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Ensuring that the contracts you have put in place are adhered to is a tricky business but giving the process attention can lead to a number of benefits for the function and the business.
At one time or another it has happened to just about every CPO out there. Your team has carefully and painstakingly negotiated a contract with a supplier only to discover later that the finer points have been totally ignored.
While it is frustrating it also ends up costing the business and undermining spend management strategies.
So, then, how can a procurement chief ensure that spend across the organisation is compliant with such contracts? This is the thorny topic addressed in a recent Insight Whitepaper, produced in association with Hubwoo, and, rather than looking at ways to tighten the screws on budget holders, the publication focuses on ways to be smarter in bringing about compliance.
Here are some of the key suggestions:
First of all you need to increase the visibility you have over different areas of spend where compliance might be at its lowest. These areas will tend to be things like travel or stationary where individuals might think that they know best how to book their own hotel, flight, taxi or indeed toner cartridge for the printer on their floor of the office.
While this may be a long and manual process that you and your team has to go through, get it right and suddenly you will find that you will have eliminated pricing variants right across the board and will have also increased your spend leverage over suppliers, simply because you will know exactly how much you are spending with them, rather than just guessing at an amount.
Communication is key to securing contract compliance. Without telling everyone about the contracts or the spend management systems you have put in place to buy products through there is no way you can expect them to know about or stick to the agreements you have.
If you have one, work with your internal communications team to put a strategy in place to inform everyone about the process, the benefits of it and how they can use it. If you don’t have an internal communications team then it might well be best to work out ways to make the case to senior management in order to get the message heeded from the top down.
While clear communication might be essential, you also need to make sure that you involve and work with all relevant stakeholders during any negotiation process, particularly around those associated with more personalised services, such as marketing or legal providers. Instead of forcing the issue and trying to make stakeholders adhere to a contract you may have already negotiated, work with them and figure out a way of accommodating their requirements.
As Daniel Helmig, group senior vice president of supply chain management at ABB, is quoted as saying in the whitepaper: “Bring all responsible parties together so that you involve all the different areas. Don’t do something centrally and then just hope that everyone will comply. There is nothing worse for a good plan than reality. When you really go into the nuts and bolts there are reasons why certain countries or business units have different requirements. So do it as a team. Go for a good agreement overall – which doesn’t need to lead to a lowest common denominator. The CPO needs to be on top of that as well, to see that the team is not always going for the smallest solution.”
Without having the necessary knowledge and expertise in your team the management of your contracts or the spend systems it is possible that despite doing all the above you still find that compliance isn’t 100%. What you need is someone on your team who has the knowledge to manage the system, cleanse the data coming out of it and work with your provider to ensure that it matches up with the needs of the business.
Get these four steps right and you will see costs come down almost certainly but perhaps more importantly it will raise the profile and the goodwill felt by other functions towards procurement, keeping it on that path to increased influence.
This article is a piece of independent writing by a member of Procurement Leaders’ content team. This is published in support of a piece of sponsored content, published in partnership with Hubwoo.