Category Archives: contract management

Reduce, Reuse, Recycle: Not Just for Document Management

A recent article in Integrated Solutions noted that “the time has come to apply reduce, reuse, and recycle thinking to electronic business information” because embracing a more strategic, “green” approach to information management will deliver a number of benefits, not the least of which is a dramatic reduction in the cost of storage. These days, there are a number of technology offerings that can reduce storage demands and improve real-time access to business-critical information. For example, on-demand conversion of print-stream to PDF eliminates the unnecessary storage of large-format documents and lessens internal network congestion during the retrieval process.

To demonstrate the efficiencies achievable with smart application of modern technology, the article provided a brief case study of a financial services institution that recently upgraded its customer service technology infrastructure to provide its 2.5 Million online customers with easy access to their statements.

  • Reduce
    On demand statement generation and conversion reduced the storage footprint 97% from 12.5 TB of storage a month to 375 GB.
  • Reuse
    A smart infrastructure allows the same information to be retrieved through a portal, e-mail, or traditional mail.
  • Recycle
    The provider is “recycling” content data to personalize cross-sell offers to the right customer at the right time.

However, the mantra is particularly pertinent to Contract Management. With a good contract management solution that includes authoring and archival capabilities, you get the following:

  • Reduce
    You can collaboratively edit contracts on-line in the application, which greatly reduces the amount of paper you waste and e-copies of the contract-in-progress that float around in each contributor’s storage account.
  • Reuse
    Common clauses can be applied across contracts, saving the need for the recreation (and the associated legal [review] fees).
  • Recycle
    Contracts can be templated so that all that needs to change on the next award is the recipient, pricing, term, and conditions.

For a list of contract management solution providers, start with the resource site.

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7 Sourcing Secrets More Than 2 People Should Know

A recent article over on Cracked listed “7 Secrets Only Two Living People Know” (for some reason … that the doctor must admit he doesn’t understand in a few of the cases). While entertaining, it did cause me to ask why there are so many truths in sourcing that most people still don’t seem to get. Since some days I feel like only 2 people know the following, I decided I should do my own post on 7 sourcing secrets more than 2 people should know. Because you really, really, really should know the following sourcing “secrets”. After all, they’re truths, even if no one’s bothering to tell you. So without further ado, here they are:

1. Spend Analysis is flexible Data Analysis, not canned reports on a data warehouse populated via automated classification

Real spend analysis is the ability to dive into your data and find out not just where your true spend is higher than it should be, but why. This requires you to have the ability to slice, dice, and cube your data on any dimension you can think of, because you’re never going to know where the losses are until you find them. (After all, if you knew where your holes were, wouldn’t you have plugged them already?) Canned reports on a static data warehouse can only tell you how fixes you’ve already implemented are working, not where the holes are. Furthermore, “automated classification” just doesn’t work. Any good consultant worth his salt can load your data into a real data analysis product and find two dozen mistakes in twelve minutes. You need the ability to define and redefine mapping rules on the fly as all automated classification can do is fix previously identified mistakes. It can’t identify new ones. Software isn’t intelligent. People are.

2. e-RFX is electronic support for the full information and quote gathering cycle, not just bid collection

If all your e-RFX does is allow you to collect bids, it’s not e-RFX. It’s e-RFQ, and a poor e-RFQ at that. It should allow you to create questionnaires, surveys, and entire RFX packages with closed and open-ended questions, allow you to compare responses side by side, and allow you to collect not only all of the pricing, but all of the discounts, rebates, and promotions the supplier offers. It should help you manage the process, guide you through it, and support data import and export in open formats so that you can also use analysis, optimization, and contract management tools.

3. A Reverse Auction is simply an online auction event, it’s not a substitute for proper sourcing project management

I follow the space closely and not a month goes by where I don’t see an article on how Company XYZ is now refusing to participate in online auctions. When you dig down, this is because they had a horrible experience. When you dig deeper still, you find out it is typically either because Company ABC simply threw an auction tool at the supplier and told they had to bid through the tool or lose all their business or Company ABC threw up an auction tool and said they’d award to the lowest bidder but ended up going with a different supplier, usually the incumbent, after the auction closed.

