Helping you improve supplier contract management, negotiate better contract terms, reduce contact risks and mitigate supply chain challenges.
As the global trading landscape continues to experience disruptions, goods and services shortages, jurisdictional legal differences, increased regulation and heightened industry and consumer scrutiny, this creates new challenges for all businesses seeking to manage their supply chain and now more than ever – the need for better supply contract management.
What is supplier contract management?
- the purpose of contract and supplier management is to work closely with suppliers and internal customers to minimise the total cost of ownership and to maximise supply chain efficiencies.
How can contract management be improved?
- evaluate what is (and isn't) working with your current system
- where possible, use your own preferred standard contractual terms
- automate whenever possible
- keep reviewing your plan and work in the pipeline
- maintain clear policies and supplier codes of conduct
- develop existing compliance and risk management programmes to include ethical sourcing considerations, to support prompt identification and mitigation of risks
- include compliance protections in standard supply contract terms, with special attention to suspension and exit rights, and audit and reporting obligations
- undertake robust supply chain due diligence and audit processes to enable identification and prompt resolution of issues.
What are some best practices for contract management?
- centralise and standardise agreements in your favour
- set sensible key performance indicators (KPIs)
- track your and the other parties' obligations
- look to achieve good collaboration and visibility.
Where you are the customer, preferably:
- have good business continuity obligations, along with suspension and exit rights, and audit and reporting obligations (this helps to mitigate against disruption, costs and build continuity of supply)
- have good reporting and forecasting provisions in your supplier contracts (helps with agility, resilience, ability to resource/build work arounds and capability to notify customers and update delivery estimates etc to help improve customer experience)
- avoid exclusive supplier-only provisions (helps preserve ability to utilise a range of suppliers to help spread risk/supplier disruption)
- diversify sourcing in your supply chain strategy (by broadening your range of sourcing, perhaps geographically, to increase choice and abundance within your supply chain)
- secure favourable contracts with a number of suppliers (helps to spread risk and potential to secure better price and standards with options available)
- have some suppliers locally based (helps mitigate against travel disruptions, helps nearshore supply chain, also helps with reducing carbon footprint/eco-friendly approach)
- have obligation on suppliers to notify you promptly in the event of shortages, delays, challenges, obstacles (helps mitigate against disruption/ability to build work arounds)
- attain service credits, where suppliers miss service levels/milestones/reporting obligations etc. (more likely to increase focus from suppliers and also helps address loss incurred)
- where permitting, ability for supplier to terminate for convenience – look to have lengthy notice provisions (short notice naturally presents challenges, whereas more time gives more opportunity to procure replacement)
- check the financial stability of your suppliers and potentially attain parent company guarantees as part of the contract
- consider partnering with one or more freight forwarders, as such can help manage and track the shipment of goods (freight forwarding companies are typically accountable for the transportation of products from one destination to the next and can also arrange the entire process for shippers and negotiate the best price and/or fastest route)
- seek to improve demand forecasting (prioritising forecasting can streamline inventory counts and reduce excess overhead fees.)
Where you are the supplier, preferably:
- look to have good business continuity provisions in place (this helps to mitigate against disruption, costs and build continuity of supply)
- have good internal reporting and forecasting provisions in your business (helps with agility, resilience, ability to resource/build work arounds and capability to notify customers and update delivery estimates etc to help improve customer experience)
- look to avoid/limit scope of exclusivity (helps preserve ability to service a number of customers/markets and to help spread risk/customer disruption)
- diversify sourcing (by broadening your range of sourcing, perhaps geographically, to increase choice and abundance within your supply chain)
- secure favourable contracts with a number of subcontractors (helps to spread risk and potential to secure better price and standards with options available)
- look to have some sourcing locally based (helps mitigate against travel disruptions, helps nearshore supply chain, also helps with reducing carbon footprint/eco-friendly approach)
- look to include clear force majeure provisions in your contracts for matters beyond your reasonable control
- consider adding reasonable waivers and disclaimers in your contracts to help offer some liability protection
- carefully agree service levels, KPIs and acceptance testing you are comfortable with
- try to agree customer payments in advance or at set milestones.
Why is contract management so important?
- contract management enables you to streamline and improve your approach to managing existing contracts and creating new ones. It helps to control costs, oversee payments, and revenue, improve productivity, and reduce error.
How Weightmans can help
Our experienced commercial team can help:
- draft and negotiate contracts
- review and help update supplier terms and conditions
- look at your existing contracts and help with improvement suggestions/more protective measures
- draft parent company guarantees (where looking to secure more financial security)
- support procurement and tenders
- draft consumer terms and conditions to help balance consumer rights and protect your position
- draw on our own legal advisors' in-house/successful large corporates experience
- help keep up to date with legislative changes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.