Why Embed Contract & Supplier Management?
Persuading stakeholders to implement change can be difficult. This is particularly true if there are no absolute, cast iron guarantees to support the proposal. Therefore you must consider how to show the potential benefits of an embedded Contract & Supplier Management (C&SM) model.
The guidance below and the linked templates should help you build the necessary business case / justification.
Industry leaders claim a 5% minimum cost saving will be achieved by increased and embedded focus on C&SM.
Another approach is to consider the risks and missed opportunities of not focusing on C&SM, for example:
- the cost of incident resolution activity / service failure
- poor supplier engagement / flexibility
- ineffective cost control
- confused / cumbersome communication channels
- risk or reputational damage
- risk to service continuity
- lack of accurate Management Information (MI)
- missed (mutually beneficial) innovation / cost reduction opportunities
- missed employee development opportunities
- risk of substantial modifications to contracts
- Consequently, C&SM is unlikely to be effective unless the parties move from a transactional to a relational model. This could actively encourage and develop close working relationships and resulting mutual benefit(s).
The success of the relationship between an organisation and suppliers/service providers depends on the extent to which there is:
- mutual respect and trust
- a joint understanding of the roles played and challenges faced by each partner
- openness and excellent communications; and
- a joint approach to managing delivery.
You need to build the relationship outside of the traditional constraints of a performance-based contract. A ‘we are in this together’ approach should be fostered. This will encourage open communication and to maximise service and cost efficiencies.
How to Implement an Embedded C&SM Model
To succeed, build on small success: when a pattern of small successes has been achieved, proposing a more ambitious C&SM plan becomes less daunting. This is because you have proven results to refer to.
Instead of leaping into the unknown, it becomes the expansion of an already successful process. Initial small successes are a recognised option to create awareness and buy-in for the larger initiative. Small projects are likely to be the best way to gain the support necessary for broader, organisation-wide embedded C&SM model adoption.
The selection of small project(s) is important. It should be contracts or services not in crisis and which have scope for improvement. It is even better if it is a contract or service where stakeholders have voiced concerns or expressed a desire to seek improvements.
Once the contract/service has been agreed, a small cross-functional team should be created under a nominated contract manager who will own and manage the small project.
- Engage with the nominated supplier and have them create a reciprocal team
- Ensure clarity of roles and responsibilities within both the supplier and the Organisation
- Agree desired outcomes, such as:
- leveraging client and supplier expertise to drive cost and efficiency gains
- improved Management Information (M.I.)
- agreed KPIs and a formalised system of managing and monitoring supplier performance against the contract
- identification of innovation / opportunities (within scope, not material change)
- aggressive, but realistic timescales to ensure to ensure focus is maintained and commitments are delivered
Once the desired outcomes are agreed, your nominated contract manager should ensure maintained focus within both organisations until they have been achieved and delivered. The results should be used to demonstrate the untapped potential open to a focused C&SM approach.
The Business Template contains some ideas you may wish to include and should help lay out the business case. Your Organisation may have a standard template to use.
Who Has Responsibility for Contract & Supplier Management
Managing the supplier contractual relationship requires a discrete set of responsibilities and activities. As a result this should be the responsibility of a nominated member of staff. An organisation should consider how to ensure that:
- roles and responsibilities are clear;
- the relationship is championed at senior levels in the Organisation and supplier organisations;
- information sharing is encouraged;
- concerns about relationships, from either party, can be discussed frankly;
- the relationship allows for long-term strategic issues as well as day-to-day delivery issues to be considered; and
These considerations be built into the commodity/service specification and/or the terms and conditions of the contract.
Your Contract Manager must be engaged early in the process. This will ensure they engage early with stakeholders and determine the appropriate contract service level requirements and Key Performance Indicators . Service level and KPI requirements should have been included in the tender documentation.
Care and Support Services
For Care and Support Services processes must not duplicate those of the Care Inspectorate.
The care manager is the role which has overall resposnibility for ensuring tha tthe totality of care and support for an individual is acheiving the desired outcomes.
Determining the resource required to manage the contract portfolio / supplier base is not an exact science. Very often it is subjective.
Any organisation planning to transition Contract and Supplier Management responsibilities to an embedded C&SM team, must estimate the resource required. You must invest time too realistically and pragmatically plan required resources.
Some resource planning options are laid out below.
Estimating Work Required
Resource planning for a new C&SM team often depends upon the judgment of an experienced manager. You should provide enough information for an experienced manager to make an initial estimation of the extent of work required i.e. to manage the volume of Leverage, Routine, Strategic and Bottleneck suppliers.
A decision may be made to start with a small selection of critical or problematic suppliers. Then you may gradually incorporate more contracts/suppliers with additional resource coming on board as appropriate.
