Too often Procurement is associated with saving money – unit prices, total contract value, rebates. But for most organisations the value that our expertise can deliver can be so much more.
Healthy, sustainable relationships with third party providers don’t necessarily go hand in hand with the lowest cost; indeed, driving savings and sourcing the lowest cost can often be to the detriment of sustainability and only serves to increase risk.
So, what factors can a procurement professional focus on that can reduce risk and thereby increase value? Here are just a few:
Payment Terms
Yes, cashflow may well be important for your business, and driving good invoice payment terms can deliver some much-needed breathing space into your finances. However, striving for terms that can’t be honoured or sustained by your suppliers can often introduce risk into your supply chain. Putting healthy, protective but viable payment terms into all your contracts is critical.
Service Levels and Service Level Credits
You could buy the best solution in the world, but if it’s not available half the time, or doesn’t perform in the way you need it to, then the value it brings to your business may be hugely impacted. Agreeing the right service levels, aligned to your own internal operational service levels or objectives, can be a game changer when negotiating a contract and realising its optimum value. Then there’s the service credits; let’s not forget those! They may not provide compensation commensurate to the impact on your business, but they absolutely should be a key motivator to constantly maintain and improve performance levels from your suppliers. And all these provisions need to be simple, measurable and relevant.
SRM and Governance
As we’ve posted about before, putting in place a top-notch contract is just the start of a relationship with your supplier. That relationship needs constant engagement, management, and work to help realise the true value of that contract. Supplier Relationship Management is the key to unlocking the real potential and value in your supplier agreements; keeping them relevant, healthy and sustainable. Read our article on SRM.
Benchmarking
Any tender or RFP process should enable you to select a supplier that is competitive. Competitive not just in terms of price but also service, innovation, volume, assurance – whatever your key drivers are. However, that competitiveness can become quickly outdated. Benchmarking enables you to keep tabs on the competitiveness of your suppliers and with the right provisions may enable you to drive more value out of your agreements without going back out to market.
Termination and Exit Provisions
The prenup of the commercial world – the section of the contract that no one likes to talk about during the early stages of a relationship, but arguably the most critical. Not just when it comes to parting ways, but also to ensure surety of supply throughout your relationship with your strategic third parties.
Why stop there?
Warranties, force majeure (rather topical in 2020/2021!), data protection and GDPR, audit – the list goes on. Aster Commercial can support you in any or all of these factors when negotiating value-driven contracts with your suppliers. Get in touch if you think we can help.
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