I find this appalling, because e-Auctions, like e-RFX, are not only a great time saver, but a great way to bring parties together from around the globe and allow them to participate in an e-Sourcing event that, when run right, is more transparent, educational, and profitable for all parties concerned than traditional methods of sourcing where you get bids by phone and fax until you find three bids you like and then meet in a room to “negotiate” until a deal is struck with a winner. (And I use the term “negotiate” loosely because old style purchasing methods usually boil down to the party with the most leverage beating up the party with the least leverage.) But this is only true if the event is run right. This takes proper project planning and management. Tools can facilitate the process, but they can’t replace it.

4. Decision Optimization is for everyone, not just for math geeks

I’ll admit this is my own personal bandwagon, but having seen savings of over 40% and ROIs of over 400 on a number of projects, and average savings in the 10% to 20% range and average ROIs of 5X to 10X or more, I think I have a good reason for riding it. Despite the fact that true self-service decision optimization for sourcing has now been around for almost a decade, it’s still the “black sheep” that almost no one uses — and it’s a real shame because now is the time you need it most. Furthermore, the new tools coming out of the leading providers are a lot more usable than the first generation tools and can be easily used by any college graduate who can build a cost model and specify some business constraints. In other words, if you have the pre-requisites for strategic sourcing, you can use these tools to save time, to save money, and make better, more informed, decisions.

5. Contract Management is just a new name for document management with integrated monitoring, it’s not a replacement for contract managers

Lately I’ve noticed how contract management is coming into vogue. And while that’s a good thing, it’s important to understand what contract management is and isn’t because it seems that some vendors, and some publications, are promoting the new offerings as the latest and greatest tools to solve all your contract woes when the reality is that these tools are nothing more than document management tools with monitors and alerts. I won’t deny the importance of having a good contract management tool that can monitor expiration dates, contract pricing, and, most importantly, invoiced pricing against contracted rates, but these tools, even if they contain sophisticated contract creation capabilities, can’t replace a contract expert, a master negotiator, or a good spend analysis tool that can uncover devious work-arounds by less-than-reputable vendors looking for a way to make back that buck they gave up in negotiations. (For example, I’ve talked to a number of consultants who told me how they found that some office supply management vendors regularly changed SKUs to bill you twice as much for that pen as it’s really worth.)

6. e-Procurement is tactical, and not a substitute for e-Sourcing

There’s still a lot of confusion in the marketplace between what is e-Procurement (and how it relates to P2P, EIPP, and the other new acronyms old players are coining to differentiate their new, streamlined, offering) and what is e-Sourcing, even though it should be fairly clear cut (as I attempted to outline in this post on why it’s sourcing and procurement). A few of the e-Procurement vendors are even claiming that you don’t need sourcing at all if you use the wisdom of crowds (which is not the case because there’s a big difference between a great deal on a commodity office supply and a great deal on raw cocoa or custom circuit boards, which are not commodities). Sourcing is the strategic part of the purchasing cycle, procurement is the tactical. You need both, and one is not a substitute for the other.

7. It’s not what you know, it’s what you can learn

Plain and simple,

  • it doesn’t matter if you’ve been doing it that way for 20 years if it’s not optimal,
  • shift happens, and
  • whatever happens, the world of tomorrow will not be the world of today.

You have to keep learning. That’s why this blog is here.

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Vinnie Mirchandani on “The Costs of Software Renewal”

Today’s guest post is from Vinnie Mirchandani of”Deal Architect” and “New Florence. New Renaissance”. Vinnie, a founding member of the Enterprise Advocates, is a tireless advocate of trends and technologies that can help buyers get more for less.

