What is the cost of running out of time? The Rolling Stones once sang, “Time is on my side, yes it is!”
Unfortunately for procurement, these song lyrics rarely hold true.
by Justin Sara, Executive Regional Manager – South Australia & Fiona Nissen, Executive Regional Manager – New Zealand
For many organisations managing a suite of contracts, it is often found they are all set to expire near the end of the financial or calendar year. This has many challenges. The end of a financial year is often hectic with finalisation of projects, financial close offs, taxation and bookkeeping requirements, human resource, and performance management activities and planning for the transition into the new year.
There are many risks associated with expiring and not-yet-renewed contracts including increased pricing, the loss of defined service standards, poor management of key performance indicators, supply chain and business disruption, and diminished (sometimes to the point of obliteration) supplier relationships.
Lack of contract renewal or the rushed completion of a procurement project to replace an expiring contract has a cost. Allowing a category or multiple categories to cross into the domain of unmanaged spend can have significant cost impacts, with research showing that price increases of between 5% and 20% can be incurred. Clearly, spending 20% more on identical goods or services immediately post the expiry of a contract makes no sense if it can be avoided.
Due to the rush of running a procurement process at the last minute, poor commercial outcomes can be locked into the next generation of contract. We could keep operating in a just-in-time model, but it is not great for the team or the organisation.
Regrettably, the procurement team is often tarnished with the negative impact associated with poor contract renewal process. Thankfully, it is avoidable.
So, how can organisations manage to elude the end of financial or calendar year rush with contract renewal?
This may be obvious, but pre-planning does prevent poor performance!
We know that procurement sourcing is often well structured and planned to ensure streamlining of the delivery required. But once the contract is in place, we forget to carry on planning!
Do you have a month in the year when you have more family birthdays and celebrations than any other month? While it happens every year, the logistics of managing the gifts, the parties and the travel is often a nightmare. And if that month happens to be December the stress magnifies!
Spreading the contract renewal, expiry or review dates of your contracts will ensure that reviews can occur throughout the year and not have to be all at the same time. Consider the range of contracts and when renewals should occur. For example, don’t have all your strategic critical suppliers requiring intensive negotiations and renewals at the same time.
Understand your supplier needs. Do they have a different year end date to you? Will that influence their availability and possibly their wiliness to negotiate new terms?
It is important to note that lead times to complete a procurement process ahead of contract expiry will vary depending on factors such as the effort required to transition between suppliers, your organisations approval pathways, and how long they take to navigate and maturity and structure of the supplier market. Allow for that in your planning.
Technology can play a major role in managing your contract suite. A good contract management system keeps track of expiry dates, automates the contract approval and renewal process, and provides clarity of responsibility throughout the organisation.
That excel spreadsheet might have worked for a smaller list of contracts, but it doesn’t give you wide visibility to the overall status or the pain points in the year. Bringing all the information into a consolidated view is vital to be able to make the right decision at the right time. Information required includes spend analysis, contractual data (such as dates), performance measures, and results and due diligence information (such as ownership alterations and financial stability).
Using technology to provide spend analysis also helps to identify options to consolidate spend across related categories which will in turn reduce the number of contracts requiring management.
Consider what technology support would be most valuable to you and consider how you can implement over time. Many systems are now modularised and can be flexible as your procurement function adjusts to the new ways of working. Even with the best planning and systems to manage contracts and contract expiry, resourcing can be a challenge. As part of your planning, you should consider peaks and troughs in contract reviews that will impact your team’s availability to conduct the necessary work.
Should this be an issue, deploying experienced procurement resources in a targeted way can be an effective solution to bring your contract suite under control…quickly. Another option is to engage a short term resource to work through the often many low to mid risk/complexity contracts and free up your own experienced procurement resources to focus on those contracts of greatest risk. Alternatively, for contracts requiring a high degree of technical knowledge, engaging a procurement resource that specialises in a particular category will not only save time in completing the procurement but an improved commercial outcome (in terms of both pricing and risk allocations) is also likely.
Time may not be on your side when it comes to your expiring contracts but there are options available for procurement teams to manage the risk of unmanaged contract expiry and in turn avoid the poor commercial outcomes that come with not replacing a contract on time. While time may not be on your side, the Rolling Stones have also told us:
“You can’t always get what you want, but if you try some time, you find you get what you need!”
If you are calculating the cost of time in your current projects and need to chat about options for support, make sure to reach out to us by contacting Jacqui Priestly at email@example.com or check out our website to see the range of support we offer to organisations wanting to deliver more through procurement.
10 Traps & Tips: Digital Procurement Implementation
The digital transformation of your procurement will support improving the way that your entire organisation operates. Technology Implementation lead, Kerrie Anson offers her Top 10 Traps & Tips for Digital Procurement Implementation.
10 Traps & Tips – Challenges organisations face when implementing Sustainable Procurement
Increasing regulatory requirements around issues such as modern slavery and carbon emissions mean that companies can no longer afford to ignore what is happening in their supply chains. Chris Hampden offers his Top 10 Traps & Tips of the biggest challenges organisations face and what to do to address them.
Are win-win negotiations really possible?
Procurement teams with highly developed negotiation skills deliver savings and improvements in efficiency and value. Managing Director Dan Fielding explores the concept of 'win-win'.
Whitepaper: The Case For Sustainable Procurement
Read our whitepaper, produced in partnership with Supply Management Insider: The Case For Sustainable Procurement: generating value for people, planet and the bottom line - the risks, opportunities and challenges relating to sustainability, and why a collaborative supply chain is vital for the future.
