According to reports authored by the International Association of Contract and Commercial Management, the Aberdeen Group, and the International Association of Outsourcing Professionals, the average contract loses approximately 17% to 40% of its value from the time of execution through to close-out. Value leakage can range from things like low adoption rates, non-value-added change orders, lack of innovation, poor governance, etc. This blog post will help contract professionals understand how customer-supplier relationships lose value and three best practices to preserve value.
Move Beyond Deal Points
Typically, negotiators think in terms of “getting the best deal”, meaning, financial and legal Terms that are favorable to the negotiator’s organization. Here is the problem: if businesspeople accept this premise, they are negotiating short-term “deals” in a complex, long-term business environment.
Focusing on the “deal” often leads to losing focus on the larger business goal(s) that a customer-supplier relationship seeks to address. For example, an overemphasis on “getting the best deal” often results in failing to fully document costly aspects of the work in the Statement of Work, failing to include adequate inspection, testing and cure processes, and failing to document and control common risk events.
Furthermore, focusing on the “deal” also precludes the inclusion of innovation in the delivery of goods and services. Buying emerging technologies like artificial intelligence, robotic process automation, cloud computing, or cognitive automation is the new norm, yet only 21% of respondents in Deloitte’s 2016 Global Outsourcing Survey reported that innovation was a key part of their contracts.
“April prepares her green traffic light and the world thinks GO.” – Christopher Morley
April is the start of a new quarter and many teams are seeking ways to make maximum impact on their goals and ultimately their company’s bottom line. To help you put the pedal to the metal this month, SIG has opportunities for training, industry networking and a chance to get recognized for all of the hard work you’ve put in.
SPRING GLOBAL EXECUTIVE SUMMIT
The Spring Global Executive Summit takes place April 15-17 at the Omni Amelia Island Plantation Resort in Amelia Island, FL. This Summit will connect you with other executives and industry experts, so come with an open mind, plenty of business cards and a sincere interest in becoming more strategic and influential.
At this Summit, all of the keynote sessions will bring remarkable stories and insights that will leave you feeling refreshed and inspired, with lots of great ideas to bring back to your team. Here's a look at two of our featured keynotes:
Clint Bruce -- Pursuing Elite: The Five Gifts of Elite Achievers
In any endeavor you can only have one of five outcomes: bad, average, good, excellent, and elite. If the endeavor is your passion or profession, the only acceptable result is somewhere between excellent and elite. Clint uses powerful stories and lessons learned as a highly decorated athlete and member of the elite SEAL Teams to share with the audience techniques to become an elite achiever in all aspects of life.
Sunil Gupta, Avinash Pemmaiah, Brad Killinger -- How do you Innovate to Buy Smart? Ask the Experts!
We all know the story of Bob, the Verizon employee who outsourced his programming work to China. After a couple of years, he got caught when security questioned why he was Virtual Proess Networking from China. Bob shipped his token to a programmer in China and paid him less than one-third of his salary. Meanwhile, Bob was relaxing in a cubicle, getting great reviews and regular raises for his programming prowess.
I have now met three people who told me they outsource their work. So, do you really know whose finger prints are actually on the keyboard? About six years ago when crowdsourcing was in its early days, I wanted to see what it was like from the employee side of crowdsourcing, so I signed up to be a crowd sourced person. No one questioned me about my application, about why a CEO wanted to make an extra $20 an hour in her spare time. After a few hours of doing task work, I handed my computer to my 13-year old son and asked him to try it. Of course, he caught on in no time and was able to produce work tasks. No one questioned that my work style had changed slightly. The company who hired me is one of the largest corporations in the world, and they never knew that this task was being performed by child labor. Being the ethical person that I am, I didn’t let this charade last long. I resigned in under two weeks… although my son begged me not to. I did it to test the system for my own curiosity and to understand the crowd sourcing model better.
Jeanette Nyden is an internationally recognized contract negotiation expert. She’s written and co-authored three books to date. Jeanette provides tactical, customized contract drafting, negotiation and management training, coaching and mentoring programs to both sales and purchasing teams.
Jeanette has taught at major corporations, Seattle University and the University of Tennessee’s Center for Executive Education. While no longer practicing law in a traditional manner, she is a lawyer and holds a license to practice law in Washington.
Your presentation at the Western Regional SIGnature Event is about reducing value leakage in complex contracts--why is this such an important topic?
Industry studies demonstrate contract value leakage is from 17% to as high as 40%. Typically, value leakage comes from things like low adoption rates, non-value-added change orders, lack of innovation, etc. Performance- and outcome-based contracting best practices can dramatically reduce value leakage.
Additionally, businesses are seeking greater returns from their customer-supplier relationships at the same time many younger professionals are entering the field. This is a perfect time in the market to emphasize ways to implement performance- and outcome-based principles to reduce value leakage.
SIG University Certified Supply Management Professional (CSMP) student, Justin Kline, works at Canon. In this blog, he shares his learnings about the pivotal role of executive sponsorship in governance transformation and how his team plans to implement some of the best practices within his job function and organization.
In this program, SIG University students will comprehend the significance of governance, risk and compliance. They’ll understand the various levels of supplier management governance, including corporate, business unit and contract level activities. They are also able to select the appropriate governance program, and key components, for each relationship model. They gain an effective understanding of how to capture and activate innovative ideas through the governance structure, in addition to describing the critical tools to use in implementing a governance program.
At Canon, I am responsible for scoping and delivering outsourced services to our customers. Today, our customers are looking to Canon not only to take over a business process but also to assist or lead the transformation of the process simultaneously. These types of projects require more time, resources and investment by both sides to achieve targeted results. This level of investment and risk makes these projects higher profile.
