demonstrate their capabilities and commitment to deliver.

 Relationships that extend beyond a few transactions will always depend on trust and cooperation. Failure to establish and sustain these characteristics will always result in degraded performance and missed opportunities. This truth is dawning on a growing number of those responsible for contracts and they are influencing their management and colleagues to think differently – to distinguish between risk allocation and risk management.

 
 

Force Majeure: A Contentious Issue

 
Should suppliers be allowed to claim force majeure and if so, in what circumstances? Whenever there is a major incident, this question re-surfaces. Over the years, the list of incidents that constitute force majeure has altered, but the basic principles remain unchanged. Today, however, there seems to be reducing tolerance for this blanket provision that excuses all performance. A refinery fire at a Shell facility in Singapore, the Brisbane floods and the Libyan revolution have been recent examples that created debate and contention.
 
 

 

Should suppliers be allowed to claim force majeure and if so, in what circumstances?

Whenever there is a major incident, this question re-surfaces. Over the years, the list of incidents that constitute force majeure has altered, but the basic principles remain unchanged. Today, however, there seems to be reducing tolerance for this blanket provision that excuses all performance. A refinery fire at a Shell facility in Singapore, the Brisbane floods and the Libyan revolution have been recent examples that created debate and contention.

In part, these questions are fuelled by the rise of globalization. Increased exposure to less stable or predictable markets has increased the potential for force majeure. But there are other factors. For example, the pressure for constantly lower prices has impacted the relative risk and quality of supply sources; many crops today are grown on previously marginal or inaccessible  land. It was marginal and inaccessible for a reason. Similarly, there has been consolidation of supply, resulting in limited ability to switch in times of crisis.

Those who disagree with force majeure mostly seem to be buyers. They argue that a good supplier should have back-up plans (even though they do not want to pay the price premium that such plans would involve). And they also tend to overlook the mutuality of force majeure – when invoked by a customer, it is reasonable; when invoked by a supplier, it is unreasonable.

Mature organizations have a sensible discussion about force majeure incidents and consider the actions that can be taken to avoid them, or to avoid their severity. For example, do I want to select a higher price supplier who has fall-back facilities and proven disaster recovery plans, or do I want to multi-source, or am I prepared to take a lower price and self-insure? Increasingly, there are also possibilities to insure against force majeure risk (for example, Zurich Insurance). But again, this involves a cost – and, ironically, the insurer then wants to determine whether the buyer is taking intelligent risk decisions.

Another area of growing interest is to replace some or all of the force majeure clause with a more general ‘hardship clause’, under which the parties commit to a renegotiation if and when there is a major change to supply conditions.

It seems to me that this is another area of contract where there is room for increased discussion and differentiation. It also demands a term that is sensitive to the nature and sources of risk and which party is willing to pay to cover them.

This article is taken from the Commitment Matters blog. For similar items, visit http://contract-matters.com/

 
 

Academic Forum - Award Winning Paper

At this years IACCM Academic Forum, co-authors Helena Haapio and Stefania Passera had an award winning paper “User-Centered Contract Design: New Directions In The Quest For Simpler Contracting” .  To read the paper click here

For more information about the FIMECC UXUS project framework for this research, you can go to http://www.mindspace.fi/projects/fimecc-uxus/. For more examples of Stefania’s work / portfolio, you can go to http://stefaniapassera.com/about.html

Go to this link http://www.ruukki.com/News-and-events/~/media/Files/News-and-events/Inline/2011/Ruukki-Inline-November-2011-English.ashx to page 38 of Inline 3/2011, Rautaruukki Corporation, to read an article by Helena Haapio.

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SRM

 
Despite continuing economic uncertainty, or possibly because of it, interest and engagement in supplier relationship management (SRM) continues to increase. This is evident in the findings of State of Flux’s 2011 SRM survey – the third year running we have conducted in-depth global research of this kind.   By Geraint John, Executive Consultant, State of Flux 18 November 2011
 
 

Despite continuing economic uncertainty, or possibly because of it, interest and engagement in supplier relationship management (SRM) continues to increase. This is evident in the findings of State of Flux’s 2011 SRM survey – the third year running we have conducted in-depth global research of this kind.  

 
Just over three-quarters of respondents from 274 private and public sector organisations in Europe, North America, Asia and Australasia reported moderate or significant progress in SRM during the past 12 months. And more than 80% expect SRM to become more important in the year ahead. As in 2010, the biggest areas of progress have been in gaining senior executive sponsorship, internal stakeholder support and supplier engagement.
 
