Good evening Abdullah - I'll contribute an observation on the first one. Perhaps others who have been doing contract management and procurement for longer than me might have a different view, or say it more eloquently, but here goes....

Purchasing is a subset of procurement. It is the giving effect to a lot of the procurement work that you've done earlier (i.e. establishing what you want, identifying suppliers etc).

That said, I think that you can purchase without doing procurement, and in fact, I'd go so far as to say that you can even get the same outcome.

However, only by procurement can you demonstrate that you've got the right outcome. If you only purchase, and don't understand your needs, identify the market and consider the offerings against your needs, you can't demonstrate that you've got the best outcome for the business.

And this is where I think we as a group can demonstrate our worth to the business. We can show with procurement the outcomes that we've avoided (goods not matching requirements, getting better pricing outcomes, repetitional damage etc) by running a fair and robust process ensures that the business is better off.

On many occasions I've seen my team has moved someone from their initial fixed ideas into better outcomes by taking the time to show them what's possible and what good looks like. Do that enough times, and you have more and more allies in the business to encourage others to use your services.

Regards


Darren

Hi, Abdullah,

Check out this article in the IACCM Library, 'Procurement' and 'Purchasing' Are Different:
www.iaccm.com/resources/

Having looked at this topic, there is actually already a lot written on the question of the difference between purchasing and procurement. As they observe, for the typical person they are probably the same, but apparently 'the experts' in procurement know the difference! Though once you start reading, there is plenty of contradiction...

When it comes to Supply Management, it is yet another variant and clear as mud whether it is actually different from Procurement. Supply Chain Management is certainly a more holistic activity of which procurement is part, but that's about all you can really deduce.

The net is, these terms are used with a high degree of variability and tend to mean whatever anyone wants them to mean; the only common factor is that they are all associated with the act of buying!

Tim Cummins

Hi Abdullah

Years ago Procurement and Purchasing were often used interchangeability. These days they have very different meanings. Procurement refers to the end-to-end activities from strategic category management, through to the operational analytics of spend and performance, to the tactical buying and sourcing activities which can happen in-house or in shared services.

As the Procurement function has 'grown up'it has become far more strategic, so although the term Procurement refers to all the activities conducted by the function, it also implies more strategic perspectives. The scope is also overlapping with other related functions like Finance (Accounts Payable as part of the purchase to pay process) and supply chain (Supply Planning, product innovation and supplier performance management). The increasing focus on digital in Procurement is also seeing more collaboration with other functions for example, RPA (Robotic Process Automation) and machine learning, process automation and contract management, and predictive analytics.

Purchasing is clearly the administrative activity of raising a purchase order, managing the goods/service receipt notice and approving to pay. More advanced companies use on-line catalogues to support this along with automated workflow routing and defined delegations of authority. Put simply, Purchasing includes the tactical purchase and approval activities to support buying.

When we speak about supply chain today, we tend to talk about a value chain. Some organizations are now including supply chain and Procurement in one organization given the overlaps, but predominantly they continue to be separate, but related functions.

Supply chain will include demand planning and forecasting, distribution planning, warehousing and logistics, manufacturing (which may also be a separate function), supply planning and often new product development.

Where Procurement gets involved most is in supply planning and supplier performance management, for instance, using contracts to enforce performance, and collaborating with supply chain and marketing for product and service innovation by tracking supply markets and innovations.

Conceptually, the Procurement function has shifted from managing costs to providing value. Using advanced analytics of COGS and SG&A data, digital tools and advanced supplier market research, the function is working far more collaboratively with other functions. As business cadence increases, functions are becoming more linked and lines between which function does what is blurring.

Hope this helps.

Dear David,
The performance of the Contract Manager role and the performance of the Contract Management Process in general is one of our key points in each one of our recent IACCM anual conferences and networking events, as the matter takes us to the question: "How should we measure and demonstrate success?"
Indeed, while transactional performance is clearly important, it rarely offers the insights that we need, if we are to raise our status and our contribution.
Our thinking and our measurements must start to focus on driving benefits at a portfolio level and relate directly to achieving the strategic goals of our business.
Value will be delivered through a process based view, through monitoring the outcomes of what we do, through generating measured innovation and continuous improvement.
This depends upon capturing and analysing performance data, through challenging established rules and procedures, through inspiring the new models and approaches we have discussed this week. And it also depends on courage - developing leadership and influencing skills.
Keep in mind one of IACCM survey findings: 'Contract Management is one of the least automated processes... and this results in inefficiency and weaknesses in PERFORMANCE oversight, as well as in the absence of management reporting and information'. Here we value the importance of Contract Management Automation and that´s why we are focused on this topic in recent Ask the Expert sessions and in our future events (Australasia and The Americas conferences).
Best regards,
Pablo Cilotta

