Monthly Archives: September 2023

Three Critical Elements of a Good Procurement Contract

We’ve been seeing quite a few articles lately popping up randomly on LinkedIn, Procurement searches, newsletters, etc. around Procurement Contracting, and, as you’ve probably guessed, we’ve noticed that most of them aren’t great. Not to say they’re bad, they’re not, but usually they’re finely focussed on core clauses that should be in there to keep the lawyers happy, using standard templates for consistency, making sure you have Force Majeure or appropriate risk management clauses (which are important, but miss the point), or on particular specifications or appendices you need for services contracts, etc. Few are good across the board, and most miss the key points.

So, today, we’re going to overview key elements of a good procurement contract, be it for goods or services, that all buyers should be aware of. This is not intended to be a complete list, as every category is different, every company is different, and every scenario is different and no single generic checklist will cover everything that is needed, but one can distill a list of common requirements that will always be required regardless of the category, geography, company, or situation at hand. Logically speaking, these requirements will always be necessary, but may not always be sufficient.

1) As Dick Locke will tell you over and over again, if you want them to be good, then all of your contracts should be written in Plain English, not convoluted legalese, and should be comprehensible by someone with a high school education. Not all buyers will have a University education, or even a College education, and even if they do, it may not have been in English and/or English may not be their first language.

2) A good contract answers the 6Ws: who, what, when, where, why, and how.

a) what are the goods and services the organization is contracting for

b) who is the intended recipient of the goods or services (not just the company) who will be using the goods or services and signing off that they are fit for use

c) where are they needed (plant, warehouse, office, etc.) as this determines where they need to be delivered

d) why are they being used over another good or service, as this determines key features or functions or specifications that the organization needs to ensure are maintained

e) when are they needed, as this specifies delivery schedules that need to be met

f) how are the goods or services going to be used as this dictates what specifications must be met or certifications that must be possessed (and explicitly referenced in the contract)

3) A good contract addresses the actionable risk mitigations that are to be adhered to by both parties to minimize the chances of a risk event significantly impacting or disrupting the business, even if it’s just timely notifications of an event happening or not happening.

Shift happens, and then sh!t happens. It’s reality. Blaming someone doesn’t fix it. Nor does having an out when the supplier doesn’t deliver on time, because chances are, you still need the goods or services, by a certain time, or your business is going to end up in the sh!tter when you can’t deliver to your customers because you won’t get paid (best case), and might get sued (worst case). And even including a legal clause on damages that allows damages to be passed through is rather useless, because, chances are, your supplier is living order to order and couldn’t afford to pay your legal fees and/or any judgement against you, which still leaves you on the hook.

Furthermore, any Force Majeure that you include in your customer contracts won’t protect you if you didn’t make all reasonable efforts and/or only you were affected while your competitors served their customers with similar products and services just fine without interruption.

You need to understand not only what can go wrong, and if there’s anything the supplier can do to prevent it or deal with it when it does, but also how long it will take you to find another source of supply if the supplier can’t deliver and make sure you have enough notice to do so if that is the only option available to you.

For example, if you need a custom manufactured product where it takes a new supplier ten weeks to upgrade a production line because it takes six to eight weeks to get the equipment, install it, and then test it; and it would take you two weeks to go to the next best supplier, get a contract, and get started, then you need three months lead time if your current supplier can’t deliver. In this situation, you need your supplier to let you know of any potential delays as soon as they get foreknowledge, and then let you know as soon as they won’t be able to manufacturer. This means that you might need to specify in the contract that, as soon as one of the supplier’s key tier suppliers is a week late on notifying the supplier of a shipment, they notify you that they may not be receiving a critical part or raw material on time and may not be starting your production on time. This allows you to determine whether or not this could be a risky situation and whether or not you want follow up.

You’d also want a notification if production didn’t start within a certain period of time from the expected production date, as that will dictate a late shipment. And so on.

Same for services. If you need a consultant or contractor with a certain industry certification, and the supplier only has three, and all three on tied up on a contract where it is determined they won’t be finished by the due date and cannot be redeployed on the date they were initially promised to you, you want to know the day the service provider knows they will not be able to allocate those contractors or consultants to you, especially if you can’t wait to start your project. Then you can figure out how many resources you really need to start, and use the risk mitigation clauses to go find someone else from another provider.

