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Contract and supplier management

key building blocks in any systematic purchasing organization

When a dedicated employee points out to us in a cost optimization project that, for example, a software maintenance contract for next year can be terminated, we’re initially delighted to hear it. All too often, however, we quickly find out that the contract in front of us isn’t up to date – and that the period of notice required to cancel the service for the following year has long since expired. So the company will have to wait for another 12 months to terminate it – but still...

Is this an unfortunate one-off? Unfortunately not – in many companies, the contract data aren’t kept up-to-date. Meaning that an important precondition for successful renegotiation and targeted supplier management is simply missing. Nor is supplier management just about setting up meetings with the major suppliers from time to time. It’s all about focusing on controllable supplier relationships – at the precise moment in which we have the levers to hand.

All of which means that meaningful contract and supplier management must begin by defining the goal, so that everyone involved can focus on the right issues:

    Target definition

    1. What is the product group strategy, and which supplier issues should be prioritized accordingly?
    2. Which suppliers are actually “strategic” in the sense that it’s actually worth maintaining a close yet time-consuming relationship with them? Of course, many companies maintain a strategic supplier relationship with the “Big 4” software manufacturers, for example – but it’s definitely worth considering, even with these major players, whether the resulting potential for influencing contracts, performance and processes actually justifies this.
    3. What requirements on contract management arise from the supplier landscape, and to what extent is the effort and expense required for this actually justified?

    Central questions

    Updating and storing the most important data – whether this is done with an Excel tool or using one of the common software product brands is in the first instance irrelevant. What matters is that the central contract and supplier data are available and an overarching view arises that encompasses all the divisions in the company rather than just a few. This makes it possible to prioritize the most important suppliers.

    Focusing on a few, really important suppliers with whom close coordination makes sense – here, the principal focus is on those suppliers who are regularly involved in changes to the company's processes. This includes, for example, IT service providers and some consulting services. Also often included are suppliers involved in the company's innovation processes, e.g. in the technological field.

    In the following supplier management process, the purchasing department, as driver and controller, should take on the role of overall coordinator. The coordinator’s job is not only to consolidate the individual bits of information, but also to take the initiative on new issues at the right times and, in the event of conflict, to be available internally as an escalation partner. This may require capacity – but it’s worth the effort!

    In addition, the establishment of effective and efficient communication with the management and the other divisions of the company will ensure that the supplier doesn’t take control.

    From a purchasing point of view, it’s important for the levers to be in the hands of the purchasing department and for the top management to intervene only within the confines of a previously internally agreed negotiating strategy.

    It’s also important to pay attention to standardization as far as possible when designing the communication process reports. Here, for example, PowerBI and other data evaluation tools mean that there are now a lot of ways to avoid unnecessary work.

    Our other competences

    Procurement

    Achieve optimal results, in any negotiation position

    Cost Management

    Understand and optimise costs

    Transformation

    Successful communication and strategic change management

    IT Management

    Secure IT operations and leverage innovative technologies