Are Your Template-Based Contracts Enforceable?
If a supplier signs your contract, that supplier is legallybound to the obligations within that contract, right? Beforeyou answer, let's talk about adhesion contracts.
An adhesion contract, defined in Jones v. Dressel, 623 P.2d370, 374 (Colo. 1981), is a contract "drafted unilaterally bya business enterprise and enforced upon an unwilling and oftenunknowing public for services that cannot readily be obtainedelsewhere. An adhesion contract is generally not bargainedfor but is imposed...on a take-it-or-leave it basis."
So adhesion contracts are like those you accept when you parkyour car and receive the claim check which purports to waiveyour rights. Pre-printed forms. Small print. You’veundoubtedly seen many of them.
According to ReevesJournal.com: "The courts have interpretedand enforced adhesion contracts differently from ordinarycontracts - the provisions buried in the contract have beenfound to unexpectedly and often unconscionably limit theobligations and liability of the party drafting the contract."Contracts and clauses within a contract found to beunconscionable are not enforceable. Contracts that are veryone-sided are often considered unconscionable.
Today's supply chain managers regularly use contract templateswith their suppliers. And the templates of larger companies,who are financially stronger than their suppliers, often sharethe characteristics of one-sided adhesion contracts common tothose used between large companies and consumers.
So, could your contract template be unenforceable?
"Forms and templates should always be used cautiously" saidErnest Gabbard, Director of Corporate Strategic Sourcing forAllegheny Technologies and also an attorney. "It is alwaysbest to negotiate and reach agreement on the controversialclauses, to ensure that all elements of the contract areenforceable."
This article is not intended to be legal advice. Laws differbetween states and countries. Always consult an attorney whendealing with contractual matters.
Saturday, January 31, 2009
RFP Templates & Social Responsibility
What Is The Socially Responsible RFP?
Social Responsibility refers to a business' commitment to thepreservation of society and the environment.
Because purchasing is responsible for many decisions thataffect society and the environment, you have a key role inhelping spread Social Responsibility (SR). Not only can youmake your organization more socially responsible, but you canalso compel other organizations (i.e., your suppliers) to bemore socially responsible.
You can increase global SR by including SR among the othercriteria used in selecting suppliers. Here are 12 questionsyou can include in your RFP templates to probe suppliers'commitment to SR.
1. How does your organization support the communities in which it operates?
2. How does your organization encourage its suppliers to support those communities?
3. How much money does your organization spend annually with socially diverse suppliers?
4. How does your organization promote diversity in its own employment practices?
5. How does your organization encourage its suppliers to have a diverse workforce and supplier base?
6. What does your organization do to make its operations more environmentally friendly?
7. How does your organization encourage its suppliers to be more environmentally friendly?
8. How does your organization monitor compliance with its ethics policy?
9. How does your organization ensure that human rights are valued in its operations?
10. How does your organization ensure that its suppliers value human rights?
11. How does your organization ensure maximum safety in its working conditions?
12. How does your organization ensure that its suppliers have safe working conditions?
Social Responsibility refers to a business' commitment to thepreservation of society and the environment.
Because purchasing is responsible for many decisions thataffect society and the environment, you have a key role inhelping spread Social Responsibility (SR). Not only can youmake your organization more socially responsible, but you canalso compel other organizations (i.e., your suppliers) to bemore socially responsible.
You can increase global SR by including SR among the othercriteria used in selecting suppliers. Here are 12 questionsyou can include in your RFP templates to probe suppliers'commitment to SR.
1. How does your organization support the communities in which it operates?
2. How does your organization encourage its suppliers to support those communities?
3. How much money does your organization spend annually with socially diverse suppliers?
4. How does your organization promote diversity in its own employment practices?
5. How does your organization encourage its suppliers to have a diverse workforce and supplier base?
6. What does your organization do to make its operations more environmentally friendly?
7. How does your organization encourage its suppliers to be more environmentally friendly?
8. How does your organization monitor compliance with its ethics policy?
9. How does your organization ensure that human rights are valued in its operations?
10. How does your organization ensure that its suppliers value human rights?
11. How does your organization ensure maximum safety in its working conditions?
12. How does your organization ensure that its suppliers have safe working conditions?
The 21st Century Procurement Department
What Is A 21st Century Procurement Department?
characteristics of "The 21st Century ProcurementDepartment."
