Were last winter’s energy margin notices a warning that was ignored?
It’s clear that the signs were there for all to see if a recent article from px Group is to be believed.
They should know as they operate a number of assets that feed in to the National Grid and claim that there were no fewer than 6 margin calls from National Grid – times when forecasted half hourly supply will not meet forecasted demand – in the winter of 20/21 vs 2 total in the whole period from 2011-2019!
Sure, we’ve been caught in a perfect storm now as i) the weather has meant a lack of wind supply at the same time as ii) Asia has increased it’s requirement for gas while emerging from the pandemic and iii) UK gas storage is at an all time low.
That said these issues haven’t suddenly occurred. They’ve been creeping us on for months if not years so were the warning signs there and was it possible for producers & providers to have taken action sooner?
5 Things To Know About Effective Contract Management
5 Things To Know About Effective Contract Management
The first thing to understand about contract management is that it doesn’t just entail awarding and managing contracts.
Contracts form part of every business and the more you have, the less risk you’re exposed to. That’s why you need to have good management processes in place to manage every contract in your business.
1. Where are your contracts?
You should have contracts for the following (at minimum):
·With your partners and suppliers
·If required, customer contracts
·Employee contracts
The majority of B2B suppliers will insist on contracts being agreed. To avoid your business being on the losing end of contractual obligations, the process needs managed. You must know and fully understand the terms you’re agreeing to when you enter a legally binding contract.
2. Never sign without negotiation
That’s a rule to live by in business.
There’s always some wiggle room and it’s the entire reason for part of the duties procurement officers do day in, day out. Assess, identify and negotiate.
They need to review all the terms, understand them and find the areas within the contracts that need revised to improve those terms. Moreover, better terms are most often ripe for the picking. You don’t get if you don’t ask.
3. The ball remains in the buyer’s court so play responsibly
When you’re negotiating contracts, you cannot be in the mindset of scrounging for every saving you can. Savings are all well and good but never at the expense of a positive working relationship.
One of the worst things for contract management is to have one party feel unjust due to extravagant terms. What can start out as a standard RFP (Request for Proposal) can have numerous bids, the most attractive ones will be analysed, scrutinised and all too often sabotaged.
When suppliers are keen to jump aboard and partner with you, in particular the smaller sized firms, often the owners are looking for security of finance, rather than good terms.
The result is that they don’t have the capacity to understand the entire scope of works being agreed to until it’s too late. They find themselves bending over backwards for too little remuneration in comparison to the efforts put forth. Next thing you know, the quality of service declines, and it’s affecting your customers.
That’s the price of cheap sourcing.
Don’t look for best pricing. Focus on best value.
4. Build the relationship before the contract
You won’t get a great discussion going into negotiating terms of agreements between two parties without the relationship first. When RFPs are first put out, the focus should be on building relationships with suppliers first because often is the case, that’s a representation of how your working relationship will be, possibly for years to come.
If that rapport isn’t there, the working relationship will be poor. That’s just to start with because the contracts will come up for renewal. When you get to that stage, it’s best to be on good terms with a supplier who gets your business, understands it, and works closely with you to enhance your customer’s experience.
Changing suppliers doesn’t help customer service in the short-term but sometimes, things don’t go to plan, negotiations break down and you find yourself beginning the tendering process over.
The management of contracts is never done. As long as they’re in place, they need managed and so do the people and companies involved.
5. Analysis must be thorough
For contract management purposes, there are four ways to assess risk to business finance, and the legal responsibilities or ramifications of commercial contracts.
The four main types of analysis include:
PEST analysis
· Political
· Economical
· Social
· Technological
SWOT
· Strengths
· Weaknesses
· Opportunities
· Threats
STEEP
· Social
· Technological
· Economical
· Environmental
· Political
STEEPLE
Same as STEEP with the addition of…
· Legal
· Ethical
Most businesses will be familiar with the SWOT analysis to assess threats and use that for their internal and external risk assessments. However, when there are changes to the economy, the political landscape cannot be ignored.
