Commitment Matters

If you are a professional in Contract & Commercial Management, committed to achieving the best possible outcomes from negotiations with all your trading relationships, then ‘Commitment Matters’ is the perfect source of regular articles and posts dedicated to helping you achieve that goal.

Why Do We Spend So Much Time Negotiating the Wrong Things?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Mar 14, 2016 6:34:00 AM

IACCM has been undertaking a series of industry studies on the values and experiences of contract negotiators from both a customer and supplier perspective. Our studies are increasing understanding of the approaches used by the best-performing organizations and how they are creating a framework that increases the chances of not only reaching agreement, but also realizing long-term value from their trading relationships. It points to the fact that success is highly dependent on the organizational framework, rather than the personal skills of a specific negotiator.

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Topics: negotiation, contract /commercial management, procurement, relationship management, organization & people

Take Control of the Future and Assess Your Opportunities

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Mar 8, 2016 8:38:00 AM

In many respects, these seem to be challenging times. I observe many commercial, contracts and procurement groups struggling to build momentum and indeed suffering cuts, because they are not adjusting to business needs. The question is whether the function can adapt and take on a wider role, or whether that wider role will be performed elsewhere. The need is for individuals to focus on the areas of the future, not those of the past, and to show a grasp of the emerging agenda driven by new technologies and digitization.

Just as the threat lies in technology, so do the opportunities. We must understand and use the systems that will define and support leading-edge supply chains. These enable a growing reliance on external sources of supply, with corporate size increasingly measured on revenue, not numbers of employees. Coordinating and integrating across these multiple, interdependent relationships will be key to survival. Another growth area will be SRM, due to the need for a more blended approach to supply management and innovation.

This means, for the right people, growth industries will be those where either there is significant disaggregation (and therefore dependence on commercial integration) and those where there is extensive regulatory / reputational oversight (and therefore dependence on integrity). As a result, I think there will be major opportunities in industries like pharma, financial services, insurance and perhaps telecoms, where better structured and well managed relationships will be critical. To a degree, that will also flow into IT and IT services, especially for companies that rely heavily on aggregation of suppliers and delivery of outcomes.

Capital goods and infrastructure industries should also need more commercial resource, but probably with a focus on building more effective supplier /project selection, negotiation and delivery management. As margins continue to operate under pressure, the theoretical savings generated by traditional procurement and 'risk management' provided by traditional contract management need to be turned into the ability to oversee contracts that deliver value, efficiency and improved margin.

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Topics: contract /commercial management, procurement, relationship management, technology, organization & people, supply chain management

Transactions or Relationships - What Does the Future Hold?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Feb 29, 2016 8:28:00 PM

Almost 60% of contract practitioners expect contracts to become more 'relational' and less 'transactional' in the next few years. That's according to the results of a worldwide survey on 'The Future of Contracting' that IACCM has been conducting since last November.

Why do they feel that this is the way forward? The answers vary, as do the motivations, but key factors include:

  • For buyers, there are various pressures suggesting that transactional behavior is no longer a good idea. Since the late 1990s, Procurement has focused on driving down prices at the expense of relationships. Supplier loyalty was a thing of the past. However, that approach carries risks and longer-term costs. The loss of supplier loyalty is one example. The difficulty of overseeing quality and performance is another – and this is especially the case in an area such as regulatory compliance. Frequent supplier switching also carries direct costs in administration and management, which can undermine the savings from a lower price or charge.
  • For suppliers, there is generally little attraction in transactional business. Certainly in the B2B environment, it is disruptive, makes planning hard and is linked to commodity pricing. So the transactional pressures from buyers have forced many suppliers to re-think their business model, to seek ways to differentiate and bring added value. An example of this is a readiness to accept more risk, to take greater responsibility for outputs or outcomes.

Together, these factors have been reflected in the steady shift from pure product sales to an increasing volume of packaged solutions or services (indicated in the growth of indirect procurement and the percentage of world trade in services). However, this growth has exposed real weaknesses in 'relationship management', until now a rather woolly, sales-led activity.

Hence the scale of interest now in 'relational contracting'. There are many myths about relational contracts, top among them being that it introduces a 'softness' to the contract that creates legal doubt or threatens enforceability.

The reality is very different. Relational contracts are fully recognized by the courts and subject to a growing body of case law and precedent. It isn't vast - but that is because relational agreements are less likely to fail and lead to litigation. And in a business context, they actually reduce doubt by creating greater discipline and clarity in the relationship, its governance and performance. They introduce positive measures rather than relying on negative incentives – in other words, more control, less need to use the stick!