Half of “SRM leaders” (those placing their overall maturity in implementation and benefits realisation in the top half of State of Flux’s scale – just under a quarter of the total sample) say they have “strong and active” executive support and just over 60% have broad functional and business unit support. Among “SRM followers” (those in the bottom half of the scale) the figures are 14% and 18% respectively.
 
Meanwhile, 73% of leaders say they have either all of their strategic suppliers or a group of at least 15 engaged in their SRM programmes, compared with a fifth of followers who say the same. The main barriers to engaging suppliers in SRM programmes are imprecise benefits tracking, a lack of shared benefits and insufficient information sharing. 
 
For a majority of organisations, therefore, there is plenty of work still to do to win the hearts and minds of key stakeholders on both sides of the relationship.
 
The biggest challenge for those running SRM programmes, according to our survey, is finding enough people with the right mix of commercial, technical and interpersonal skills to conduct relationship management work effectively. More than 6 out of 10 organisations say this is an issue. Communication, influencing and trust building are seen as the most important skills for SRM roles – and also the areas where there are the biggest gaps in capability, particularly within procurement and supply chain functions.
 
Our analysis found that SRM leaders report lower barriers, both internally and externally, and greater benefits achieved so far than SRM followers. The message is that investing in SRM capabilities and activities pays dividends over and above those achieved by traditional procurement approaches.
 
Drivers and benefits
 
Cost reduction continues to be the number one driver of SRM activity among both leaders and followers, although the proportion rating it as “very important” fell from 72% in 2010 to 64% this year. Second spot is again held by risk reduction, although in the financial services sector regulatory pressure has propelled this into first place in the space of 12 months.
 
Among the SRM leaders, the third most important driver is a tie between cost avoidance, innovation, supply chain efficiency, and access to the supplier’s “A” team. But when asked about the primary source of value in the next 12 months, over a fifth of leaders say innovation, compared with just 12% who pick cost reduction. SRM followers say the reverse.
 
To date, cost reduction has delivered the biggest benefits from SRM for both groups. More than half of the leaders and over 40% of the followers say financial savings have been achieved. These are typically in the region of 2-6% of annual spend with a supplier, although more than a fifth of SRM leaders say it’s been 8% or more.
 
The leaders are also more likely to report benefits through having “customer of choice” status with key suppliers. Senior management support, preferential pricing and continuous improvement ideas are the top three benefits. However, in the past 12 months less than half of organisations say they have achieved these. Fewer still cite access to the best people, scarce materials or capacity, or first refusal on innovations – suggesting significant value improvement potential in the future. 
 
Asked what benefits their suppliers have gained as a result of engaging in their programmes, survey respondents cite access to new business, revenue growth and faster decision making as the major wins. However, although the proportion that say they share financial benefits arising from SRM activities with their suppliers has grown year on year, only 14% of leaders and 8% of followers say these are “always” shared. In State of Flux’s view this is an area of concern, since SRM can only be truly successful if deeper collaboration produces benefits for both parties. 
 
Key success factors
 
As they did last year, respondents rated communication and level of trust as the two most important success factors for SRM. These are followed by relationship continuity and the level of investment in the relationship. Respondents believe that these factors translate into better outcomes from negotiations with strategic suppliers – 6 out of 10 SRM leaders, for example, say that suppliers have brought more value to the table as a result.
 
Collaboration – a key tenet of SRM – is currently focused largely on joint improvement projects, with 40% saying it involves some form of product or service co-development. However, fewer organisations believe they are adept at attracting, evaluating and implementing innovative ideas from their suppliers, blaming organisational complexity and a lack of time and resources, among other barriers.
 
In terms of the most important relationship characteristics, survey participants believe their top suppliers care most about account profitability, revenue and strategic alignment. Other “softer” factors, including openness to ideas, a willingness to listen and trustworthiness are ranked much lower. Separate research by State of Flux among key suppliers to large companies, however, suggests that shortcomings in these areas are among the main contributors to value leakage – and that improving practices and behaviours here can have a positive impact on the way customers are viewed and treated by suppliers.
 
Only a third of SRM leaders, and less than 10% of followers, reckon that three-quarters or more of their strategic suppliers currently regard them as a “customer of choice” – in other words, consistently give them preferential treatment.
 