Understanding Social Procurement
Many organisations have implemented social statements into their vision & values and are asking procurement to align the sourcing process to meet the organisation’s objectives.
Spotlight on Modern Slavery
More than 40 million people worldwide are subject to modern slavery including 25 million victims hidden within global supply chains. Therefore, it is vital that businesses understand modern slavery risks and their procurers take action to combat this within their supply chains.
Top 10 Traps & Tips: Why Infrastructure Projects Fail
Time delays and millions of dollars can be wasted on infrastructure projects due to poor project planning, management and delivery practices. Infrastructure Lead, Shane Lamont offers his Top 10 Traps & Tips for why Infrastructure projects fail.
How can procurement support Australia’s growing infrastructure needs?
Infrastructure Lead, Shane Lamont explores 3 key ways we can rethink procurement to help deliver Australia’s growing infrastructure needs.
International Development Procurement: The Need for a Strategic Approach
Why is strategic procurement so important for International Development? Chris Gunn explores the current dynamics in this space.
Emerging Hiring Trends in the Singapore market
The COVID-19 'Circuit Breaker' in Singapore started in April 2020 and last for almost two months before it was lifted on 1st June. Here are our observations on the trends in the Singapore job market post the circuit breaker period...
The Cost of Time
Do you know what the cost of running out of time is for your procurement projects? Justin Sara & Fiona Nissen explain the cost of time in this article, and offer tips to avoiding the last minute procurement crunch.
Have you been swimming naked?
Times are unprecedented these last few months, especially for procurement and supply chain teams. Some organisations are coping better than others to ride the storm. What lessons can be learned?
How resilient is your supply chain to the COVID-19 crisis?
In this article, we share our Supply Chain Risk, Resilience and Recovery (Supply Chain RRR) roadmap to help guide procurement functions and supply chains through this catastrophic event.
Top 10: Tips for Preparing Modern Slavery Act Statements
The Commonwealth Modern Slavery Act 2018 came into force in Australia in 2019 to help organisations combat the serious issues relating to the 40 million victims of modern slavery around the world.
Top 10: Tips for Successful Procurement Digitalisation
Organisations are embarking on procurement digitalisation journeys to take processes and data online, providing their stakeholders with interactive tools and reports to support buying activities.
Top 10: Tips for unlocking the power of your procurement data
For great procurement outcomes, organisations need to understand large volumes of spend, financial & operational data. Read our Top 10 tips for unlocking the power of your procurement data.
Top 10: Questions to ask when developing a category strategy
Many organisations struggle to develop effective category strategies. Dan Fielding asks these 10 questions to help you ensure your strategy is robust, thorough and positioned for success.
Top 10: Tips for building procurement capability
Procurement leaders are increasingly asked to deliver more. Executive Manager Jacqui Priestly explains how you can develop your team's capability drive better procurement performance and achieve more.
Top 10: Tips for negotiating the best deals with your suppliers
Negotiation is a crucial skill for procurement professionals, and one that can be developed. Managing Director Dan Fielding offers his Top 10 tips for negotiating the best possible deals.
The Secret to Successful Change Strategies
Between 60% – 70% of change initiatives are reported to fail. Senior Consultant Kerrie Anson discusses how to develop a effective change management strategy and how to measure success.
Successful Procurement Solution Implementation
Many organisations struggle when it comes to initiating and implementing IT change. Read how you can develop an effective change strategy when implementing procurement tech solutions.
New Opportunities from the Waste Crisis
There is a waste crisis in Australia at the moment. This article explores what is happening, how you may be able to help, and insight into the potential for the country to benefit from the crisis.
Compete with competitors, not suppliers
Procurement is about providing value, providing a service and managing complex supply chains. This article discusses how you can benefit from working openly and collaboratively with suppliers.
Create Opportunities with Social Procurement
The definition of "value" in New Zealand has now been extended to include social and sustainable outcomes. Managing Consultant Fiona Nissen discusses how organisations can become social procurement ready.
Drive business benefits with analytics
We live in a data driven world, to the point where data-based decision making is now mainstream. Read how understanding how your business spends money using analytics can drive business change.
Enabling positive outcomes in council
Managing Consultant Fiona Nissen explains why having a robust procurement strategy that is aligned to your business strategy is key in enabling your council to deliver high quality community services.
Top 10: Reasons we love working in Procurement
If you are new to procurement or are looking to begin a career in this field, rest assured, you are stepping into a great profession! Read the ArcBlue Top 10 series list of the top reasons why we love working in procurement.
Top 10: Questions to ask when choosing a new eProcurement system
Often buyers don’t know where to start, there are myriad systems available and IT is not a common purchase for most. Read these tips to help you choose the right eProcurement system.
Procurement, the game is changing
Managing Director Dan Fielding explores how procurement needs to change to adapt to a new business environment. Do we need to shift the thinking about the way procurement is operating?
Changing the world one purchase at a time
Managing Director Chris Newman provides background and insight into the fast-emerging field of Social Procurement and outlines ways in which it can be implemented across organisations.
Top 10: Tips for effective procurement leadership
Leadership in procurement is something we can all aspire to and practice at every level of a procurement function. This article offers our Top 10 tips for developing your leadership skills to optimise productivity.
What is your blockchain strategy?
"Blockchain is a really interesting technical solution in search of a problem to solve." Senior Consultant Emerson Boyle explores if Procurement leaders need to have a blockchain strategy.