Structure & Alignment
Modern procurement departments structure themselves to achievethe perfect mix of centralized and decentralized buying. Endusers - not procurement - place orders for low-dollar items,using contracts set up by a centralized procurement staff. Sotransactions are decentralized, not decisions.
A centralized procurement staff is concerned not with order placement, but with establishing enterprise-wide contracts,managing relationships with those suppliers, and providing processes for decentralized transactions.
There is no one-size-fits-all way of aligning a procurementdepartment. Some organizations align their procurement staff according to customer. Others align according to commodity.Still others align by supplier. The "best" way depends on the goals of the company.
Qualifications, Knowledge, & Skills
Because of the higher-level responsibilities of modern purchasers, they must have solid fundamental procurement capabilities, analytical skills (particularly in financial analysis), advanced computer expertise, and skills incontracts, project management, relationship building, strategy development, and negotiation.
The manager needs to have all of the skills of his/heremployees plus the ability to:
* Align the procurement department with the mission and vision of the overall organization
* Implement initiatives and best practices that support the mission and vision of the overall organization
* Lead people and the procurement function in general
Software & Intangibles
Modern organizations are adopting or "growing into" spend management technology solutions which blend eProcurement,reverse auction, spend analysis, and other capabilities. As far as intangibles, they focus on delivering measurable results aligned with organizational objectives andcollaborating with suppliers to achieve a competitive advantage.
In addition, procurement departments are enlarging their role in the supply chain. Once simply just the interface forexternal "inputs," procurement departments are now also expanding towards the organization’s "outputs." This involves managing inventory, taking responsibility for logistics, and,in the future, even being a more significant part of a customer collaboration team.
characteristics of "The 21st Century ProcurementDepartment."
Structure & Alignment
Modern procurement departments structure themselves to achievethe perfect mix of centralized and decentralized buying. Endusers - not procurement - place orders for low-dollar items,using contracts set up by a centralized procurement staff. Sotransactions are decentralized, not decisions.
A centralized procurement staff is concerned not with order placement, but with establishing enterprise-wide contracts,managing relationships with those suppliers, and providing processes for decentralized transactions.
There is no one-size-fits-all way of aligning a procurementdepartment. Some organizations align their procurement staff according to customer. Others align according to commodity.Still others align by supplier. The "best" way depends on the goals of the company.
Qualifications, Knowledge, & Skills
Because of the higher-level responsibilities of modern purchasers, they must have solid fundamental procurement capabilities, analytical skills (particularly in financial analysis), advanced computer expertise, and skills incontracts, project management, relationship building, strategy development, and negotiation.
The manager needs to have all of the skills of his/heremployees plus the ability to:
* Align the procurement department with the mission and vision of the overall organization
* Implement initiatives and best practices that support the mission and vision of the overall organization
* Lead people and the procurement function in general
Software & Intangibles
Modern organizations are adopting or "growing into" spend management technology solutions which blend eProcurement,reverse auction, spend analysis, and other capabilities. As far as intangibles, they focus on delivering measurable results aligned with organizational objectives andcollaborating with suppliers to achieve a competitive advantage.
In addition, procurement departments are enlarging their role in the supply chain. Once simply just the interface forexternal "inputs," procurement departments are now also expanding towards the organization’s "outputs." This involves managing inventory, taking responsibility for logistics, and,in the future, even being a more significant part of a customer collaboration team.
Strategic Sourcing & Stakeholder Resistance
Will Stakeholders Undermine Your Sourcing Work?
"You can sign a contract with whomever you want. But ourdivision won't use your supplier!"
Have you ever heard this type of statement? Many strategicsourcing leaders have. Their work is a struggle.