The Resource Planning Tool is taken from a Scottish Public Sector organisation’s successful proposal to transition from a traditional ‘let & forget’ model to a C&SM model (and is indicative only). For the avoidance of doubt, this organisation absorbed the workload into the existing headcount by reallocating/reprioritising responsibilities and eliminating non value-add activity.
Quantification / Segmentation
Quantification / Segmentation is the most accurate methodology of estimating the resource required to manage the contract / supplier portfolio. It is however, still an ‘estimation’ as many factors can affect the resource requirements, such as:
- organisational / process maturity
- employee capability
- supplier performance / capability / flexibility
Access the Level of C&SM Required
You need to identify where your contract sits. The Strategic Positioning tools found in the Develop Commodity/Service station can assist you in doing this.
Regardless of how formal a commodity/service strategy is, or is not, there is always thought and decision making on:
- how the contract or agreement will be set up,
- who the potential supply base is and
- what the desired outcome is.
A straightforward way of assessing the potential level of C&SM required is to consider the:
- value (both monetary and importance to the organisation) and;
- risk (also considering diversity of supply base and reputation) of the contract/agreement.
Please find a link below to the Full Balanced Scorecard. Please note that the balanced scorecard can be edited to suit the commodity/service area.
Please find a link below to the Segmentation Tool. The purpose of this exercise segments the contract portfolio into four categories (Leverage, Strategic, Bottleneck, Routine), which will allow an organisation to estimate the extent of work involved in managing each category.
The Resource Calculator Tool below can be used to help you estimate the amount of resource reuired for your contract management needs.
Please find attached a link to the Contract Management Supply Positions Tool. The document helps you to segment your contract portfolio into four categories (Leverage, Strategic, Bottleneck, Routine), which will allow an organisation to record the extent of work involved in managing each category, including frequency of performance review meetings and frequency of Management Information etc.
This tool will provide an estimated resource calculation. There is a natural tendency to over-estimate the work required, and it is important to avoid this trap by being as pragmatic as possible.
Where possible, it would be worthwhile comparing/collaborating with a similar organisation which has a more mature C&SM operation, especially where an organisation lacks the experienced managerial staff required to make informed judgements. this collaboration will allow the organisation to benefit from the experience of the more mature organisation and to factor in distortions such as the learning curve they will experience on the journey towards maturity.
Roles and Responsibilities
Category A, B & C Ownership and Workflow
Organisation’s Board / Senior Management Team
Board / Senior Management sponsorship is a critical element to facilitate the success of the Contract and Supplier Management Initiative. The Board / Senior Management Team should take the ultimate strategic ownership of business critical, strategic supplier(s), and be fully committed to improving the contract performance collaboratively with those suppliers.
Contract Manager/Contract Management Officer
Every contract should be managed by a nominated member of staff (‘contract manager/contract management officer’). In a collaborative setting, organisations should determine which organisation will take the lead in managing the contract. An organisation should ensure that there is clarity about the distinction between:
- contract management (the responsibility of the organisation);
- service management (the responsibility of the supplier);and
- [for Care and Support Services, the role of the care manager (who has overall responsibility for ensuring that the totality of care and support for an individual is achieving the desired outcomes)].
The Contract Manager/Contract Management Officer should have the mind-set to exceed, rather than meet, required goals, deal with a constantly changing set of requirements, and have excellent communication and stakeholder management skills. They should be the principal owner of the supplier relationship and contract performance, and be responsible for business to business relationships, contract management performance and contract management competencies, including:
- monitoring of contract and supplier performance against KPIs and other specified performance indicators in partnership with contract management contributors and end users.
- monitoring ‘take-up’ and spend through the Framework or Contract
- managing any reactive/unplanned issues which arise in relation to the contract(s)
- communication of performance and efficiency gains as a result of MI analysis
- drafting and issuing supplier or customer surveys where appropriate
- chairing and managing performance reviews with the supplier, including End User feedback, and disseminating outcomes
- managing any major performance issues and complaints
- facilitating and championing supply chain innovation, continuous improvement initiatives and best practice
- managing Framework Agreement variations, and disseminating outcomes
- managing the extension of any optional extension periods (and/or the re-tender process and the supplier Exit Strategy)
- providing guidance and advice to End Users as necessary
- MI validation
Stakeholders / End Users
Contribute to contract and supplier management process by:
- supporting and championing supply chain innovation, continuous improvement initiatives and best practice
- facilitating the validation of End User feedback on contract and supplier performance
- inputting to the monitoring of the supplier performance against KPIs and other specified performance indicators
- inputting to performance reviews with the supplier
- participating in the annual performance review
- operational management of compliance, supply, demand and payment at a local level
- managing supplier relationships relating specifically to operational issues
- providing contract/supplier performance data to Contract Management Contributors
- referring supplier performance issues to Contract Manager
- leading, supporting and championing supply chain initiatives
Any documents you need are listed below
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