What could be easier than just continuing with the known and trusted suppliers? Then at least you know where you stand. Unfortunately you don’t know what you are missing.
Within companies often the same attitude towards suppliers arises as with consumers. They don’t like continuous switching either. That only takes time and money. Figuring out conditions, comparing prices which is often difficult. And then negotiate again. A long and grueling process often for companies.
Especially if you work in a larger organization. Then it quickly concerns a hundred different suppliers or more. However, neglecting your contract management can have a major impact on your performance and pose a significant risk to the stability and continuity of your organization.
To prevent annual negotiations, many contracts have the principle of tacit renewal. Very easy for both parties. However, the quality of the supplier often changes over time. The product may have changed and the service has been slowly eroding. Especially in the initial period of the contract, suppliers do their utmost to keep you as a customer satisfied. Over time, attention is neglected and you are just one of many customers.
Things don’t just change on the supplier’s side. Your process is not standing still either. You are dealing with a rapidly changing market where customers have increasingly higher and different requirements. The question is whether the contract you have with your supplier is still in line with this? This slow erosion can quickly lead to high costs. It is often the CFO who rings the bell because the ratios start to skew from financial analyzes. Then renegotiation suddenly becomes a tricky and painful process.
In many larger organizations there is a Purchasing department, but they often only manage the large, strategically important contracts. There is no insight into the many medium and small contracts. These are spread over the departments, tucked deep in drawers. The management of these contracts is often based on personal contacts and trust and not on the basis of objective measurement data and results. In this way your margin erodes invisibly but inevitably.
Good contract management is therefore an essential condition for the result of your organization and to ensure that all your suppliers continue to optimally connect to your processes and the changing market you are dealing with. So avoid tacit renewal.
Make sure you can view and manage all contracts centrally. Above all, make sure you continuously evaluate your suppliers on their performance and quality that you have contractually agreed with them. A good purchasing and contract system that can monitor your suppliers from agreement to cash flow is certainly not an unnecessary luxury.