Discipline and consistency
 
SRM is about more than just developing good personal relationships, important as these are. It is a discipline of establishing – and maintaining – consistent ways of working between often complex organisations. A clear governance structure and set of SRM processes is a key enabler of this.
 
Segmentation of the supply base is a necessary early step in deciding where to focus limited resources. Most organisations have conducted such an exercise and more than three-quarters have concluded that they have up to 50 strategic suppliers. The most popular segmentation criteria applied by both SRM leaders and followers are criticality of products and services and volume of spend. However, the leaders are more likely to weigh in additional factors such as innovation capability and competitive advantage when assessing the contributions made by suppliers.
 
The SRM leaders, as might be expected, also have more developed governance frameworks. Almost half, for example, say that their organisational models and roles and responsibilities are fully implemented, compared with around 10% of the followers.
 
Regular review meetings – the most widely used governance mechanism – still tend to be dominated by discussions about supplier performance and other operational issues. Business strategy and plans are a regular agenda item for only 60% of SRM leaders and 40% of followers, for instance. 
 
Ensuring that strategic, forward-looking and collaborative issues are adequately discussed between senior executives and managers on both the customer and supplier sides are vital – and another area where there is plenty of room for improvement.
 
As part of their governance models, leading organisations are twice as likely to have full-time SRM managers (the equivalent of key account managers on the sales side) in place. These individuals generally sit in the central procurement team and are responsible for several supplier relationships. 
 
Two-thirds of SRM leaders also say they have cross-functional teams to manage relations with their key suppliers, compared with a just third of followers. And 86% of the leaders say SRM goals are built into individuals’ objectives and development plans to at least some extent, versus less than half of the followers. Analysis of the survey data indicates that those organisations that have each of these two elements in place report higher cost, risk and innovation benefits from SRM than those that don’t.
 
System failure
 
Our previous surveys in 2009 and 2010 found that IT systems provided poor support for SRM programmes and that this was the weakest area of progress overall. It’s the same story in 2011. Just 4% of SRM leaders and 1% of SRM followers believe that ERP, supplier performance management and other IT systems “very strongly” support SRM activities. A lack of both integration between disparate systems and required functionality are seen as the main barriers.
 
Progress in developing SRM metrics has also been relatively weak. The most popular key performance indicators (KPIs) for tracking the success of SRM programmes are financial savings, quality and on-time delivery – classic measures of supplier performance – rather than broader and more two-way indicators. Only 18% of leaders and 5% of followers say they are using joint customer-supplier KPIs to any significant extent.
 
Operational performance scorecards and standard meeting agendas are the most widely used non-IT tools. SRM leaders are twice as likely as SRM followers to use joint account plans, 360-degree feedback and “Voice of the Supplier” surveys – key ingredients in building and improving collaborative, mutually beneficial business relationships.
 
To request a copy of the full survey report, The SRM Dividend: Developing Collaborative Relationships for Competitive Advantage, visit srm.stateofflux.co.uk/research/survey

 
 

 

The Definitive Guide to Commercial Contracting

We are excited to announce that IACCM's groundbreaking commercial contracting guide - the first global work of its kind - is now available.

Secure your copy of Contract & Commercial Management: The Operational Guide today - and find out why this highly recommended title is being called 'a great catch all book that can be referred to by both sell and buy side for worldwide contracts', that will 'serve as a reference handbook throughout a career'. The definitive work on contracting and commercial best practice provides a comprehensive overview of the entire contract life-cycle over more than 500 pages of detailed insight.

The Operational Guide is a unique work, addressing contract and commercial principles on a worldwide basis, for both buy-side and sell-side practitioners. Invaluable for training, as a reference work, or simply to update your understanding of current practices, this is a volume that you really must own!

For more details and to order online, please go to:
http://www.iaccm.com/store/?vp=10

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IACCM Launch Accredited Qualification in Supplier Relationship Management (SRM)

Pioneering program will equip SRM practitioners with the core skills and knowledge they need to develop successful, collaborative customer-supplier relations

We are delighted to announce the launch of our SRM program. The first learning group will be launched at the end of January 2012, and we are taking pre-registrations now (contact pmallory@iaccm.com for further details and to reserve your place).

Pre-register now to secure your place and we’ll give you a 20% discount off the program fees (a saving of up to $230!). (All prices are expressed below in US dollars).

