While structuring and capturing contract terms are critical for procurement success, the hard work does not end once contracts are signed on the dotted line. Contract management is about much more than automation and reducing administrative burden. Here are three innovative ways that companies have used to leverage contract management to support strategic business initiatives.
Improving Wal-Mart’s ethical and safety standards
The retail giant has amended all supplier contracts to reinforce a ban on unauthorised subcontracting of manufacturing.
This followed a devastating November 2012 fire in an unauthorizsed subcontractor factory that killed 112 workers. The amendment also outlined new health, safety and environmental standards that suppliers must follow. The new focus on enforcing this rule, which now falls on procurement’s shoulders, will improve (or at least, maintain) the company’s brand reputation as more consumers are concerned about the impact of their buying decisions.
Encouraging SME support and spending throughout the supply chain
Both the public and private sectors are putting an increased emphasis on supporting SME and local suppliers, which, in turn, stimulates local economies. Contracts are the most effective way to ensure the right mix of SME diversity in the supply base. SME initiatives can extend beyond tier-1 suppliers as well – by contractually requiring core suppliers to use SME tier-2 and tier-3 suppliers as a subset of what is sold to your company. However, if SME data is isolated from the procurement team – traditionally, the corporate social responsibility or diversity executives own this information – buyers spend double the time reconciling data from two sources instead of focusing on how to deliver true value to the organisation. When all SME contract data is integrated into one, complete database, buyers can instantly see what contracts with SME suppliers are in place.
Complying to new conflict mineral rules – a case study from the US
Colleagues in the US were given a challenge in 2012 by the federal government: any publicly-traded, US-headquartered manufacturer – which includes global giants like Dell and Apple – now must report the sources of four, core raw materials (gold, tin, tantalum, and tungsten) down to the exact mine they were sourced from and the facilities where they were processed. Very few companies received this level of reporting from suppliers before the new compliance standards were put in place, meaning the road to compliance will be costly. Consulting firm Deloitte estimates that it will cost US businesses between $3-4 billion to implement needed process controls, which includes changing supplier contracts to ensure that all suppliers track for this information and deliver the proper reports on an annual basis. Don’t think that the UK and EU are immune to this level of reporting: the EU has already begun discussions on following the US’s lead. What business programmes and goals is your procurement team supporting through supplier contracts?
☛ Claire Sexton is an account director with BravoSolution, with over 11 years of experience working in procurement and the procurement solutions arena.