Take for example the UK’s exit from the EU. That’s politics affecting businesses of all sizes. That brings legal compliance issues into the risk assessments, and by adding in the issue of ethics for CSR policies, the STEEPLE analysis is the more in-depth option for a comprehensive risk assessment.
Manage your contracts and you’ll be better placed to manage risk within your business, thus preventing complications further down the line.
Without contract management, risk management would be impossible.
Do You Need To Transform Your Procurement Process?
Do You Need To Transform Your Procurement Process?
How your business partners and gains buy-in from suppliers will influence not just your overheads, but your CSR policy, Procurement policy and quite possibly even extend to your HR policy too.
There’s a magnitude of variables involved in procurement that to the average business owner, without a professional procurement team (or even just a manager) in place to manage suppliers, things won’t go as smooth as they could do.
What Professional Procurement Entails
- Understanding Value
This goes beyond assigning a monetary value to lock in savings commitments through procurement. Value differs by company and it’s the business owner who ultimately determines what he or she defines as value.
Your company may value supporting SMBs for goods and services supplied, while another may place more importance on the value of green sourcing.
Whatever values your company supports and works hard at upholding as part of your CSR policy, can be supported and further championed by working with suppliers with the same core values.
Values go beyond figures.
- Professionalism throughout procurement
One of the best approaches to ensure professionalism in procurement is to ensure your buyers, whether in-house or outsourced, are invested in continual professional development.
In the UK, you can simply check with The Chartered Institute of Purchasing & Supply (CIPS).
By investing in people who invest in keeping their expertise current, you can be certain that your company will meet or even exceed compliance requirements.
In addition, further areas that will not be neglected is market research, which is essential prior to issuing RFPs (Request for Proposals) to begin the tendering process. Moreover, ethical standards will be included in the analysis of potential suppliers as well as having sound organisational knowledge.
When CPD is part of your HR policy, complimenting your procurement policies, you will find it to be beneficial for improving your entire procurement process.
The fundamentals
Combine…
- The Principles of fairness
- Integrity
- Transparency through competitors
By using the above fundamentals, you will achieve better operational efficiencies, reduce corruption, increase effectiveness throughout your supply chain… all of which brings us right back to the starting point of value – your business will reap the benefits of value for money, and your policy will enhance customer trust, and enable your business to gain a competitive edge.
Plus, you get the data to make further improvements to your procurement process
Data analysis is critical for business development. The longer you’re operational, the more data you will collect and store both in paper format and in digital format.
The majority of the data gathered by procurement professionals must be understood in order to enhance your business processes.
Data analysis can be done whenever you feel the need to, quarterly, bi-quarterly, annually or ad-hoc.
With the magnitude of data at your fingertips,
- Benchmarking can be done
- Supplies and suppliers monitored
- Contracts evaluated
Introducing a transformation process
Chances are, there’s something above that your business hasn’t covered already with your systems and business processes. To implement any of it would involve transforming how you currently manage your suppliers, contracts, tendering process and quite possibly, your entire procurement policy.
The good news is that it’s not too late to make changes, because frankly, to experience efficiencies through procurement, it takes an ongoing approach.
There are plays you can make for the short-term, others will be long-term.
Whatever your ambitions are to better your supplier management, there are three steps you can take that will transform how your business buys-in.
- Assess your current procurement situation
- Plan changes strategically (seek advice if you lack the market research or organisational knowledge)
- Implement the changes you deem necessary
- This 3-step approach will need to be done periodically. The more your business matures, the more frequently your procurement team will need to repeat the above three steps to ensure any gaps are identified, addressed and changes implemented for faster improvements.
