procurement contract management
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DELIVERED BY:BSS Management ConsultancyVisit www.businessservicessupport.com Tel: 0845 226 4315
PROCUREMENT- CONTRACT MANAGEMENT
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ELEMENT TWO: RATERS The next key element to decide upon is the raters – who are the
individuals who will participate in the evaluation of your suppliers?
Obviously, your organisation’s purchasing and supply management staff should participate because that staff is ultimately responsible for the performance of your suppliers
But do not stop there! It is extremely important to get the input of other stakeholders in the organisation
If you work in a production environment, be sure to involve your engineers and quality staff
These folks have a vested interest in the performance of your company’s product or service and usually are more than happy to give their opinions on how well suppliers support their goals
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WHY CONTRACT MANAGEMENT?
Suppliers Raters PerformanceSupplier Rating
Program
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ELEMENT TWO: RATERS Working in a non-production environment, end users of the
products or services of the selected suppliers, would need to be included
Let’s consider copy paper as a commodity purchased from one of your selected suppliers
You, in purchasing, may not use copy paper as much as some of your company’s end users and, therefore, may not be able to comprehensively evaluate your paper supplier’s performance
Meanwhile, your company’s biggest end user of paper may find her copier jamming constantly because of poor quality paper
You need that person’s opinion when rating your paper supplier. Never ignore stakeholders or end users in the supplier evaluation process
3WHY CONTRACT MANAGEMENT?
Suppliers Raters PerformanceSupplier Rating
Program
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ELEMENT THREE: PERFORMANCE MEASURES The third key element of a supplier rating program is the group of
performance measures that you select
Performance measures are those important, specific facets of suppliers’ performance that you will rate
Performance measures will differ from organisation to organisation based on the needs of each particular organisation
However, performance measures usually fall into one of four categories: Cost
Delivery
Service
Quality
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WHY CONTRACT MANAGEMENT?
Suppliers Raters PerformanceSupplier Rating
Program
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ELEMENT THREE: PERFORMANCE MEASURES Cost performance measures relate to the direct financial impact
of a supplier’s performance and can include: Price, payment terms, shipping charges, savings from process
improvements, and so forth
Delivery performance measures relate to a supplier’s ability to support your scheduling requirements and can include: On-time delivery of goods, on-time completion of services, stock
availability, or anything related to the cycle time between order and receipt
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WHY CONTRACT MANAGEMENT?
Suppliers Raters PerformanceSupplier Rating
Program
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ELEMENT THREE: PERFORMANCE MEASURES Service performance measures relate to the personal and electronic
interaction between the buyer and seller and can include: Responsiveness, resolution of problems, technology used to provide customer
service, and so forth
Quality performance measures relate to the conformance of a product or service to requirements and can include: Rejection rates, warranty claims, technology used to improve products and
services, and other metrics related to the durability, reliability, and consistency of a product or service
Each performance measure that you ultimately select should be specific and measurable
For example, on-time delivery is specific (a delivery is either made by a certain date or it is not) and it is measurable (a delivery was 3 days late)
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WHY CONTRACT MANAGEMENT?
Suppliers Raters PerformanceSupplier Rating
Program
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FRAMEWORK FOR MANAGING CONTRACTS
(S.L.A’S)
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Methods of RatingOnce you have made
your decisions relative to the three
key elements of a supplier ratings
program – suppliers, raters, and
performance measures – you
must decide how to acquire information
about your performance
measures
Be advised that the performance measures you
choose and your method of acquiring information have a dependency on one
another
The performance measures you
choose may drive how you go about
acquiring the information
Also, limitations with regard to acquiring
information may require that you
"tweak" the performance
measures that you have selected
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FRAMEWORK FOR MANAGING CONTRACTS
(S.L.A’S)Methods of Rating (Cont)
The ideal situation is one in which you
have the means of acquiring the
information you need to support your selection of the best
performance measures for your
company measures
The ideal situation is one in which you
have the means of acquiring the
information you need to support your selection of the best
performance measures for your
company
Having such means may or may not be
realistic in your particular situation
While there are many ways of
acquiring information and then
converting that information into
supplier ratings, we will focus on three of the most common: Supplier scorecards
System metricsSupply chain event
management (SCEM) software
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SUPPLIER SCORECARD: Supplier scorecards are a common starting point for
organisations who wish to have some method of rating their suppliers
The supplier scorecard approach gained popularity in the 1980’s
Each rater will receive one scorecard for each supplier being evaluated
Each scorecard represents a survey of the rater’s opinion of that supplier’s proficiency for the selected performance measures
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FRAMEWORK FOR MANAGING CONTRACTS
(K.P.I’S)
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SUPPLIER SCORECARD (CONTINUED): The scores for each performance measure are usually
based on a scale where low scores indicate poor performance and high scores indicate good performance
For example, a performance measure may be "Adheres to delivery schedules" and the rater may assign a score of 1 to 10 where 1 indicates that the supplier never adheres to the delivery schedule and 10 indicates that the supplier always adheres to the delivery schedule
Scores for each performance measure are then added to produce a total. Suppliers can be ranked from best to worst by creating a list of your suppliers and their total scores, then sorting it from highest score to lowest score
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FRAMEWORK FOR MANAGING CONTRACTS
(K.P.I’S)
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CASE STUDY?
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IT’S TIME FOR A CASE STUDY