In our third post of this series, we will talk a bit about supply side risk identification and supply chain optimization through deeper visibility into your contractual milestones and obligations.
Supply Chain Optimization
While revenue resiliency is important, there are some factors working against a lot of us right now. Uncertainty in the market (pick a market, any market) is just one of them. Businesses generally look for predictable results, quantifiable risks, maximizing gains while minimizing risks, and so on.
Quantifiable risks in the supply chain is one place to start when looking at your supply side contracts.
If your business is off and you expect the lull to last a few months, analyze…
- What is your maximum exposure in certain commodities?
- What is your committed volume in high value categories?
- Can you put a temporary pause on your top ten suppliers?
- Can you extend your agreement termination date to cover the freeze?
If your business is not off, but you see suppliers missing delivery dates…
- What happens if a key raw materials supplier is missing dates – does this go beyond performance management and into a contractual issue? Is force majeure something they can rely on?
- Can you switch suppliers if they miss these deadlines – what clauses should you look for?
In-depth Data Visibility
Side conversation – I am looking at a green CARRY ON LUGGAGE tag from a regional flight in February. When will be flying again? Will United lower its 1K criteria this year?
Back to business – Supply side risk identification, exposure quantification, and looking for ways to balance your need for supplier relationships and cash flow through these challenging times require visibility into the contractual obligations and entitlements you’ve negotiated – and that may or may not be through easily identified metadata associated with your contracts in a repository.
It could be buried inside your contracts. Your contracts could be locked up as image files. They could be shoehorned into a shared drive directory folder named 117ADG (or some other equally obtuse name).
How do you start? How do you start when you can’t get everyone easily in front of a whiteboard?
First – be hopeful – many supply side contracts are likely replicated in your purchasing/procurement systems – and while you may not know how to get to them now, it’s not impossible.
Second be realistic, that the contracts stored in your procurement system may not be the finals – since the finals were negotiated after the RFP was awarded, or the auction was closed.
So, here’s my thoughts:
- Get some stakeholder support – you may need to rally some IT resources
- Get some peer support – odds are you won’t get any IT resources
- Agree that you will NEVER EVER find all the contracts you’ve signed over the last 10 years.
- Agree that you will NEVER find all the contracts you’ve signed in the last 24 months.
- Agree that getting most of the high value supplier/vendor agreements is enough (and most should be about 80%)
- Assign someone the role of librarian and set some rules
- Set up a shared drive, OneDrive, FTP site, etc. and have everyone email the librarian
- Rule time – only send the most recent version of the contract
- Rule time – save the executed versions separately from the unilaterally signed from the unsigned
- Look at search tools to search for common text strings across these files and folders (yes Zycus has something that is optimized for this) and then rate the contracts for risk factors that are in your favor and are NOT in your favor.
- Determine the value and term of these contracts as another dimension.
- Triage/Prioritize those high value contracts with durations and flexibility for term extensions, service freeze/park
- Partner with your suppliers, negotiate with fairness (Afterall they are likely in your shoes) and be as kind as you can while still running the business
- Learn from this.
- Assign a curator to create and or manage a clause library – something to do while the kids repaint your family room with that box of markers you left out (did you know most highlighters are permanent on cloth?)
- While folks are remote – it’s a good time to assemble template libraries (and gives you an excuse to ignore that same boring story about how during the most recent hurricane, blizzard, or mint chocolate chip ice cream shortage your significant other walked 6 miles for that thing you said you wanted)
- Prepare for automating this process in the future to help remote teams manage contracts, and contractual issues better remotely (yeah we do that).
Did I miss out on anything? Which other strategies do you use that have produced results for you?