3 Areas Of Data Analytics You Can Use For Strategic Outsourcing
3 Areas Of Data Analytics You Can Use For Strategic Outsourcing
If you’re not at the stage of bringing in contractors, you better get used to the idea because there will be things that are better managed by other professionals, and there’s other things your business simply requires that you will not have the internal resources to manage in-house.
You need to work with partners.
If not now, then you soon will in the future. Your business will eventually be looking to outsource something or other. It could be as simple as a uniform cleaning service or it could be your entire janitorial services.
Whatever it is you need to bring in outside help for, the key ingredient you need to get your outsourcing right is analytics.
Now…the larger your company is, the more data you will have. When you’re working at enterprise level – managing multiple sites – you will essentially need big data analytics and staff on hand to manage your data, analyse it and scrutinise it for efficiencies across your entire operation.
If you don’t have the procurement specialists aboard your organisation, then an option open to you is to outsource your outsourcing for which you’ll need a procurement specialist to assist you with data optimisation for savings realisations.
What you’re looking for in your analytics to improve outsourcing efficiencies
Three things…
1)Spend
2)Contracts
3)Suppliers
Those are the three areas of your company’s data that you need to have access to, to manage your outsourcing efficiently.
. Spending
This will need periodically reviewed. Many firms have pricing policies in place for which annual price increases form part of the contractual process. Opposite from what you might expect, the longer you deal with the same supplier, the costs aren’t always the best you can get.
This is true for domestic contracts as much as it is for the commercial sector. It’s often better to switch suppliers but in doing so, you can’t neglect the quality of service being provided. Over time, depending on your in-house quality requirements, you may be better placed sticking with a premium service provider if it means you’re guaranteed consistent quality because your supplier will know your business better.
Take for example a five-star hotel or a Michelin starred restaurant. Getting the linen washed (be it bedding or gleaming white table covers) may be a basic service for some cleaning suppliers, but to maintain your standards, your current supplier may be investing in top of the range equipment to ensure your whites are whiter than white, enabling you to maintain the highest of quality standards for your end-users.
That being said, you still need to be reviewing contracts. That’s why that’s listed second on the list of areas to monitor.
Your contracts should always have a start and end date. As you approach your end date and your contract nears renewal, it’s not just a case of deciding whether to stay or switch. It’s a chance to get back to the table and renegotiate everything within the contract.
Without reviewing contracts periodically, any bottlenecks that your data show you to be happening, won’t be eliminated.
Use your contract renewals to ensure your suppliers are on the same page as you so they can provide you a top-notch level of service. They can’t do that if you don’t tell them what you need them to do to take care of your customers.
One idea you can and should be doing is surveying your customers to ensure that any problems are identified and brought to the attention of your suppliers so they can be rectified. Every supplier you bring aboard your operation will affect your customers at some point. That’s why these contract renegotiations are super important. It’s your chance to maintain and even enhance your customer’s user-experience.
The last piece of actionable advice for strategic outsourcing using your data analytics is to monitor your suppliers.
Where possible, consolidation is best.
The fewer suppliers you have, the less administration you have, and the more efficient your business will operate.
· Minimise suppliers
· Review contracts periodically
· Monitor your expenditure
Those are the three areas to use your analytics for when you’re outsourcing. The more efficiently you can manage those three aspects of your outsourcing, the better quality of service your suppliers should be able to deliver to your business, with continually bettered contractual agreements, terms of service, service level agreements and sometimes pricing (but not always depending on what you need).
Using your data smartly is the best way to improve efficiencies and drive cost savings across your business.
5 Risks Of Decentralisation In Supply Chain Management
5 Risks Of Decentralisation In Supply Chain Management
To clarify, in business there are two types of supply chain management; the centralised approach and the decentralised approach.
Let’s first define each so you can understand the risks involved better.
The first is the centralised approach to sourcing and it’s the best way to manage SCM.
A centralised and often strategic approach to sourcing business supplies and services requires your head office to have a procurement team in process. If you don’t have the capital to invest in developing your own in-house team of sourcing experts, outsourcing to specialist providers would be the next best thing and will still help you cut costs.
