Supply Chain Consultants are often tasked with helping organizations face their fears or avoid scary situations altogether. Occasionally, however, their job is a frightening one. Outdated processes, neglected supplier relationships, and internal friction can all haunt the dreams of consultants and clients alike.
There's no denying that every supply management consultant has some horror stories of their own. To get into the holiday spirit, check out this terrifying tale from one our spend management specialists.
The Phantom Contract Management Plan
This was happening in the CPG industry, specifically within the Logistics department. Where are the contracts? That was our biggest question. Answers weren't easy to find.
A majority of the staff was not aware of where the contracts were located let alone what they looked like. Carriers would consistently hit the organization with various charges, fees, and costs. The department, for their part, would blindly approve them as they were not aware of what was acceptable and what wasn’t. Though there was a boilerplate contract for carriers, several expectations were made based on the existing carrier relationship which caused a lack of standardization and transparency in other relationships.
Contracts were not always signed by both parties. In certain instances, one party wouldn’t have the fully executed version to hold as proof for their claims. A majority of logistics agreement require the carrier to provide a form of a license, operating authority, w8/w9, and certificates of insurance. These items need to be updated, at least annually, but this organization didn’t bother to collect them, house them, or share them. This is potentially a major risk and can result in liability concerns if something were to occur in transit.
Contracts were being stored in a storage drawer (unlabeled) or scanned into an internal drive - again, unlabeled and unmanaged. There was absolutely no knowledge sharing or awareness that this was an area of concern that needed to be addressed. How was the organization to enforce rules or regulations when the company itself wasn’t aware of what their contracts looked like? There was no systematic way to check on expiration dates, clauses, rate schedules, fees, charges and so on.
Contract Lifecycle Management is key to maintaining vendor relationships. Typically a contract Management System (CMS) investment would be ideal to helping manage contracts and key components of them, but a CMS might not make sense for all organizations. If an organization doesn’t have the business case for a CMS system yet, they should create a governed procedure to manage contracts and carrier partners and house them in an area where they are accessible to all. There should be ample training for all resources to understand the agreements and what the partnership will require of them.
They should feel empowered to use contracts as a way of establishing standards and expectations with the suppliers.
All contracts should be reviewed every year and is a critical component of contract lifecycle management. As a best practice, you will want to review you agreements collaboratively with your suppliers/partners. This opens up two-way, transparent communication to address concerns and enforce the contract by restating expectations. An organization should review contracts even if they are evergreen. These documents and their terms and conditions are not just useful for leadership. Rather, they are essential for all staff members that handle day-to-day business execution.
Contracts should manage relationships and guide business execution. They should be shared freely and managed though systematic procedures on a regular cadence. Failure to do so could lead to a number of scary situations for Procurement.