Ray Wang gives us a timely reminder that “Labor Day (US & Canadian Holiday) traditionally marks the end of summer BBQ’s, the beginning of the fall conference season, and yes, the time to begin a review of your software maintenance contacts that expire at the end of the year.” (Software Insider, Sep 1, 2009)

I would say start with that — and then keep going. Take a look at all of your contracts that renew through the end of 2010.

Several good reasons to this include:

  • Establishment of a savings target on the total maintenance spend for 2010.
    Have your staff focus on every software contract, especially those that have been “auto-renewed” for years now because they were “small” and fell under attention thresholds. If you make the overall target part of a compensation plan for key IT and procurement staff, you’ll quickly find that Thar’s gold in them yellowing software contract files.
  • Multi-year maintenance deals which looked good when signed may now be overpriced.
    Current market trends are driving the cost of maintenance down, especially through third party services. Don’t assume they cannot be re-opened. (See Marc Freeman’s tips for “renegotiating with integrity”.)
  • If you don’t start now, you might not finish the renegotiations in time.
    Don’t overestimate the ability of your team to get organized — or underestimate the ability of the vendor team to stall — beyond the end of the year. If maintenance expires, and something goes wrong, you could be at the vendor’s mercy in renegotiations. Formally document your new process and let the vendor know next year will be different. Furthermore, be sure to allow 6 months for the renewal negotiation next year.
  • Even if you are looking to migrate, you will still need incumbent vendor support until the cut-over occurs.
    This holds true whether you are looking to migrate away from the incumbent vendor to SaaS, or to third party maintenance, or to do-it-yourself support (and readers of Deal Architect will know I am a broken record on the subject of considering all of these options). This will likely push you into 2010 planning and funding.

So, use Ray’s call for intensity over the next 3 months and build momentum for another 12 months. The payback will be huge — software maintenance continues to be one of the items on the IT menu with the most “empty calories“.

Thanks, Vinnie!

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Watch Out for the Force Majeure Imposters!

A recent article over on the Association of Corporate Counsel (ACC) website on “the top ten force majeure imposters” by Kate Henry Gonzalez caught my attention because it contains an expose on the ridiculous extensions to the standard force majeure clauses that have started to appear in standard contracts put forward by some suppliers. And while we should all agree that we need to be fair when truly exceptional situations do occur, this a difference between a category 5 hurricane that levels a data centre and two consecutive days of rain in a semi-desert. Seriously.

While each of the 10 situations outlined in the article should be avoided at all costs, the following five are my favourite:

  • Abnormal Weather Conditions
    Two consecutive days of rain is abnormal for Yuma, Arizona. Does that mean your shipment of widgets should be delayed a week? I don’t think so!Only extreme weather phenomenons like hurricanes, tornadoes, and tsunamis should count as force majeure.
  • Telecommunication Error
    The fax machine breaking down could be a telecommunication error. Does that mean the supplier should suspend operations for three days? Puh-leaze! Hook up a PC with a fax-modem or go buy a new one down the street at staples. 10-minute fix, tops!
  • Broken Equipment
    A knob falls of a handle, and all of a sudden the production line comes to a stand-still? Yeah. Right … Not! Put on a glove and crank the handle anyway. Fixed!
  • Inability to obtain sufficient shipment capacity
    Your supplier had fair warning that they had to ship your product to you on a certain date. If they forgot to reserve the capacity with their preferred carriers, too bad. They can pay the premium and use a different carrier.
  • Unforeseen Market Conditions
    No one can predict the market … that’s the risk that comes with doing business. If you can’t handle it, quit. But don’t cry foul when the price of oil increases 25% the next time a pipeline breaks. You knew it was bound to happen.

For more ridiculous situations that your supplier’s lawyers might be trying to slip into the force majeure clause, check out the article. You won’t be disappointed.

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It’s Good to Have an Entire State on My Side

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Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Back on August 1 of this year, I posted an article that included these paragraphs:

 

Here’s the tactic for the day.