As a reaction to resistance, many strategic sourcing leadersseek ways to force business units to support their supplierselections. But the best practice for reducing maverickspending is proactively preventing resistance.
How do you prevent resistance to strategic sourcinginitiatives? You have to involve your stakeholders. Andtheir involvement can't be superficial - they must have inputinto key decisions throughout the sourcing process.
To implement this best practice, simply plan on havingstakeholders present when each of the following questions areanswered within the sourcing process.
1. What are our specifications?
2. What are our supplier performance requirements?
3. What suppliers are we going to invite to bid?
4. How are suppliers differentiated and what is the measurable value of the differences between them?
5. What criteria are we going to use to evaluate proposals and suppliers?
6. What are the relative weightings of those criteria?
7. What hidden and tangential costs may we face that could distort our total cost of ownership calculation?
8. What costs of poor performance might we incur?
9. Who makes the final supplier selection decision?
10. What is the process for dealing with poor performance from the selected supplier?
Stakeholder suggestions may not always match the finaldecisions. These decisions will require collaborativeinternal negotiation. But using this best practice will helpyou avoid the "We won't use that supplier!" threat.
"You can sign a contract with whomever you want. But ourdivision won't use your supplier!"
Have you ever heard this type of statement? Many strategicsourcing leaders have. Their work is a struggle.
As a reaction to resistance, many strategic sourcing leadersseek ways to force business units to support their supplierselections. But the best practice for reducing maverickspending is proactively preventing resistance.
How do you prevent resistance to strategic sourcinginitiatives? You have to involve your stakeholders. Andtheir involvement can't be superficial - they must have inputinto key decisions throughout the sourcing process.
To implement this best practice, simply plan on havingstakeholders present when each of the following questions areanswered within the sourcing process.
1. What are our specifications?
2. What are our supplier performance requirements?
3. What suppliers are we going to invite to bid?
4. How are suppliers differentiated and what is the measurable value of the differences between them?
5. What criteria are we going to use to evaluate proposals and suppliers?
6. What are the relative weightings of those criteria?
7. What hidden and tangential costs may we face that could distort our total cost of ownership calculation?
8. What costs of poor performance might we incur?
9. Who makes the final supplier selection decision?
10. What is the process for dealing with poor performance from the selected supplier?
Stakeholder suggestions may not always match the finaldecisions. These decisions will require collaborativeinternal negotiation. But using this best practice will helpyou avoid the "We won't use that supplier!" threat.
Spend Management Technology Trends
What Are Today's Trends In Purchasing Technology?
In the late 1990's, purchasing saw a rapid influx ofimpressive technology solutions. The dot-com bust obliteratedmany of the solution providers and their technologies, butwe're now once again seeing advances.
While the late '90's were characterized by niche providers,today's providers are offering technologies that combine manyof those specialized capabilities in a multi-purpose,integrated offering increasingly known as Spend Managementtechnology, which encompasses:
eProcurement - eProcurement systems bring the ease of a retailshopping experience to corporate procurement. Users browseonline catalogs of pre-approved goods and services fromcontracted suppliers. The requisition to payment process isfully automated.
eSourcing - eSourcing allows suppliers to access all RFPmaterials online and submit their proposals using onlineforms. Purchasers can view and analyze supplier submissionsvia a Web browser. Reverse auctions allow suppliers todynamically improve their proposals after seeing theirrelative rank or the bids of competitors.
Spend Analytics - Analytics modules make it easier forpurchasers to segment their purchases by categories and accesscategory-specific information such as the amount spent, thenumber of suppliers used, and more.
Supplier Management - Modern systems capture supplierperformance data and allow purchasers to run queries toidentify suppliers' on-time delivery performance, qualityhistory, and other metrics.
With the evolution from best-of-breed models to a one-stop-shop for all Spend Management needs, you're likely wonderingwhat the future holds for technology. "I'm impressed with theprogress ERP providers are having on the eProcurement side ofthe equation," said Jason Busch, Managing Director of AzulPartners and editor of the blog www.spendmatters.com. "I'mequally impressed with how best of breed vendors are breakingnew ground on such areas as supplier performance management,supplier operational and financial forecasting, sourcing andbid optimization, category management, and services SpendManagement."
