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Cut-backs place pressure on suppliers

November 3, 2010

My day was once more filled with a wide variety of interesting discussions, covering industries such as technology, aerospace and engineering, and countries as varied as UK, China, Canada, US and Singapore. In all cases, the growing importance of contract and commercial competence was evident – and the fact that this must be through a more integrated strategic plan, rather than relying on case-by-case application of resources.

During one of my calls, there was lively discussion about the extent of cut-backs in staff and resources. This related especially to the extent of such cuts in customer organizations and the negative effect this has on contract performance.

The feeling among the suppliers on the call was that successful execution increasingly depends on their willingness to fill the gaps in the client organization. This demands that they apply extra resources and take on additional costs – otherwise, there is an increased chance that contracts will fail.

This is an interesting perspective and is certainly true in many industries, especially the public sector. And as one participant observed, it is particularly onerous when customers simultaneously press for price reductions.

However, I suspect that this challenging environment will not be going away any time soon. So forward-thinking contracts and commercial groups will be working on developing more efficient contract management and governance techniques, both to protect margins and to ensure they are a more attractive and reliable supplier. Good contract and relationship management is not only about more people; it must increasingly be enabled through more consistent methods, supported by replicable process and underlying tools and systems.

This is an excellent example of the need for more strategic thinking in commercial and contract management and the extent to which competence in these areas will increasingly represent a source of sustained competitive advantage.

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