We recently stirred up some interesting debate over risks and legal contracts, specifically regarding balancing risk and whether or not companies are actually protecting against the right kind of risk (or introducing risk and losing opportunities in the process). But we truly touched a nerve with a post quoting a presentation where a procurement leader at a large corporation suggested starting with a supplier’s paper rather than their own for some types of purchases. Given the emotions and indeed risks around the topic of legal contracts, I found an anecdote by Tim Cummins during a roundtable at the Ariba LIVE event in London a few weeks ago to be very thought provoking.
Tim, the President and CEO of the International Association for Contract & Commercial Management (IACCM), told the story of an IACCM member company that decided to do an experiment with their buy and sell side contracts. They had their in-house legal teams do a blind review (the company name was concealed) of their own contracts to look for misplaced priorities and potential exposure. Their sell side legal team looked at their own company’s buy side contracts and vice-versa for the buy side team, who reviewed the sell side team’s paper. To quote Tim on the findings:
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Tim Cummins, President & CEO of IACCM, discussed their organization’s recent survey results, which found a majority in contract/legal roles feel their company does not focus on the right types of risks.
***The video interviews from the NY, Chicago, San Francisco and London Ariba LIVE World Tour events are now in a playlist on YouTube.***
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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John Busch, the Senior Director of Corporate Contract Management at HCSC and self-proclaimed “recovering lawyer”, said that for many IT purchases, they accept the vendor’s contracts. As John pointed out, IT vendors have “more skin in the game” since protecting their IP is critical to their business.
The discussion reminded me of a theme that kept coming up last month at IACCM in Orlando. In everyone’s constant push to alleviate risk, it’s possible to go too far - thus stifling business - or to become too focused on the wrong types of risk. John’s comment today about who has more skin in the game on a particular risk - the buyer or supplier - is a question we should all be asking. Perhaps, sometimes we should dial back our risk averse, skeptical minds and pick our contract battles more carefully. Rather than approaching each contract as an adversarial, zero-sum-game, the supplier’s paper may indeed suffice.
Curious to know the your thoughts (leave them anonymously if you must). Are there categories where you’ll accept supplier’s paper? Or are all contracts hammered out through redlines?
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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As a follow up to yesterday’s post on the risk “political extremism” poses to supply chains, I thought it would be helpful to revisit the Ariba LIVE Virtual breakout session with Rob Handfield, Distinguished Professor of Supply Chain Management at North Carolina State. The professor is a strong advocate for compiling the right kind of information - political, supplier, financial, etc - concerning potential risks, analyzing the likely supply chain impacts, and then redesigning the supply chain to reduce those risks. The approach is very well suited for reducing the dangers of political extremism (or any other risks for that matter) and therefore can provide some useful guidance.
Professor Handfield’s session, titled Managing Supply Risk, walked attendees through a number of case studies, including some success stories of companies turning their supply chain risk attentiveness into competitive advantages (replay here - registration required). But it was his “lessons learned” that I think provided the most insight to companies looking to proactively get out in front of potential risks rather than react when those risks surprise them.
Among the key take-aways gleaned from his research:
Pick your battles. “It is impossible to know everything about your supply chain. So focus on the critical few, key areas that are most vulnerable and exposed.”
Focus on compiling actionable data. “Metrics should drive action. They’re only useful if they lead to direct attention to the problem. Look for subtle signs and indicators of potential issues.”
Relationships matter. “Risk can only be minimized through direct human intervention. Sit down to discuss likelihood, probability and think creatively of how to handle the risks.”
Tougher contracts alone won’t work. “Risk cannot be eliminated through stronger contractual language. This only hurts relationships and is more likely to cause harm than reduce risk.”
Anyone tasked with risk reductions - which these days is probably everyone who reads this blog - the Professor’s presentation is a good primer into his research (replay here - registration required). And for those looking for a little extra-credit, Professor Handfield has authored several books on supply chains that are likely worthy, informative reads.
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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Diebold CEO Tom Swidarski just wrapped up his “Spend Management: A CEO’s View” presentation. When Tom took over the reigns as Diebold (a company with $3.2B in revenue in 2008 and celebrating their 150th year), he set an ambitious goal of cutting $100 million from costs structures by the end of 2008. But rather than quietly setting this goal internally, where the risk of failure isn’t so great, Tom “got everyone’s attention immediately by announcing this externally [to the market].”
The good news for Diebold’s stock holders, employees and suppliers is, they hit their goal. Tom attributes their success to a three pronged approach:
Structure - Diebold streamlined their procurement organization and focused on developing the right skills within their employees. They also added a financial analyst to validate that the “savings” the company earned were actually valid costs taken out of company spend. And they unified their goals for each business unit across the globe, enabling the teams to work together to identify efficiency and savings across time-zones, borders and vendors.
Technology - They leveraged technology - including esourcing, procurement and spend visibility tools - to give their people the real-time insights and leverage in their supplier relationships.
Process - Weekly project meetings kept stakeholders on track…and if they didn’t…the monthly executive reviews likely did. In addition to accountability, Diebold tackled things like warehouse optimization, where they were able to reduce operations from 89 different locations to 3 distribution centers.
Not happy to sit back and celebrate, Tom and Diebold have doubled down and announced the “SmartBusiness200″ plan, which aims to take out another $200 million by 2011.
The replay is available now (register here if you haven’t already).
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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