Again, this is not everything a contract needs, but requirements that must be met by every contract.

Digging into Manufacturing Sustainability

In our article on Solving the Sustainability of the Supply Chain is Systematically Strenuous and Surprisingly Serpentine, we noted that while there are easy two-word answers for reconfiguring the global supply chain for greater supply chain assurance and more sustainability at the 30,000 foot level, when you dig into the details, it’s not so easy as you have dozens of facets to get right to truly optimize sustainability across:

  • Support
  • Sales
  • Logistics
  • Procurement
  • Manufacturing
  • Materials

Manufacturing sustainability is much more involved than just choosing sustainable materials and focussing on sustainable design. When you are manufacturing you have to think about all of the following:

  • Materials: are the materials renewable, reclaimable, recyclable, or compostable — if not, the materials are not sustainable
  • Design: is the design using as many sustainable materials as possible; minimizing the use of non-renewable materials in minimal supply; ensuring the product is designed so that non-renewable materials can be fully reclaimed / recycled; ensuring the product can be produced in a sustainable manner? etc.
  • Production: are the lines modern, minimizing energy and MRO material usage (fluids, parts that wear out, etc.), efficient, etc.
  • Waste: does the chosen production method minimize waste, i.e. if cutting, how much waste metal or wood, and can it be reused/reclaimed?
  • Energy all energy production and transmission has a Carbon cost, even solar, as there was an initial carbon production in producing the panels, thus, the production method should minimize energy utilization (especially if producing EVs … considering a battery pack can produce between 2.5 and 16 metric tonnes of carbon in its production, it’s critical all production be energy efficient)
  • Water for cooling and cleaning should be minimized as well, and, if directly reusable, reused, and then reclaimed for future reuse (through an energy efficient processing plant)
  • Workforce as there needs to be a sufficient workforce and training in place to make sure they are suitably skilled for, and efficient at, the job to minimize errors and the resulting waste that comes from every human error

Furthermore, how you think about many of these requirements differs for every type of product you are producing, and often requires extremely specialized expertise to address the design, materials, production process, and waste. Manufacturing sustainability is not easy, but if you can’t ensure your manufacturers are sustainable, then you definitely can’t claim to have sustainable Procurement.

TenderEasy: Easy Breezy Beautiful Freight Quotes

First things first: if you are shipping globally, you need a(n) RFQ / Spot Bid solution built for freight. You may believe that just because you have a generic RFQ / e-Auction solution that can be used to collect freight quotes that you don’t need a custom freight tendering solution, but nothing could be further from the truth. When it comes to freight, at a minimum you have to consider:

  • five modes: road, rail, ocean, air, and small parcel,
  • multiple cargo types: dry, cold, frozen, and liquid,
  • palletized vs. non-palletized,
  • LTL vs FTL,
  • regular vs flammable vs hazardous, and
  • multiple cost tiers

and that’s quite a few data elements that most RFX tools are not setup to collect out of the box. Furthermore, even if the solution is highly configurable and can allow the creation of bid collection matrices that will collect all of the associated bid and lane data, chances are the platform isn’t setup with the rules to enforce the right bidding, the analytics for the right comparison, or enough sophistication in auto award scenario creation even for a baseline low-cost cherrypick scenario.

Furthermore, when you are shipping globally, you need to

  • understand approximate current lane costs / benchmarks,
  • know who is shipping in a region AND their typical capacity, and
  • be able to quickly access current rate agreements or spot-market bid rates

and your typical out-of-the-box RFX tool for indirect or direct sourcing is not going to do that.

However, a tool built by freight sourcing / logistics professionals for freight sourcing is going to do that and more. That’s what TenderEasy is. Founded almost two decades ago in 2004 to help organizations optimize their freight sourcing, they launched the first version of their fully SaaS-enabled freight tendering solution eleven years ago. Their freight tendering solution was among the first solutions that were custom built to help global companies manage their global fright RFQs across air, land, and sea. Since then, they have added spot quote capability, rate (contract) management, an integration API for custom data push to any TMS, ERP, or S2P system you want to transfer the awards to, out-of-the-box integrations with multiple TMS systems (e.g., Alpega, SAP4Hana), out-of-the-box APIs with public freight rate benchmark and analytics platforms (including Xeneta, Freightos, Upply, and Alpega FX), out-of-the-box integrations with container management platforms (including BuyCo), and out-of-the-box integrations with freight/lane-based emission calculators (including EcoTransIT World).