In the late 1990's, purchasing saw a rapid influx ofimpressive technology solutions. The dot-com bust obliteratedmany of the solution providers and their technologies, butwe're now once again seeing advances.
While the late '90's were characterized by niche providers,today's providers are offering technologies that combine manyof those specialized capabilities in a multi-purpose,integrated offering increasingly known as Spend Managementtechnology, which encompasses:
eProcurement - eProcurement systems bring the ease of a retailshopping experience to corporate procurement. Users browseonline catalogs of pre-approved goods and services fromcontracted suppliers. The requisition to payment process isfully automated.
eSourcing - eSourcing allows suppliers to access all RFPmaterials online and submit their proposals using onlineforms. Purchasers can view and analyze supplier submissionsvia a Web browser. Reverse auctions allow suppliers todynamically improve their proposals after seeing theirrelative rank or the bids of competitors.
Spend Analytics - Analytics modules make it easier forpurchasers to segment their purchases by categories and accesscategory-specific information such as the amount spent, thenumber of suppliers used, and more.
Supplier Management - Modern systems capture supplierperformance data and allow purchasers to run queries toidentify suppliers' on-time delivery performance, qualityhistory, and other metrics.
With the evolution from best-of-breed models to a one-stop-shop for all Spend Management needs, you're likely wonderingwhat the future holds for technology. "I'm impressed with theprogress ERP providers are having on the eProcurement side ofthe equation," said Jason Busch, Managing Director of AzulPartners and editor of the blog www.spendmatters.com. "I'mequally impressed with how best of breed vendors are breakingnew ground on such areas as supplier performance management,supplier operational and financial forecasting, sourcing andbid optimization, category management, and services SpendManagement."
Email Guidelines For Purchasing Professionals
Are Your Emails Getting The Attention You Want?
Purchasing and supply management is one of the busiestprofessions. Therefore, you and I use the convenience ofemail to communicate with our superiors, internal customers,and suppliers.
This convenience often leads to sloppiness. Sloppy emails arefrequently ignored or misunderstood.
Use these guidelines to optimize your emails.
Limit The Topic - If you have more than one topic to discusswith the recipient, send one email per topic. When topics arecombined, the recipient is likely to withhold a reply untilALL matters can be addressed.
Write Short Paragraphs - Limit your paragraphs to twosentences in length for optimum readability. Four shortparagraphs are better than one huge paragraph.
Write Short Sentences - Strive for an average of about nine to14 words per sentence. If a sentence uses more than 20 words,try to split it into two separate sentences.
Use Lists - If you describe three or more points about acertain topic, use a bulleted list not a long sentence.
Draw Attention To Questions - If you ask a question, put it ina paragraph by itself. When asking multiple questions,number them and place each on its own line.
Have A Clear Call To Action - Tell the person exactly what todo. An example would be: "Please review this document andemail your suggestions to me."
State Any Deadlines - If you need a response by a certaindate, indicate the date by which you need it. When using adate, be sure to specify whether you want the response "on" or"no later than" that date.
Be Service Oriented - When replying to internal customers,thank them in your first sentence and thank them in your lastsentence.
Proofread - Ensure compliance with these guidelines and lookfor spelling/grammar errors, omitted words, and lack ofclarity.
Purchasing and supply management is one of the busiestprofessions. Therefore, you and I use the convenience ofemail to communicate with our superiors, internal customers,and suppliers.
This convenience often leads to sloppiness. Sloppy emails arefrequently ignored or misunderstood.
Use these guidelines to optimize your emails.
Limit The Topic - If you have more than one topic to discusswith the recipient, send one email per topic. When topics arecombined, the recipient is likely to withhold a reply untilALL matters can be addressed.
Write Short Paragraphs - Limit your paragraphs to twosentences in length for optimum readability. Four shortparagraphs are better than one huge paragraph.