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Topics: contract /commercial management, procurement, relationship management, legal

Procurement Integrity - What Does It Mean?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Feb 19, 2016 9:23:00 AM

Without fundamental change to its goals and purpose, can the typical procurement function really contribute to business integrity?

One of the largest procurement associations has defined member responsibilities in the following way:

1) Enhance and protect the standing of the profession by being ethical and having integrity in all business relationships

2) Promote the eradication of unethical business practices such as infringing human rights, fraud, corruption

On the surface, these are noble aims – yet are they actually effective or relevant? To what extent are current procurement practices (and associated training) undermining the very values that lie at the heart of these responsibilities?

I write this because the common experience of most suppliers remains that Procurement practitioners are focused almost entirely on price negotiation and obtaining 'savings' – far too often with no regard to the impact this will have on quality and, I regret to say, integrity. I don't question the ethics of those professionals – but I do question the judgment of organizations that measure success in such narrow terms. I also question procurement leadership that accepts such measures and does not challenge top management (especially the CFO) to monitor value achieved, not theoretical savings.

What needs to be different? First, it is the integrity of the supply base that should be of greatest concern to the procurement function. Having responsibility for personal integrity is surely a given; it is assessing and validating a supplier's integrity and honesty that really matters in generating business results and protecting reputation. Far too often, this does not happen - and hence the concerns about human rights, fraud and corruption.

Second, and more fundamentally, seeking to maximize discount and minimize price is quite simply not compatible with the defined responsibilities. It drives unethical behavior; it favors the dishonest supplier; it encourages short-cuts and bullying in the supply chain. We see evidence of this time and again, especially in low-margin or price driven industries – for example retail, construction and the public sector. Stories such as the Taiwanese earthquake and buildings constructed with oil cans illustrate the human cost that comes with such practices.

Procurement and supply chain management are critical activities for the success of business and should indeed be major contributors to the delivery of ethics and value. But for this to have meaning, I suggest that practitioners must challenge the way they are trained and measured and re-think the role they play in developing and managing trading relationships.

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Topics: contract /commercial management, procurement

Contract management is NOT a sub-set of Procurement

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Nov 24, 2015 4:51:30 PM

It’s not uncommon for business functions to lay claim to ownership or proficiency in another domain – but that doesn’t make it right.

In the case of contract management, the procurement, legal and project management functions are among those who assert it is ‘theirs’, that it is in some way a sub-set of what they do. That is, they make that claim until things go wrong – at which point it conveniently becomes someone else’s fault.

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Topics: procurement, sourcing, commercial management, supply chain management

Do corrupt companies have contract managers?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Aug 25, 2015 3:40:23 PM

Continuing revelations about corrupt contracting practices at Brazilian oil giant Petrobras continue to hit the headlines. It is interesting that they are one of the few major oil and gas producers which does not have active membership in IACCM. Might there be a connection between these two facts?

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Topics: contract /commercial management, procurement, international, legal

Is Government Becoming More Commercial Than The Private Sector?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Aug 20, 2015 10:52:33 PM

Commercial reform is a big issue right now - especially within Government. While the pace of change varies, public sector agencies around the world are embarking on a journey towards massive change. In some cases, they appear to be leaving their private sector suppliers far behind.

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Topics: contract /commercial management, procurement, organization & people

Generating value from suppliers

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Jul 1, 2015 11:16:12 PM

Organizations continue to disaggregate. The traditional 'integrated enterprise' has eroded and current thinking is that organizations are more agile, more efficient and more creative if they use external suppliers and contractors, rather than invest in large-scale 'owned' resources.

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Topics: contract /commercial management, procurement, sourcing, relationship management, organization & people, supply chain management

Defining success

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Jun 24, 2015 7:58:59 AM

Success is defined as an accomplishment, or the meeting of an aim or objective. In a recent article, Jonathan Cooper-Bagnall of Proxima Group challenges Procurement to re-think its measures of success. He might have posed the same challenge to all those involved with forming or managing trading relationships.

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Topics: contract /commercial management, procurement, legal

Change - and do it now!

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Jun 15, 2015 8:32:48 PM

This week's IACCM Europe forum brings together more than 200 senior managers from across industry and the public sector. They are exploring and discussing the theme '2015 - the year of Commercial Excellence'.

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Topics: contract /commercial management, procurement, risk management, legal, organization & people

About the Author


iaccm-team-tin-cummins


Tim Cummins

In his role as President of IACCM, Tim works with leading corporations, public and academic bodies, supporting executive awareness and understanding of the role that procurement, contracting and relationship management increasingly play in 21st century business performance and public policy.
 

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Commitment Matters is the personal blog of Tim Cummins, the Founder and CEO of IACCM. If you are a committed contracting professional and want to develop your skills and network, take a look at what IACCM has to offer.
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