The second approach that many smaller sized businesses take to SCM is the decentralised approach. With this, when you’re only operating from one location, you may be able to keep on top of things but the risk is still there that certain aspects could be overlooked leading to higher operational costs than you need be paying.
The decentralised approach to sourcing anything transfers power throughout the company, meaning that many staff are able to order whatever supplies they feel they need and worse still is when there is no pre-approval required before ordering. That will lead to increased invoices, leaving upper management with little influence over expenses control.
Beyond that, here are…
The Top 5 Risks of Operating with a Decentralised Sourcing Process
1. The risk of having too many suppliers
Even stationery can become cumbersome if it’s not managed. Can you imagine, or worse if you’re experiencing this already, getting your stationery from one supplier, your secretary ordering print paper and ink cartridges from another, letterheads from another supplier and business cards from somewhere else?
The costs will quickly spiral but the worst risk you’re putting your business through is the one of quality management. Everything you order needs to be consistent with your brand and that includes your printer ink, company letterheads and business cards, and all your stationery.
With too many suppliers in your business, you’ll have increased invoicing to deal with, which can lead to some being missed resulting in late payment fees and you’ll struggle to manage the quality of supplies across your firm.
Stay in control of quality and expenses by minimising your supplier base for each product or service category your business requires.
2. Surplus expenses
The less “expenses” your company has, the better you’ll be able to manage your accounts. This isn’t only about managing your finances, because it’s more about the paperwork that comes along with increased operational expenses. The more invoices you have, the more payments you need to make or cheques need issued. It can become a time intensive process just dealing with the paperwork involved in having too many suppliers, creating far too many invoices for your accounting/finance team or your accountant to deal with in a timely manner.
Even if you’re using cloud accounting to manage your financial records, the input and reconciliation of each invoice will quickly become time intensive.
3. Brand quality sacrificed
Your suppliers are business partners and need to be treated as such. A lack of control over your suppliers and you’ll be doing wrong by your customers.
The best approach to strategic sourcing in supply chain management for any business is to remember these three rules…
It’s about…
1.Process
2.Personality
3.Repertoire
The first is to get a process in place for strategic sourcing, letting you manage the process efficiently.
The second rule is to have a representative work closely with partners, which often means personality matches ensuring they can work together professionally for amicable business objectives. The third is repertoire between your sourcing expert and a supplier representative ensuring long-term partnership resulting in best practices for both businesses.
When you have all three, you have a process in place that can stand the test of time and could even give your firm a competitive advantage. That’s the entire reason for taking a strategic approach to sourcing business supplies and services.
4. Too much data
Having too much data from a broad range of suppliers will make it difficult for your team to scour through it to make the best decisions moving forward.
By centralising your supplier base, your team will be better equipped to scrutinise the B2B contracts in place, and then work with suppliers to negotiate better terms, pricing or both; something that’s going to be too difficult when you lack the attention of one supplier.
Today’s supply chain management is not always about buying bulk for discount. It’s more about buying into value. The supplier to provide your business with the most value is the one that should win the contract. Suppliers know this and will work closely with you to ensure you are receiving value. Some will even go as far as investing to ensure their business is in the best position possible to streamline the supplies to your company and pretty much future-proof the contracts against potential competitors.
5. The biggest risk factor is to your optimised spending
For purchasing to be efficient across a business, it requires spending to be optimised. You cannot do that without having a centralised purchasing process in place. There needs to be formal supply chain management policies in place, approval processes that all staff understand so they can divert their needs to the appropriate named contact in your business; even if that’s a named contact acting as a liaison officer between the firm and an outsourcing procurement specialist.
Only when you have standardised approval processes for purchasing in place, and professionals to oversee the procurement process of all supplies across the entire company will you be able to mitigate the risks of operating with a decentralised procurement process.