Dear David, have you thought about listing out every task that contact managers are responsible for in your corporation then, assigning a numerical value to each task. Then, assigning a score to each task to analyse and create a quantified report on your overall contract management performance?

e.g. you mentioned governance, negotiation, change process as a few of the tasks. Perhaps you could write these tasks in a spreadsheet and assign values like so:

Total Value = 100

Governance - 30
Negotiation - 20
Change Process - 10
Deliverables Tracking - 10
Obligations Tracking - 10
Exit Management - 20

Then, for each contract manager, you could assess their performance based on a score. Score could be for example, between 1 and 10.

e.g.

Score Values = 1 through 10

Performance Assessment for: Joe Smith (Sr. Contract Manager) for Q1

Governance - 30 - 8
Negotiation - 20 - 6
Change Process - 10 - 9
Deliverables Tracking - 10 - 9.5
Obligations Tracking - 10 - 7
Exit Management - 20 - 9

You could average each of the score values and weigh it against how important each of the tasks are (based on their numerical value). From a high level point of view, based on these numbers, you could create a percentage of "contract management performance efficiency" per quarter/month/week/day for each of your contract managers.

This is just one idea. As full disclosure, I work with a contract management software vendor where we help our clients effectively manage their contracts online. We don't have this particular feature built out on our software yet, but would be open to discussing further and building it our for you in our Analytics & Reporting function, if you'd be interested.

Feel free to contact me directly at nazar.abdul@sysintellects.com

Hope the above ideas help!

The less standardization you have on your services the greater the difficulty will be in establishing useful performance metrics that span your portfolio. For example, a BPO contract or a customer IT services agreement will have many specific considerations that can lengthen the time of negotiation and result in contracts that vary substantially from other contracts in the same portfolio.

There are a few disadvantages from the pass-through approach. First, the party bearing the cost is not in direct negotiation with the source of the cost. As such, some costs that might be more aggressively addressed are not fully addressed. The discussions around how to best manage and mitigate the costs will exclude the party who is ultimately most interested and invested in those costs. As such, there is seldom much innovation or break-through thinking generated in these discussions.

There are other disadvantages arising under pass-through approaches related to the contractual terms, which also impact costs.

That's what SI's do. You go to an SI to be a one-stop shop. It is inevitable that he wont be able to do it all himself so much will be subcontracted. Where this is done at zero margin (!) we call it pass through. It does make me wonder why an SI would want the admin and risk burden of such a large pass through without any reward and, I agree with Anonymous that you are distanced from the party actually completing the work, so you don't have direct control over half of your project.

Hire a good PM and split the SI contract into two and deal direct with both.

Not sure of the size of your proposed project nor of your organization. I just finished leading negotiation of a large, multi-year ERP implementation project that will span several countries and be vital to our company's future. We have a single SI who has the resources to complete the work themselves (we reserved the right to review and approve any proposed subcontractor/subcontractor resources prior to their use). Not sure why you have an SI that wants to, if I understand correctly, use one or more subcontractors to perform a significant portion of the work.

If you are using a smaller Systems Integrator, then I would want to make sure that the SI is responsible for consistency in how the work is performed and that consistent methodology is used; and that ultimately the SI is FULLY responsible for the work delivered. Depending on the size of the ERP work and your organization, you may want to hire a Project Management team or at least Project Manager to help oversee the timely completion of the work.

As to you question about whether or not the project is worth executing - without knowing the business case, the cost and understanding the risks, I'm not sure anyone can answer that, but I would be cautious with such a large percentage being subcontracted.

Communications is a repeated source of success or failure in contract management (as with so many other pursuits!). Unfortunately, communications are treated as a step or action item. Successful contract management programs often cite their sustainable communication strategy, and not merely an occasional tactic, as the key driver of their success.

It would be interesting to see whether any members have examples of sustainable communication strategies that they can share across the IACCM membership base.