Run a grammar check on your contract using Microsoft Word with “check readability statistics” turned on. Look for a “reading ease” score of 40 or higher and a grade level requirement of 11th grade or less. Remember, the document probably won’t be in the supplier’s language. Once you achieve that, then print the document in an attractive format. Pay attention to typography and white space. Make it easy to read.

 

If your lawyer struggles with this, get him or her a copy of the SEC’s A Plain English Handbook . It has lots of guidelines and tips. Another good source is Plain English for Lawyers, which you can find on Amazon.

You probably read that advice here first.

It was good to get reinforcement from the State of Rhode Island. On August 19th, The NY Times published an op-ed article titled Plain English is the Best Policy. The article said that Rhode Island is going to require health insurance policies to be written at the eight grade level. Apparently that’s the average adult reading level in Rhode Island. The State will determine a contract’s education level with the same Flesh-Kincaid score that I recommended. It’s probably built in to your word processing software.

Here’s a “before and after” from the article:

Before:
In the event a third party, including your employer/agent, is or may be responsible for causing an illness or injury for which we provided any benefit or made any payment to you, we shall succeed to your right of recovery against such responsible party. This is our right of subrogation. If you do not seek damages for your illness or injury, you must permit us to initiate recovery on your behalf (including the right to bring suit in your name).

That paragraph required 13.5 years of US education and got a reading ease score of 45.

After:
Your injury or illness may have been caused by someone else. If so, we can collect from that person any claims we pay on your behalf. For example, if we pay for your hospital stay, we can collect the amount we paid for your hospital stay from the person who hurt you. We can also collect payment from that person even if he or she agreed to pay you directly or has been ordered by a court to pay you. If the person who caused your injury has already paid you, we can collect from you the amount he or she has already paid to you. This is called subrogation. In addition, if you do not try to collect money from the person who caused your injury, you agree to let us do so in your name.

This material requires 7.9 years of education and the reading ease score is 75.

My advice had to do with writing an international purchasing contract. Perhaps I set my standards too high. I thought 11 years was an appropriate level.Here’s a more pertinent example I use in my training programs

Before:
Supplier will not make any changes to the Products or to processes supporting Products which have been certified by Buyer, without Buyer’s prior written consent, such consent not to be withheld unreasonably. In the event of such changes, at Buyer’s discretion Supplier will either: (i) replace all such Products with Products approved by Buyer and reimburse Buyer for all actual and reasonable expenses incurred that are associated with such Products replacement (including expenses associated with problem diagnosis, testing, and replacement of Products in normal inventory, finished goods inventory, distributors inventories, and with customers); or (ii) credit or refund Buyer the Price of the Products. In the event of upgrades to the Products, Supplier will offer Buyer such upgrades as soon as commercially available.

 

That’s 12th-grade material. Reading ease is an abysmal 15.

I rewrote this in conjunction with a client’s attorney who was very nervous about my rewriting her work. I shortened the sentences, eliminated passive verbs, added more bullets and numbering and removed the distracting mid-sentence capitalization of common words.

After:
Unless buyer consents in writing, supplier will not:

  1. Make any changes to products, or
  2. Make any changes to supporting processes that buyer has certified.

Buyer will not withhold such consent unreasonably.

If supplier makes such a change without buyer’s consent, buyer may chose one of the following two options.

  1. Supplier will replace all such products with products that the buyer approves. Supplier will also reimburse buyer for all actual and reasonable expenses that buyer incurs in replacing the products. Expenses include expenses associated with problem diagnosis, testing and replacement. Buyer may require replacement of products that are in normal inventory, finished goods inventory, distributor inventory, and with customers. OR
  2. Supplier will credit or refund buyer the price of the products.

If supplier upgrades products, supplier will offer buyer such upgrades as soon as commercially available.

This requires 10.3 years of education and got a reading ease score of 43.7.

Enjoy working with your attorneys.

Dick Locke, Global Procurement Group and Global Supply Training.