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What is lean contracting?

August 13, 2014

An IACCM member asked me for a view on lean contracting – what is it, what impact does it have?

My thoughts on this relate to ‘lean’ in the context of quality – and therefore overall efficiency through error-free activity. To me, that means we can think of ‘lean’ in a number of contexts when it comes to contracts: I believe those responsible for contracts and contracting should be asking these questions:

  • Are individual contracts produced and managed in an efficient manner?
  • Is the overall contracting process operating efficiently and tackling repetitive quality issues / defects?
  • Is the contracting process being used effectively to test the quality of broader business capabilities and their alignment with business or market needs?

For item 1), the parameters may be quite narrow, in the sense of measuring cycle time or compliance. In that regard, something could be ‘lean’, but not necessarily high quality (‘lean’ does not automatically translate to ‘fit for purpose’ – my terms and conditions may be losing me business, but the process through which the contract is created and delivered might be very efficient).

Item 2) should begin to offer more tangible ‘quality’ indicators, because it would start to look at portfolio performance and should include deeper analysis of the effectiveness of contracts. For example, this analysis might reveal you are handling a lot of claims or disputes or a high volume of invoicing errors. The process through which these are resolved could be very effective and the contracts team may consider they are doing a good job – but that is because they do not look at the business consequence of their ‘lean contract’. So item 2) presumes that there is greater consideration of the effect of the contract on the business.

Item 3) almost turns this on its head. It sees contracts as a reflection of business policy, process and practices and uses the contract to test whether business capabilities reflect market needs and values. For example, the market might want truly global commitments, but the internal measurement and management system might frustrate that commitment. This is immediately visible in the nature of the contracts that are offered to the market. The contract becomes a tension point and can be used to highlight such issues to management. In that sense, the contract is a source of lean thinking and tackles the frustrations that otherwise people spend time trying to work around.

What are your experiences of lean in the context of contracts?

One Comment
  1. In my experience, many indirect procurement leaders purchase telecom services as a commodity with point (1) in mind. I would equate this to a “brute force” approach repeating year over year. Moving to point (2) requires information systems that many can’t afford, or have very little support from the business because the spend levels are low. Only a few exceptional companies operate with (3) in mind.

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