There are three main parts to the TenderEasy platform:

  • Administration
  • Buyer Interface
  • Supplier Interface

Administration

There are six main parts to the administration interface:

  • User Management: where you can manage your internal users with easy profile settings controlling visibility, accessibility and inter-activity with bidders
  • Supplier Management: where you can import, add and manage suppliers, including the ability to #tag supplier groups, and this management includes the management of (supplier) modes, cargo types, pallet capability, whether or not they do LTL or FTL, any certifications for flammable and hazardous materials, countries they can operate in, etc.
  • Currency Rates: where you can define, on project level, the currencies you support and the rates you wish to use for base conversion
  • Keyword Lists: where you can define as many arbitrary value lists as you want for bid and data collection during a tender (to make sure responses are with the right naming convention for rule creation and future data integration with your TMS, ERP, and/or S2P system)
  • Integrations: where you manage your export connectivity to whatever systems you want to push data to
  • Partners: where you select the data partners you wish to connect with for data enrichment of your analysis data (freight benchmarks, emissions, service KPIs, etc.). With some Partners you can “pay-as-you-go” via TenderEasy. Other partners will require a subscription and your partner license key credentials to access the data.

Supplier Interface

The supplier interface has four main parts and is designed to be as simple as possible for the suppliers:

  • Tender List which lists the tenders they are currently invited to and the status of those tenders
  • Tender Details where they enter their bids by lane
  • Import/Export where they can export the tender to Excel, fill it out in their favourite tool, and then import it
  • On-line bidding where Suppliers can fine-tune bids on-the-fly

Buyer Interface

There are four main parts to the buyer interface:

  • RFQ/Tendering which is where the multi-round magic happens (which we will dive into shortly)
  • Spot Quote Request where a buyer can empower their organization to execute quick spot requests for a single load in a transparent and compliant way
  • Rate Management where the buyer can store and manage their contracted rates in an auditable and sustainable way
  • Rate Search where the buyer’s stakeholders can search for contracted services and rates (that are stored in the system) in real-time, including historical rate records

The core is the tendering component where the buyers spend most of their time.

A tender can be created from an existing tender (as a copy) or from scratch. Creating a tender from scratch is quite easy:

  1. name it
  2. select a currency group and a default currency
  3. define the transport mode
  4. define the end time of the current round (with start [auto-]populated when you publish it)
  5. define the range for which supplier bids must be valid
  6. optionally upload any attachments with requirements
  7. optionally provide a detailed event description
  8. optionally define any terms and conditions (separate from the file uploads)
  9. create the bid / rate matrix by either
    • copying a matrix from a previous event
    • instantiating one from a best-practice template defined on system implementation
  10. add the suppliers (and you can easily upload their details via Excel)
  11. select/customize notifications
  12. publish

That’s it. Complex freight events can be instantiated in a matter of minutes. Why?

  • pre-defined best practise rate cards can be utilized, or you can copy a previous RFQ
  • pre-defined currency groups make currency definition one-click
  • the platform can store attachments in the platform, creating libraries for your standard specialized requirements, Ts&Cs, etc.
  • the buying organization can define matrices for every mode – region – good type / transport requirement they have on system implementation, including all of the validations and rules that are 100% compatible with Excel, with all of the appropriate lanes
  • the system will automatically select the suppliers associated with the mode and region with the necessary characteristics (hazardous certification, etc.) and all the buyer has to do is check the suppliers it wants to invite
  • there are ready-made automatic notifications in the system for every event you want to action

A key point to note is that TenderEasy supports full Excel capability within the platform, and easy wizard base definition of column and cell settings and properties. For example, each column can have a type, an associated validation rule, display/coloring properties, a visibility definition (buyer or supplier, read or write), etc. and each cell can have a more specific validation based

Another key point is that it’s stupid simple to import benchmark data into (private) columns in the matrix that you can use to evaluate bids (and, automatically, flag any that are too high or too low, possibly with colour coding in the column, or a separate column if you are using colour coding to show the percentage change in a bid from round to round. You simply select “import benchmark” and select the benchmark provider you want to use (which is typically the one you have a subscription with) and the quotes get sucked in automagically.

