What’s more important for you: contract management or contract integration?
Is Contract Management the new black for the procurement profession?
Tim Cummins, CEO of IACCM, has been broadcasting the value of contract management to his growing readership for some time now, demonstrating the virtues of good contract management, but also the growing necessity of it. In this eSeries we share 10 of Tim Cummins blogs which help define and demonstrate this statement. Part 3, What’s more important for you: contract management or contract integration? is below. Subscribe to our blog to receive the next installment directly to your inbox.
Category management is now a widespread approach within supply management. For some, it is about aggregation of spend and achieving lower prices. For others, it is about increasing the expertise and value delivered by their procurement function. As with so many initiatives, it is often hard to tell what precise benefits have resulted.
One concern that is often expressed is whether a category approach limits perspectives and creates a narrow focus. In this context, I was interested in a conversation today with a team from a company called New Information Paradigms (NIP). One of their projects contained the term ‘category leadership’, which they defined as ‘aligning capabilities through relationship assets’. The project had involved collaboration across a portfolio of suppliers, in which they had worked together to identify efficiencies and deliver savings to their customer. For example, they explored opportunities to align transportation and warehousing – even, in a few instances, to switch product lines.
The NIP approach had caused organisations to explore their relationship as a potential asset and to examine their mutual partnering capabilities. It led to key questions, such as:
- are we both prepared to adjust the way we do business to better align processes?
- how well do we share and manage information as a joint resource?
- how well do we understand relationship risks?
- how well are we leveraging the relationship asset to do business in a new way, to innovate and to protect or grow mutual value?
It strikes me that there is a further step in this approach – and that is to achieve ‘category integration’, where there are specific initiatives to develop collaboration across inter-dependent supply networks and to establish opportunities to optimise performance. We see this to some extent in approaches to relational contracting, where facilitated workshops establish common procedures, discuss relationship risks and generate a shared commitment to continuous improvement.
My belief is that category management in isolation delivers limited benefits. As with any segmentation, it needs approaches that offer incentives for integration and cooperation.
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