Be one of the first to achieve the world’s only internationally recognised and accredited qualification in supplier relationship management (SRM).

The pioneering program is designed to equip practitioners with the skills and knowledge they need to implement SRM practices effectively within their organisations. Completion of the program will lead to individual certification and a “licence to practise SRM”.

SRM is emerging as both an important business activity and a professional discipline within major organisations around the world. Research evidence suggests that SRM can deliver significant tangible benefits in addition to those achieved through world-class strategic sourcing, negotiation, and contract and performance management.

You will join a group of practitioners as they work through the learning program, in a virtual environment of e-learning modules enhanced by message board interactions across the group and webcasts to enhance the learning materials and provide a forum for interactive discussion of best practices. The skills assessment tool will enable you to do a gap analysis on your current level of skill and capability, enabling focus on personal learning goals for greatest development impact.

This comprehensive training program recognises that relationship management requires a blend of technical capabilities – for example, in process and organisational design, and structuring of appropriate contracts and future-facing measurement systems – and key behavioural competencies such as communication, influencing and trust building.

Participants on this e-learning programme, will learn how to: 

  • Prepare convincing SRM business cases
  • Design an effective governance structure
  • Create and implement a communications plan
  • Engage key stakeholders and supplier executives
  • Develop metrics that drive successful behaviours
  • Encourage positive approaches to change
  • Collaborate  with strategic partners
  • Devise appropriate contractual arrangements
  • Track and report SRM benefits
  • Resolve conflicts and issues collaboratively

The SRM Program has the following priced elements, all prices are quoted in US dollars:

Skills Assessment: $150 per person

e-learning program: $750 per person

Certification assessment:

(note that skills assessment is a requirement of certification)

Practitioner - Member Level (intermediate): $150 per person

Expert – Certified Member Level (advanced): $250 person

IACCM membership is an additional $150 per annum per person

Please note that we are able to run the SRM program as an in-house corporate program for your company, with a minimum of 6 participants.

The corporate program is facilitated by means of a bespoke learning portal created for your company. An additional $1500 set up charge applies.

The above per person charges may vary for a corporate program, to enable us to meet your needs for webcast interactions, on site interventions, message board participation. Further details of corporate programs are available on request: pmallory@iaccm.com

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Developments in Australia...

Important issues for commercial contract professionals:
 
1. Did you know that the new Australian Consumer Law (ACL) commenced on 1 January 2011? Are your contracts compliant with the above? If not see a good commercial solicitor. If you need one I can refer you some.
 
2. Have you woken up to procurement complacency? The GFC (1 & 2) has made us all more aware that core issues to consider when procuring are:
a. secure supply lines (the first obligation of any professional buyer);
b. to identify and manage supply chain risks (and to put into place options and alternatives);
c. watch cost (and balance 'total cost' and risk); and
d. improve process and probity standards. What meaningful things are you NOW doing about these issues?
 
3. The new OH&S harmonisation laws are to be implemented on 1 January 2012. Are you ready?
 
4. The Personal Property Securities Act (PPSA) was discussed in the August 2011 Newsletter (see the Archive: http://www.theriskdoctor.com.au/newsletter-archives). The 31 October 2011 commencement date has been set back and is targeted to be early 2012. Remember that this legislation will be of particular interest to vendors who wish to secure their interests over property sold, and to procurement staff to determine how it will affect the purchaser. Have you seen your legal advisers about PPSA clauses in your contracts?
 
5. Did you know that the new national business names registration system is due to commence in mid 2012? This new system will be managed by the Australian Securities and Investments Commission (ASIC) and the new system will enable 'one-stop shopping' when it comes to registering a business name in each State and Territory of Australia, replacing the present cumbersome system which requires registration of a business name in each State and Territory in which the business operates.
 
6. Have you started thinking about the new 'Carbon Tax'? How will it affect your contracts as a vendor or as a purchaser? You may wish to see a commercial solicitor specialising in carbon tax. The next newsletter will have an article on it, including things to remember when writing the clause in the contract.
 
Cyril Jankoff, The Risk Doctor
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Have your say in the future of Contracting Excellence

In a recent survey poll of our members, this is what they chose as their preference for articles to be presented in future editions of "Contracting Excellence".  The chart below shows the results!

 

Click on  Go to Survey  and choose your preferences in a brief survey.

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