There are great challenges in ensuring that long-term relationships deliver benefits to both parties. This is somewhat of a rule, and yet so many contracting professionals ignore this fact when they design the contract and relationship prior to entering them. Poorly anticipated exit rights usually lead to a lose-lose scenario.
We need to ensure contracts and relationships clearly define the exit rights even though we hope to never use them. If the exit plan is defined for both parties, it allows those parties to best determine and demonstrate the value of continuing the relationship.
I guess you need to establish key assumptions and/or minimal functionality or license metrics you need to achieve before you have anything you can benchmark against. Once that is established, you can ask for alternative software solutions which solves your need and then incentivize the best price found. Further you could measure the fulfillment of the key assumptions and have a payment attached to each of them. If the solution is going to introduce a certain workflow you could set pricing according to how fast it is implemented or how much money is saved/earned. If there is a license price and a T&M project, you could say have a differentiated discount scheme based on the number of hours spent. I.e the first X hours are paid at 140%, hours between X -Y are paid at 100% and hours after Y are paid by 50%.
I recommend you look at this article "Time and material vs Fixed price: hot discussion of the best pricing model" - www.cleveroad.com/blog/time-and-material-vs-fixed-price--hot-discussion-of-the-best-pricing-model
Firstly, I suggest to draft a SWs Portfolio document, which will list all the required SWs. SW portfolio will consist of details like SW name, description, area of application, criticality, user applicability, SL% requirements and other optional technical details like program language etc. Each of the listed SWs may be given a percentage split of charges between various applications, summing up to 100% (in this case DKK 0,5 M is 100%). This document can be kept open for addition/deletion for SWs.
Whenever Supplier adds/removes a SW this % split can be used for commercials/invoice purpose. For eg: a SW which falls between 10-25% will have 2% incentive, SW with 25-50% will have 5% incentive etc.
Secondly, SLA is completely depends on how you want specific SW to work for you. In the portfolio, for eg: if some SW is impacting critical users or functions you may set the SLA to required higher percentage and flow-down those SLAs to OEM as well. Also, I would suggest to a research on Pass-through charges, in which the supplier charges a fixed % incentive, but this is possible only if the SWs are fixed.
The way you have formulated your question, it looks like an account plan a buying organization would prepare for a significant supplier. So you will find quite a bit of information in the IACCM library associated with SRM.
Clearly, you will have to adapt to your industry, to the services you are buying, and to the goals you wish to reach through your association with this supplier.
A good account plan will not only cover the scope of deliverables you are contracting for, but should also define
- the type of relationship you wish to have,
- what is the strategic end point of having a third party involved
- how you will govern the relationship and the day-to-day deliverables,
- what shall be the benefits for each party, how will they be earned, secured and measured,
- how you will jointly manage risk and who will bear what risks,
- and even how you will wind down the relationship when it must end.
It seems that as the buyer you are open to a collaborative relationship, and that is typically the best way for these relationships to be built. You will probably find that the sales side partner at your supplier is eager to work with you to develop this plan.
I wish you luck with your endeavor, and if you want to talk through some ideas, please give me a call or send a email - email@example.com
• Abu Dhabi National Oil Company
On what basis did buyer and his company undertake the work that was on the contractors scope . If it was due to poor performance and this has been documented then you may have a case to re-negotiate the lump sum price. If buyer /company stepped in for there own reasons as indicated by your phrase" unforeseen emergency your probably "not in great position contractually as sounds like you have a take/use or pay contract ?
Look at what other commercial levers you have , for example if you have continued business need if the contract is based on providing certain number of resources then redeploy those resources on other business. Work with your technical colleagues on this . Is there other leverage you can apply such as future business , can you use your relationship management process to help. In summary think outside your contract as to what strategy/ tools you can use to use to renegotiate to a more equitable position
• New Zealand Defence Force (NZDF)
Great points Andrew. Having just had to rescue a multimillion dollar project that didn't have a SoW, PO or accepted quote and yet the project commenced.
Without having seen the SoW & Agreement, the document would typically state the core deliverables what is in and out of scope and a process for any additional / adhoc work. It should also have Customer and Supplier responsibilities with what is Supplier furnished and Customer furnished. I'm also interested in whether there were any discussions between the parties where you stated that you would intervene and apply resource and their response to this. So without having a full picture our advise can only be based on what information we are furnished with...but happy to respond further as more info is provided.
It´s great to hear that organizations like the one you´re working for as Senior Contracting executive are undertaking this type of exercises in order to gather information around best practices in contract, supplier and performance management.
As the unique global organization identifing best practices in this area, at the IACCM we will be happy to assist enabling other members to share what they have been applying in their respective organizations and, furnished with the results and findings of this networking atmosphere, you will be achieving our goals at Philips 66.
Behind 'best practice' is a simple concept: measurable standards. And that means some form of benchmark is required. So, the exercise proposed in your posting, Alan, is a great example. It will be a comparison against peers, organizations at the same level, in order to get standards and then, you will see how you and others do things and what you and they do.
