4 Strategies for Contract Negotiations

8/13/2019 4 Strategies for Contract Negotiations

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Procurement Procedures Those Little WordsThat Mean So Much

In any purchasing department there has to be procurement procedures. These are a group

of directives that detail what can and cannot be done as well as how each activity must beundertaken.

Most companies publish their procurement procedures so that all can see them. It is not

only companies that have procurement procedures, governments, local governments andeven countries have them as well. They are the rules and regulations that keep purchasinglegal and appropriate.

In all procurements, there are groups of standard procedures that are always defined andthese are:

Procurement cost levels

Every company wants to keep their costs down so they limit who can order and how muchthey can order. Generally the higher the total order, the more senior the signature on theorder.

Purchase requisitionsThese are a way of dealing with day-to-day inventory restocks that are not handled by

automatic purchase orders. It is important that it is well known as to who may order, inwhat circumstances and at what cost and stock level.

Ethical codesThe next most common of the procurement procedures is to dictate the ethics that people

must embrace. These generally include:

Gifts and inducements you do not take or offer any. Declaration of interest you declare any relationship with a supplier or a company

that is tendering for work.

Supplier interaction this is kept professional and within the standard terms andconditions.

Confidentiality all activities, prices and terms are kept confidential.Standard Agreements

These are generally used at all times, except when prior management agreement has beenprovided.

Value for money

Most companies have procurement procedures in place the emphasis on the need for valuefor money as opposed to taking the easiest, the cheapest or most attractive deal.

Tendering

This is when numerous companies bid for a piece of work or new contract that usually has ahigh value upon it. The whole tendering process has to be fair and seen to be fair so there


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Here we need to be clear about how long the whole process may take without making a

definite date commitment. To be fair to bidders, proposals for complex systems or services

should allow up to 4 weeks for submissions. Long RFPs with complicated and detailedresponses need time or the quality of the bid will suffer. This is also where you can statewhere and when you will notify the successful bidder and expected start date of the project.

Pricing

Pricing is a main component in the RFP review process. The price offers for each of theproposed solutions need to be easily comparable. You need to provide a pricing template in

a structured format which states exactly how to present pricing and cost data. It should beset up in such a way that price offers can be compared from several respondents side byside.

When doing an RFP review these five elements need to be covered, not in any particular

order. Preparation is key to a successful RFP, short cuts will provide poor and fewerresponses and the process may have to be repeated.

5 E-procurement advantages

E-procurement advantages are becoming more evident as the wider understanding of its

many uses become apparent. The main reason companies have embraced e-procurement isto increase productivity, provide visibility into day-to-day transactions and make it easierfor users to get the supplies that they need.

It has not been an easy road for e-procurement as implementation has its challenges and it

has taken time for business managers and procurement departments to fully accept it. Theadvantages of e-procurement are slowly being understood:

Reducing costs

Costs can be reduced by leveraging volume, having structured supplier relationships and by

using system improvements to reduce external spend while improving quality and supplierperformance. E-procurement eliminates paperwork, rework and errors.

Visibility of spend

Centralized tracking of transactions enables full reporting on requisitions, items purchased,

orders processes and payments made. E-procurement advantages extend to ensuring

compliance with existing and established contracts.

Productivity

Internal customers can obtain the items they want from a catalogue of approved items

through an on-line requisition and ordering system. Procurement staff can be released fromprocessing orders and handling low value transactions to concentrate on strategic sourcingand improving supplier relationships.


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Controls

Standardized approval processes and formal workflows ensure that the correct level of

authorization is applied to each transaction and that spend is directed to draw off existing

contracts. Compliance to policy is improved as users can quickly locate products andservices from preferred suppliers and are unable to create maverick purchases.

Using technology

E-procurement advantages can only be fully realized when the systems and processes to

manage it are in place. Software tools are needed to create the standard procurementdocumentation: electronic requests for information (e-RFI), requests for proposal (e-RFP)and requests for quotation (e-RFQ). These are proven methods to source goods and makethe framework agreements that offer the best prices.

An adequate, fully integrated e-procurement approach is needed for overall success.

Additional programs provide the framework for the supplier databases and spendmanagement as well as holding key vendor information and being an electronic repositoryfor contracts. All these facilities cost money and a clear business case must be made for e-

procurement. In most cases this is fairly clear that cost savings are possible.

It pays for companies to spend money on e-procurement technology, this investment will

boost efficiency. The longer term reduction in costs will enable companies to direct theirresources to more strategic initiatives. E-procurement advantages are significant bottom-line benefits, including cost reduction, process efficiencies, spending controls and

compliance.

4 Strategies for Contract Negotiations

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