Bid analysis is also very easy. It’s simple to define a scenario that auto-selects the appropriate carrier and bid for each lane. There’s an integrated scenario builder where you simply define the grouping columns, the supplier group to consider, the tariffs to use, the (optional) adjustments to apply (where you can favour incumbents or innovative carriers and disfavour new carriers or eco-unfriendly carriers or low reliability carriers using a financial cost percentage adjustment or fixed cost modifier), and whether or not you want to use breakpoint optimization (where it will select the FTL amount when that is cheaper than the LTL amount at the current weight / space utilization).

Supplier feedback can also be customized and color coded in a multi-round tender to tell a supplier approximately how far off they are from being selected (e.g. < 10%, 10% to 20%, > 20%). You can generate feedback on any numerical value in the rate card, including service data, emissions, quality etc.

You can create as many (partial) bid analysis as you want, including baselines, using whatever rules you want, and then visualize them graphically in the dashboard, where you can also define thresholds to alert you if any carrier would get too little or too much business. You can also compare them side by side to help you identify the awards you want for each lane. When you figure out what you want, you can incrementally build (by combining partial awards from existing scenarios) the award scenario you want, push it into your external system for contracting, and lock it down as a set of rates to be included in the rate management part of the platform.

If you do need help (which won’t happen often as the platform is very usable, it is usually quite obvious what to do next, and all of the up-front setup on implementation jump-starts pretty much everything you will ever do), there is extensive help built into the platform, training material and self-testing, and a webinar archive.

There is pretty much everything you need out of the box to get going, with the only obvious exceptions being

  • combinatorial carrier optimization (once you have selected the preferred carriers) to balance cost, emissions, and/or delivery time (which they are currently investigating)
  • market-based alerts if a supplier you select is not likely to have current capacity (based on the spot market), if prices are going up quickly (and you should make lock in an award sooner rather than later), or if KPIs are dropping for current carriers (which are currently under investigation, with KPIs and improved benchmarks, which are needed at the foundation level, being investigated with Partners on how to best share this information pro-actively)

In other words, if you do global freight, and you don’t have a custom solution for freight RFQs and spot buys, you should not only have one but include TenderEasy on your shortlist. Once you see the capability a platform like TenderEasy can provide and how much more efficient and effective it can make your freight buyers, you’ll wonder how you ever lived without it. (Like any good e-Sourcing tool, it will quickly pay for itself many times over.)

Dear (Software) Vendor: If you Missed the Ten (+ 2 Bonus) Best Practices for Success, Time to Catch Up Now!

  • Part 1 Best Practices #1 to #3
  • Part 2 Best Practices #4 to #7
  • Part 3 Best Practices 8 to 10
  • Part 4 Bonus Best Practice #1
  • Part 5 Bonus Best Practice #2

In twenty years as an independent analyst and consultant, the doctor has never encountered a small/mid-size vendor who wasn’t doing at least one of these, usually there were a couple they weren’t doing, and the lack of these practices (and knowledge) was (and sometimes still is) holding these vendors back. In other words, you definitely should read these. We are only posting these articles once.

An Ode to Anders …

This is the story of a guy
Who tried to buy and drowned in paperwork
And while overwhelmed in bureaucracy
He decided to step up
And Focus!

How many days in a year?
He woke up with hope, but he only found tears?
Vendors could be so insincere
Making their promises never for real
As long as he stood there waiting
Finding the holes in the piece-mealed silos
How many days disappeared?
While he dealt with bad software
So what’s one to do?

POs never fare as well the next day
And your hair never falls out quite the same way
Ev’ry day yet another thing goes astray

This is the story of a guy
Who tried to buy and drowned in paperwork
And while overwhelmed in bureacuracy
He decided to step up
And Focus!

Now how many buyers would stay
Just to put up with this every day and all day?
Now how did we wind up this way
Watching our mouths for the words that we say?
As long as we stand there waiting
Finding the holes in the piece-mealed silos
How do we get there today
When we’re waiting too long for the price of our blues?

POs never fare as well the next day
And your hair never falls out quite the same way
Ev’ry day yet another thing goes astray

This is the story of a guy
Who tried to buy and drowned in paperwork
And while overwhelmed in bureaucracy
He decided to step up
And Focus!

(sung to the tune of “Absolutely” by “Nine Days”)