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Legal, Procurement & Global Supply Chains: Confront, Collaborate or Ignore?

February 7, 2008

Earlier this week, I was talking with a Marketing Director from one of the major contract and procurement software providers. He asked the following question:

“In your opinion, is the demand to improve the collaboration and interaction between Procurement and Legal on Contract Management issues a burning/priority issue recognised by European senior procurement executives (linked to regulatory, compliance and productivity pressures)?”

IACCM did research a few months ago on exactly this interface. In general, the study showed a lack of trust and empathy between Legal and Procurement in a relatively high number of companies. This manifested itself in limited empowerment and generally poor responsiveness in issues related to contracts and terms negotiation. Among the report’s conclusions were:

  • There is a culture of blame and lack of trust / respect affecting many Procurement / Legal relationships
  • Being nice to suppliers is seen as much lower priority than being nice to customers – so top resources are applied to the latter
  • Satisfaction levels with contract reviews and approval processes are low because they are generally inefficient and lack management commitment
  • Automation is key to improvements and greater collaboration – at both strategic and operational levels
  • Process weakness results in missed opportunities; improvements would shorten cycle times, drive supplier loyalty, maximize economic value and raise governance quality
  • Since few companies are likely to increase Legal resources applied to support of Procurement, improvements must be achieved through a combination of better tools, better training, lower cost resources (outsourcing, offshore) and more coherent strategies that link contract terms to supplier relationships

This study covered both North America and Europe. My impression is that the situation is worse in the US than in Europe, but in both geographies I see evidence that there is failure to understand the economic significance of today’s practices. Because they do not realise this (there are no measurements or incentives to generate the data), I would say the demand for change is generally low.

In some respects, the current stand-off actually suits both sides. They see their focus on standards as a way to stifle discussion and impose compliance, internally and externally. This reduces front-end workload and allows each to view the other as responsible for managing risks (or to avoid the blame if they are not managed well). It means that neither feels a need to address the uncomfortable questions about the business costs of their current approach and behaviour, nor to question the down-stream costs of contract execution or outcomes (which are generally not their responsibility).

My feeling is that Procurement are somewhat more empowered in Europe, partly because there are simply so many fewer attorneys, but also because of less rigidity in organizational structure. I don’t know whether there are significant differences in skill and knowledge between, say, US procurement staff and those in Europe. I get the feeling that they believe they are different, but have seen little evidence in practice. IACCM could evaluate this from the data it has in its skills assessment and benchmarking tool.

However, it is clear that many lawyers have a relatively low view of the capabilities of the procurement staff. A current example of this is the debate I observe over who should oversee supply chain compliance. Unfortunately, software providers tend to get caught in the middle of this debate / internal power struggle. It is resulting in competing development work by companies with a supply chain orientation and designed for Procurement use, and some of the legally-focused compliance and risk companies (designed for legal use.

It is without doubt an interesting topic and one which merits a more considered discussion paper, explaining the issues, their consequences and potential resolution. We have really only scratched at the surface of the debate right now. I suspect it is not a topic that is ready for prime-time discussion yet – but must surely bounce to the surface before long, especially if we see a few more high-profile global supply chain failures.

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