The supply chain is no exception to the return of tighter obligations and contractual rigour. The various crises of recent years, which have added strain at every end of the chain, force companies to rethink their logistics organisation and their contracting strategy for supply chain and logistics activities.
Now that supply chains have returned to something closer to normal, companies, whether service providers or clients, are more willing to reassess their contracts and their practices in this area.
Negotiating and administering agreements, very often multi-party ones, and setting up an efficient contract lifecycle management process is often a long and painstaking exercise.
So which mistakes should you avoid, and which strategies should you adopt, to meet the demands for responsiveness and proactivity placed on supply chain and logistics? In this article we share some of the recipes that work and that we recommend.
Which mistakes can limit the success of a transformation project?
Failing to make the right decisions can prove costly and hazardous. Mastering your contract process, from the preliminary phase (defining the requirement, tender, etc.) through to contract management & administration and contract performance, helps bring to light where things can be improved compared with what has been done so far, the optimisations available and the opportunities on offer.
Contract management has this wonderful quality: it identifies the pitfalls that limit your contracts' performance. So which traps must we avoid, you may ask?
1. Failing to involve the right people from the project start-up phase
One of the regrettable findings we make when we begin working with a new client is that project stakeholders work in silos. Supply chain matters affect every function within it, but also the company's other departments such as finance, procurement, legal and sales. Working this way is sorely lacking in efficiency and creates difficulties at the end of the project, because not all the needs and warnings will have been voiced during the preliminary phase.
The contract will be more robust if all the players are involved from the outset, in particular through the contract manager.
2. Failing to define the right selection or acceptance criteria
Choosing your suppliers or service providers mainly on financial criteria can sometimes (and we are being kind) prove a losing strategy. It pushes into the background the technical and operational aspects that are essential to the project's success. When you are judged on your performance and your results, every player in the chain must be equal to the stakes in order to support you, and that must be the first criterion, well ahead of price.
Agreeing to deliver a service without a clear picture of the stated requirements, which makes it impossible to set the limits of your offer, can later lead to tense situations with your client and within your own organisation.
For example, jointly agreed, clear objectives and scheduling that create value can prove more advantageous than a price discount or than accepting liability you are in no position to bear.
3. Refusing to take the risk of change
Look at the KPIs set out in the contract: very often they are irrelevant, or impossible to measure in day-to-day practice, so the quality of performance cannot be measured or is perceived as poor. This should be the opportunity for a complete overhaul of the service and contract criteria.
Not daring to do so, for fear of damaging the relationship with a partner who is often a long-standing one, out of reluctance over a relocation project or an interruption should anything change, or for fear of losing a client, rules out any improvement at all.
A well negotiated and well drafted contract must provide for these situations, so that the collaboration can be readjusted or ended calmly.
As a general rule, putting the contract among the project's priorities and surrounding yourself with the right people is the best way to avoid these mistakes.
Which strategy will improve your project's performance?
Agility is the word we hear again and again whenever a project comes up, and the supply chain is no exception. Unpredictable situations, and the strain these activities are under, demand greater contractual rigour than in the past.
So which strategies should you adopt for a high-performing, agile supply chain? Contract management best practice proves its worth in this quest.
1. Update supplier segmentation and engagement approaches.
Not all suppliers or clients deliver the same value against your objectives, nor do they carry the same degree of risk. Segmenting suppliers or clients helps you direct your efforts towards those most likely to create the most value. The benefits will inevitably spill over onto the others.
Developing strategic, collaborative partnerships with your clients or suppliers is a strategy that multiplies both parties' performance and reduces costs. Amending your contract to include the joint development of a shared order-management interface, tailored specifically to the parties' needs and ways of working, is a perfect example.
2. Adapt your contractual approach to that segmentation
Is this the moment to tighten obligations? To apply liquidated damages for missed deadlines? To opt for a looser, more flexible arrangement? Should I negotiate a longer-term contract?
Depending on what is at stake, there is probably no need to take the same contractual approach across the board; better to adapt it to the segmentation you have carried out. Doing so lets you refine your offer, your needs, your commitments or your requirements in step with your evolving strategy.
3. Carry out a regular risk analysis
The aim here is to anticipate, assess and manage the risks identified in order to mitigate their impact on the company's business and its continuity. A risk management approach, particularly through contract management, makes it possible to detect the weak spots in end-to-end operations, to review service and commitment levels, and to inject the agility that will inevitably contribute to the contract's profitability.
As we also see regularly, risk management that is effective and properly handled from a contractual standpoint helps build trust between partners, which is essential for a supply chain that cannot afford grit in its gears.
4. Manage your optimisation and/or modernisation projects effectively
The environment we know today forces supply chains to be optimised and modernised. That means automating the supply chain, and therefore embedding new technologies in logistics processes to improve the efficiency of production, storage and distribution of goods, among other things.
This transformation is often complex, involves several service providers and must be perfectly coordinated. A contract manager is the person who can support the teams in selecting the right solutions to meet their agility requirements, and make sure they are rolled out in line with the reverse schedule and with the stated needs of the various stakeholders.
A poorly orchestrated automation process can have serious consequences for business continuity, hence the importance of rigorous contract management led by people with the skills to steer these complex projects.
Conclusion
Staying flexible in the face of disruption and the sector's heavy demands requires the right resources to build a winning strategy and to avoid the silo pitfalls so regularly identified in the management of supply chain optimisation projects.
Contract management is not just a set of administrative rules: it is a genuine strategic asset for adapting to the shifting needs of supply chains, thanks in particular to its operational impact and its multidisciplinary nature, and for improving your ROI.