Write Short Sentences - Strive for an average of about nine to14 words per sentence. If a sentence uses more than 20 words,try to split it into two separate sentences.
Use Lists - If you describe three or more points about acertain topic, use a bulleted list not a long sentence.
Draw Attention To Questions - If you ask a question, put it ina paragraph by itself. When asking multiple questions,number them and place each on its own line.
Have A Clear Call To Action - Tell the person exactly what todo. An example would be: "Please review this document andemail your suggestions to me."
State Any Deadlines - If you need a response by a certaindate, indicate the date by which you need it. When using adate, be sure to specify whether you want the response "on" or"no later than" that date.
Be Service Oriented - When replying to internal customers,thank them in your first sentence and thank them in your lastsentence.
Proofread - Ensure compliance with these guidelines and lookfor spelling/grammar errors, omitted words, and lack ofclarity.
Friday, January 30, 2009
Supplier Size: It Matters
Does Your Selection Criteria Include Supplier Size?
You need a supplier who will stay in business on a long-termbasis. You need a supplier whose capabilities are scalable,so your delivery, service, or quality will not suffer if yourvolume increases.
But you also need a supplier who values your business. Whenyou're unhappy with the supplier or you need specialassistance, you need your supplier to put forth extraordinaryeffort towards satisfying you.
Selecting a supplier of the "right" size - relative to yourspend with them - can meet all of these needs.
Generally, if your business represents less than 1% of asupplier's annual sales, you won't be extremely valuable tothem. So you may not get the service or attention you mayneed at critical moments.
Conversely, if your business represents over 10% of asupplier's annual sales, that supplier may be too dependent onyou. Decreases in your volume could force them to lay offportions of their workforce or even go out of business. Thatwould negatively impact your ability to satisfy yourrequirements when regular demand patterns are restored.Additionally, volume spikes could clog the supplier'soperations.
When comparing supplier proposals, note the percentage of eachsupplier's sales that would be comprised by your business.Assign one of three designations to your evaluation sheet torepresent that percentage:
<1%>10%
If the highest ranking supplier is assigned either the "<>10%" designation, reconsider how the supplier's sizemay negatively affect the performance you get out of thatsupplier during your relationship.
It may or may not change your decision. But it is somethingto be considered. Personalize this process: Think about yourown attentive and inattentive suppliers. Calculate thepercentage of their sales that is comprised by your spend.Then adjust the percentage thresholds (1% and 10%) to reflectthe correlation between supplier size and attentiveness inyour experience.
You need a supplier who will stay in business on a long-termbasis. You need a supplier whose capabilities are scalable,so your delivery, service, or quality will not suffer if yourvolume increases.
But you also need a supplier who values your business. Whenyou're unhappy with the supplier or you need specialassistance, you need your supplier to put forth extraordinaryeffort towards satisfying you.
Selecting a supplier of the "right" size - relative to yourspend with them - can meet all of these needs.
Generally, if your business represents less than 1% of asupplier's annual sales, you won't be extremely valuable tothem. So you may not get the service or attention you mayneed at critical moments.
Conversely, if your business represents over 10% of asupplier's annual sales, that supplier may be too dependent onyou. Decreases in your volume could force them to lay offportions of their workforce or even go out of business. Thatwould negatively impact your ability to satisfy yourrequirements when regular demand patterns are restored.Additionally, volume spikes could clog the supplier'soperations.
When comparing supplier proposals, note the percentage of eachsupplier's sales that would be comprised by your business.Assign one of three designations to your evaluation sheet torepresent that percentage:
<1%>10%
If the highest ranking supplier is assigned either the "<>10%" designation, reconsider how the supplier's sizemay negatively affect the performance you get out of thatsupplier during your relationship.
It may or may not change your decision. But it is somethingto be considered. Personalize this process: Think about yourown attentive and inattentive suppliers. Calculate thepercentage of their sales that is comprised by your spend.Then adjust the percentage thresholds (1% and 10%) to reflectthe correlation between supplier size and attentiveness inyour experience.
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