I've noticed generally that younger, less mature organizations have a less enthusiastic view of the contract management function, whereas a large, mature organization usually has realized at some point that it is essential. To a certain extent, I think that we in legal or contract management roles are unreasonable if we expect that others will really "get" what we do. Normally they just want answers or results. But time and time again I've seen the greatest successes come in situations where the legal/contracts function sits down and works directly with the business leads as partners. Once the business leads feel supported, they will become evangelists, that is, provided that the support we give is creative, responsive, and timely.

Contract Management needs to be driven as strategic initiative, with top down approach to see success. Integrating the activities of contract management with existing quality audit process and project execution norms may give the required boost or importance. Continuous improvement with revision in tools and checklists, creating extensions of contract management process within the stakeholders like sales and operations, by providing enough ammunition through trainings and continuous dialogue to resolve issues. Management attention and involvement in the process can be increased by helping in provisioning of visual metrics depicting risk analysis, risk profiling without consuming the precious hours.

I would like to reply (after two years :)) to the second comment here below which starts with a great observation on the effect on maturity of organisations on how they perceive contract management bu then states that "Normally they just want answers or results. But time and time again I've seen the greatest successes come in situations where the legal/contracts function sits down and works directly with the business leads as partners. Once the business leads feel supported, they will become evangelists, that is, provided that the support we give is creative, responsive, and timely."

Actually my view is that if this would be sales-side contract management this exactly describes the way less mature organisations look at contract management. Contract management 'only' as supporting function and not as performance monitor, 'checks and balances' of sales and delivery, profit maximizer and risk reducer which goes much further then working together with other functions but actually keeping them on track.

Hello Harry,

I worked in several Russian companies as Contracts Manager and in related roles at both domestic and international projects. What I can tell you exactly is that there is no such thing as specific Russian Commercial Management, there are may be some cultural differences between Russian and Western Europe management style, but methodological basis is based on the same principals and sources.

If you have any specific questions, I'll try to share with you my thoughts and observations based on my past experience.

Hello Andrei,

Thanks for your answer, this confirms what I had originally thought!
Is there any reason why there isn't any Russian Commercial Management? Is it linked to hierarchy in the business structure?
Also, would it be worth adapting it to Russia? Or is Russian "Contract Management" more of a legal job better suited to lawyers?

Thanks!

In my team its cross functional; procurement, finance, project management. Whoever the beneficial user is may the best person to advise if the requirement is being delivered to time, quality etc. Suggest you might want to think about creating a cross function contract management team.

Dear Ted, it pretty much depends on your organisational ambition & objectives with the Contract Management function. In my oppinion many organisations don't realize the potential (strategic advantages and benefits) of Commercial Excellence - if the organisational understanding & culture around Contracts & Commercials are at a low maturity level you can see Contract Management placed as a sub-function in eg. Legal or Finance (being a somewhat defensive approach), while the few org. (as I know it) who realize the potentials are placing it higher in the organisation, some even spilt it out to a stand-alone veritical (making sure that the context of being a "support function" is embedded, implemented & maintained) of course balanced with the organisations overall aspiration, purpose and "nature". BR Ole

In our organization, Contract management resides within the business; however Supply chain (Finance) own the process. Over the last 5 years we have been fully integrating Category Management and as a result putting in more strategic, long term agreements with an overview to the category rather than the need. Putting in such a strategic shift in business has saved us millions in our new contracts by looking at all the driving forces behind the need. Now that we have a robust Category Management program in place which covers 80% of our spend - we need to ensure that a enterprise wide practice is in place to make sure we are getting what we need, when we need it and are paying the right price otherwise the contract is simply a piece of paper. That is why Supply chain owns the process but the business is responsible for managing the work and providing the required resources to do so.

Hi Ted

In my company the contracts team sits in Operations as the contracts they manager supports our deliverable pipeline. However, we have close links with our legal team and procurement sits in Finance. Looking at some of the replies it seems there doesn't seem to be any best practice.

Cheers

Jan

In my organization, our pre-award and post-award contract management for new equipment sales are led by different teams (Commercial Operations and Project Execution respectively), however there are many functions that actively support and contribute to our contracting processes such as Legal, Finance, Sales, and Engineering departments. Legal's input and review into the contract is critical for protecting the organization from unacceptable risks, but we have the overall bidding and contract process managed by the Commercial team since we are focused on the company's strategic/sales goals.

Hi Graham. Thanks for the response to this and sorry so late getting back to you. Is there an "owner" of the CM discipline? I would always expect that there would be participants from various functions but where does this all come together? is there any consolidated reporting view?