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The Role of Contracts & Commercial

November 8, 2012

The Contracts and Commercial Mission

Good contracting starts with defining the best form of relationship to achieve the desired business results. Since ‘the relationship’ will often continue well beyond contract signature, it is essential that the parties include governance principles. Negotiators should think in three phases – first, relationship models; second, contracting models; and third, communication models. Traditional Procurement and sourcing processes focus on price, rather than value. They are built on assumptions that ‘suppliers take advantage of us’. Many suppliers, on the other hand, feel that customers are ‘confused about what they really want’. This stand-off frequently results in poorly established relationships and a failure to focus on ’value extraction’.

In the future, contract and commercial management will be measured on its ability to deliver growth and value. That demands involvement throughout the contract life-cycle. Since resources must be contained, this enhanced role will be enabled through extensive automation and outsourcing of transactional management; commercial resources (buy-side and sell-side) will provide an integrated overview of market conditions and trading relationship performance. They will identify business inhibitors and propose the changes to policy, practice, procedures and terms that enable competitive advantage and financial performance.

Contract and relationship management must integrate in order to deal with the growing complexity of today’s trading relationships. This transition will face obstacles and challenges, among them is the need for different skills among procurement and contracts staff; another is a shift in measurements; and a third is to address the challenge of organizational models and perceptions – in particular, to determine the connection between relationship management and contract / commercial management.

 This blog is based on the conclusions from an IACCM report on the State of Contract & Commercial Management. A full copy is available on request to info@iaccm.com

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