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Article
Contract and Supplier Management Lessons

Distilled insights from ChainLink's recent research on managing contracts, supplier performance, and reverse auctions.


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There are a number of key lessons that can be gleaned from our research, as outlined in recent articles:

  • Human skills and tools are essential—A small, well-trained power can quickly defeat a larger but poorly trained and poorly equipped force. Don’t let your foot soldiers (buyers) be subjected to an imbalance of power. Give them the training, coaching, and systems they need to be successful.

  • Automation of contract authoring and monitoring can do more than reduce labor cost and errors—In fact, the highest value comes from other things, such as increased business velocity and agility, better utilization of discounts, pinpointing supplier improvement opportunities, and automatic initiation of corrective actions.

  • Granular, precise, accessible data enables new processes and improved decision-making—Once you start filling in the holes and getting much more granular sourcing data (e.g. contracts, supplier performance, spend, etc.), it enables you to do things you couldn’t do before. For example, granular data about supplier performance enables total cost negotiations. Spend data combined with BOMs linked to contract manufacturers enables inter-enterprise spend analysis, incorporating combined OEM/CM spend.

  • Supplier metrics must be made visible and used for buying decisions in order to produce results—If the metrics are taken seriously by the buying organization (i.e. used to make buying decisions) and they are made very visible and accessible to the suppliers, they produce changes in supplier performance. This effect is enhanced further when regular dialog is part of the equation.

  • Data cleanliness cannot be overemphasized—It can be dull, mind-numbing grunt work, but it is absolutely necessary for success. Without clean data, nobody believes the system.

  • The cleanliness of data used to rate suppliers is quickly revealed—If you reward/punish suppliers based on performance metrics, they will be vocal about any errors they see.

  • Reverse rating can help to fix the buyers’ impact on supplier performance— Unintentionally, the buying firm may undermine the performance of their own suppliers. The judicious use of a reverse rating system (supplier rates the buyer), can help to uncover and correct these cases.

  • Comprehensive reverse auctions may let you have your cake and eat it too—Traditional price-only reverse auctions, while achieving very substantial cost reductions, seem to be the polar opposite of traditional strategic sourcing approaches that advocate continual improvement via long-term strategic relationships. The usual strategy is to divide vendors into commodity vendors (“They’re all the same; go with the cheapest.”) vs. strategic (“This is too complex or critical to trust to an unknown entity.”). Advanced firms have demonstrated that by being very thorough in specifying complete criteria and how you want to be served, you can do reverse auctioning for items and services that would traditionally be considered too complex or too strategic.

Although these practices may not necessarily be one-size-fits-all, we can certainly learn valuable lessons from those who have pioneered these practices.


To view other articles from this issue of the brief, click here.

 




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