Route 3 - Contract & Supplier Management - Planning & Governance
Business Case / Justification
Why embed Contract & Supplier Management?
Persuading stakeholders to implement change can be difficult, particularly if there are no absolute, cast iron guarantees to support the proposition, therefore consideration must be made as to how to demonstrate 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.
While industry leaders assert that a minimum cost saving of 5% will be achieved by increased and embedded focus on C&SM, an alternative approach may be 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
missed (mutually beneficial) innovation / cost reduction opportunities
missed employee development opportunities
risk of substantial modifications to contracts (EU risk of ineffectiveness)
Consequently, C&SM is unlikely to be effective unless the parties transition from a transactional to a relational model which actively encourages and develops close working relationships.
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.
This necessitates an investment in building the relationship outside of the traditional constraints of a performance-based contract. A ‘we are in this together’ approach should be fostered to encourage open communication and to maximise service and cost efficiencies.
Managing the contractual relationship with suppliers / service providers comprises a discrete set of responsibilities and activities and 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 to be considered as well as issues relating to the day-to-day delivery of the service; and
[for Care and Support Services the processes must not duplicate those of the Care Inspectorate.]
This might be built into the commodity/service specification and/or the terms and conditions of the contract.
It is essential that the Contract Manager of your Organisation is engaged early in the process to ensure that the stakeholders and Contract Manager determine the appropriate service level requirements and Key Performance Indicators (KPIs), and that they are built into the contract. Service level and KPI requirements should have been included in the tender documentation.
How to Demonstrate the Potential Benefits of an Embedded C&SM Model
To succeed, build on small success:
When a pattern of small successes has been achieved, proposing a more ambitious adoption plan becomes much less daunting as there are proven results to refer to.
Instead of leaping into the unknown, it simply becomes the expansion of an already successful process. Given that 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 the broader, organisation-wide adoption of an embedded C&SM model.
The selection of small project(s) is important, and should be contracts or services which are not in crisis and which have scope for improvement. Even better if it is a contract or service where stakeholders have voiced concerns or expressed a desire to seek improvements in any way.
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 through to its conclusion.
As laid out in more detail throughout the C&SM guidance, the nominated cross- functional team should:
Engage with the nominated supplier and have them create a reciprocal team within their organisation
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 have been agreed, your nominated Organisation contract manager should ensure focus is maintained within your Organisation and the supplier 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.
Determining the resource required to manage the contract portfolio / supplier base is not an exact science, but very often subjective. Some options are laid out below, but any organisation planning to transition Contract and Supplier Management responsibilities to an embedded C&SM team, must invest time too realistically and pragmatically estimate the required resource.
Estimating Work Required
Resource planning for a new C&SM team very often depends upon the subjective judgment of an experienced manager. The post-segmentation profile should provide enough information for an experienced manager to make an initial estimation of the extent of work required 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 and 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
supplier performance / capability / flexibility
Assess the Potential Level of C&SM Required
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.
The above Segmentation Ouadrants can also be dowloaded.
The above Segmentation Characteristics can also be downloaded.
Please find a link attached to the Full Balanced Scorecard. Please note that the balanced scorecard can be edited to suit the commodity/service area.
Please find attached a link 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 can be used to help yeou 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, incuding 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
The above CAT ABC ownership diagram can also be downloaded.
The above CAT A diagram can also be downloaded.
The above CAT B diagram can also be downloaded.
The above CAT C diagram can also be downloaded.
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
Responsibility Summary Table
The above CSM Responsibility Matrix can also be downloaded.
Checklists for the Contract Manager
The Contract Management Checklist provides guidance to the Contract Manager around the following activities:
- Planning and preparation
- Managing service delivery
- Managing the relationship
- Contract administration
- Seeking improvements