I know that your company has invested in the developement of contracting skills among your CM staff, and most of your colleagues are currently taking the CCM (Contract and Commercial Management) learning program, in its different certification levels (practitioner, advanced practitioner). At this point, it will be extremely important to consider what IACCM states in module 1 ('Best practices in contracting'), so I'd extremely recommend to review that content, at first sight.
Second, in this link you will find the 'IACCM top ten best practices in contracting' (general): www2.iaccm.com/resources/;
Among other relevant resouces provided by IACCM corporate membership, as you might be aware, you have the right to get access to ATEs (webinars) via our IACCM library in subjects such as 'best practices selecting the right supplier': www2.iaccm.com/resources/;
In addition, refer to 'Supplier relatioship management: best practices'
In sum, over the past several years, supplier relationship management (SRM) has become a major focus within the procurement and supply chain community and many companies are analyzing how best to expand SRM efforts and investment. We look forward to hearing from other members.
• Seal Software
At Seal Software, we can provide you with a technology which locates, understand and extracts data from your contracts. This can help you with supplier and performance management by:
- Extracting information from your contracts, such as the parties to contracts, and their obligations.
- Maximizing revenue opportunities, by identifying unknown business intelligence.
It would be great to discuss how Seal can help you, in more detail. Please feel free to call me on +4420 735 9892.
We are revamping as well this year and I attended a training from State of Flux in Chicago a couple of weeks ago. I found there approach on planning very particle. For me it is very situation on how you manage your supply base hwoever keys are
1) Outlining performance expectations
2) Holding regular reviews
3) awarding business based on performance
have you looked at the risk register - often low hanging fruit in their with either side not retiring risks.
Here are a few suggestions:
- have you discussed your target with the suppliers and asked them to assist in identifying savings opportunities? You might convene periodic meetings with one or several of them to generate possible efficiencies or improvements that could reduce cost.
- have you discussed with your clients. Are there ways to reduce demand?
- are you monitoring supplier performance to observe opportunities to request rebates or credits?
San Diego Association of Governments ...
Jack - a vehicle purchase will usually fall under either a category strategy and/or procurement process, leaving the decision to strategy and process rather than preference. If you are purchasing one vehicle, that acquisition might bring the transaction under the threshold of strategy/process guidelines, but that is rare. Please consider the total cost of ownership (TCO) of the acquisition, rather than simply the purchase price, as vehicles represent significant opportunities for overall cost savings.
This said, I'm pretty sure that "Procurement" is the term commonly used in PM circles (It's certainly the term used in PMBOK) so I would question whether the re-brand is the way to go.
Is your procurement team centralised / remote from the projects? Any prospect of co-locating resources? (Even if it's only one or two days a week - it's harder to hurdle a real person!). Any road-shows / team building events in the pipeline?
Any idea if the Contract Management team feel like there is a similar issue between themselves and the PMs?
Thanks for your reply, useful comments. Something cosmetic like a name change would certainly not help on its own, but I was interested to see if anyone had done it successfully as a starting point of wider culture change. We've tried lots of things over the years, and our Commercial team on the sales contract side do indeed have the same problem. We have different offices, but the majority of project staff are in the same building as us. I think part of the problem is that because people are so busy, they don't stop for 2 minutes and just think about what they need to do, it's not deliberate bypassing (on the whole). It's an age old issue that I know many contracts staff face.
I like to think that effective procurement delivers the right deal with the right supplier. If you are really committed to doing that, to making your internal "client" successful, you will be less likely to be bypassed. That is very much in the way you engage with them, and what you do for them, If you help them see risks and opportunities they had not yet identified, and find a smart way to handle them, word will get around, and you may have to turn away business!
A new name might not be the way to go - but a new tag line might.
I'm not sure what it would look like in your business, but maybe along the lines of "Making your deals happen" or just "the right deals with the right suppliers"
It's a great question!
Many functions struggle with this same issue - and in the end, it's about behaviour more than a name. Of course, the Procurement 'brand' may be tarnished, but re-naming usually doesn't fix it. It's a visible - and perhaps shocking - change of behaviour that makes people start to think differently.
I've led and witnessed transformations and I'd be happy to chat with you if you would like to discuss ideas.
• Ricardo-AEA Ltd
Thanks for the further replies, much appreciated.
Tim - I'll take you up on that offer, thank you. I'll talk to my boss as I'm sure he'd like to be in on the conversation. Will be in touch.
• New Zealand Defence Industry Association (NZDIA)
Commercial has much more positive connotations but it is going to be deeds and actions rather than titles that will change perceptions. The IACCM research on the Future of Contracting is a good thought provoking read about what needs to change.
In one of the previous organisations I worked for, the whole procurement and contract management division was called "Enabling Services" and this was quite effective in creating a "helping" culture for our operational areas. In fact, we had a "customer service" attitude and this was quite transformational - Of course, culture is more than just having a name change and a new slogan.