Since transformative change is disruptive and typically requires a paradigm shift within the organization, it necessitates the right types of governance to manage successfully. One of the critical elements of ensuring a transition plan is effectively met is having the right level of executive sponsorship and involvement.
Here's your weekly update on the latest thought leadership, networking events and training with SIG.
SAP Ariba Live Sustainability Summit
More and more companies are committed to continuously aligning sustainability with their business strategies. Join sustainability experts and practitioners, including SIG’s CEO Dawn Tiura, at SAP Ariba Live on April 1-3 in Austin, to discover new tools, technologies, and resources to strengthen sustainability programs.
In today’s disruptive business environment, your suppliers’ risks are your risks. It’s time to develop a comprehensive risk management program that protects your brand, customers, and bottom line in a world where global supply chains are symbiotically intertwined and interdependent.
In today's aggressive job market, keeping up with the latest trends is crucial to your company's growth and success. Over 1,000 students from all over the world have completed SIG U's certification program. They are getting a leg up and so should you. Don't get left behind and enroll today.
Thought Leadership Webinar - Category Management in Only 30 Days!
This webinar will go deep into how to size the prize within your organization, what minefields to look out for, determining where gaps may exist from a category knowledge baseline and finally, how to conduct this entire analysis to set your organization up for category management success, within 30 days!
Anecdotally, I have been hearing of huge increases in the amount being paid to sourcing professionals in recent years. From the top down, that has been true. As you know, we have a Career Network at SIG and I keep a folder of executives looking to move on to other senior leadership roles, so I know what kind of packages they are getting since I do a lot of match-making.
In the last five years, I have seen that starting salaries for a recent college graduate are at least 25% higher in the sourcing industry. It is not at all odd for a person with three years of experience to command a minimum salary of $100,000 a year. Ten years ago, I didn’t have a single CPO making over $500,000, and now that is becoming a possibility for fully-loaded compensation. Of course, talent-level, cost of living, and location make a huge difference in the numbers. At the Midwestern Regional SIGnature Event in March, I confirmed the jump in salaries for sourcing professionals.
A master’s degree intern from a strong supply chain or finance school commands $31 per hour for a paid internship and an undergraduate intern makes about $26per hour. What happened to the free internships we vied for when I was an undergrad? Interns now make the equivalent of $54,000-$64,000 per year as an intern. I know someone that was named “intern of the year” at a high tech company who was offered a starting salary of $85,000 after receiving a bachelor’s degree, and they turned it down - that was four years ago.
Jane Zhang is the Co-Founder of ETCH Sourcing, a Canada based consultancy specializing in providing strategy and execution services in the sourcing, procurement and category management space. She loves people, solving problems, and has years of expertise working throughout the entire sourcing spectrum, from building and executing multi-million-dollar tactical strategies, to being entrusted with some of the most complex and strategic contractual negotiations on business-critical projects. Graduating from the Haskayne School of Business twice over with a Bachelor of Commerce in Marketing and an MBA in Finance with a focus on Global Energy Management and Sustainability, she has returned to build and teach business contract negotiations with her Co-Founder as a part of giving back and elevating her alma mater.
Jane is passionate about education is a member for multiple boards, most notable is her role as Board Director and Chief Operating Officer of a non-profit designed to connect children aged 8-13 with industry learning and development through play.
Jane’s latest passion is to champion the role of sustainability in procurement and is celebrating the launch of ETCH’s sustainable procurement offering, which integrates the UN SDGs as a sustainability function into the procurement process from an end-to-end perspective.
Here's your weekly update on the latest thought leadership, networking events and training with SIG.
SIG Global Executive Summit
SIG Global Executive Summits are 3-day events that are packed with the latest best practices, cost-cutting strategies, innovative processes and risk-mitigation approaches. Through executive roundtables, keynote sessions, workshops, breakout sessions and networking events, you'll hear from industry thought leaders, discover the latest innovative trends and have the opportunity to network with like-minded professionals facing similar challenges.
The 2019 GEP Outlook for Procurement and Supply Chain Management is now available. This indispensable report reflects views of the industry’s best thought leaders and category experts — equipping you with procurement strategies and other essential tools to prepare you for a successful year ahead. Download your copy today!
Over 1,000 students from over 200 companies representing 17 countries have participated in our SIG U certification program. Don't get left behind as your colleagues further their professional growth and knowledge. Enroll today and get educated.
It was the very best one-day event I have attended in my life! The Midwestern Regional SIGnature Event, held on March 6 at the Minneapolis Central Library, was attended by 66 extraordinary third-party risk management and sourcing professionals. Not only was the agenda amazing, but every speaker delivered insightful content and engaged the audience. At the Executive Roundtable, we had thoughtful conversations about many issues. Tom Lutz from U.S. Bank led a “day in the life” discussion that lasted almost 45 minutes because so many people wanted to discuss what he was doing, and it prompted other conversations as well.
In our opening session, Linda Tuck Chapman, a Sourcing Supernova Hall of Fame inductee, knocked it out of the park by delivering an interactive workshop on third-party risk management. People said that their two hours of training FLEW BY. When the group joined back together, we had an incredible presentation by Rohan Ranadive from BB&T about building an AI-powered digital workforce which prompted so many questions, I had to stop them to stay on agenda! Then we had an absolutely inspiring one-hour talk by Nancy Brooks, the CPO of Best Buy. Nancy shared that she had declined previous invitations to speak, because she doesn’t care for speaking engagements, but she agreed to speak at SIG’s event because she had a story that needed to be shared about her team. We are thrilled that she joined us. She engaged everyone with Best Buy’s story the entire time and Nancy’s team was so proud to be there.