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Redefining trading relationships

December 11, 2014

There is growing momentum for fundamental change in the way that trading relationships are formed and managed. It is increasingly clear that the way businesses approach selection, engagement and management of their trading partners results in too many failures.

The news stories indicating these problems appear on an almost daily basis. Earlier this week, the UK’s powerful Public Accounts Committee was back on the warpath with regard to Government procurement. They were once again promoting various remedies to the perceived ills of major contracts and value for money. Their solutions include increased use of SMEs and enforcement of open book accounting.

I will comment in greater detail on these specific proposals in a subsequent blog. However, regardless of their merit, I think we have a much bigger problem.

Network technologies will continue to transform ‘the nature of the firm’. It is time for a new Ronald Coase to emerge and define the business model of the 21st century – because it is this that determines the means of supply and the consequent need for trading relationships and how they are formed and managed.

Right now, I think we leap from one quick fix to another – picking on symptoms, not causes. We had compliance, we had category management, we had more adversarial allocations of risk, we had spend aggregation. Now we have a push to shorter term contracts and disaggregation to encourage SMEs and the growth of competition. But not surprisingly, these initiatives provide little improvement. The need is to redefine the environment within which trading relationships are formed and to design commercial and contracting models that support it. Already IACCM research is pointing to many of those answers – things like relational contracting, outcome-based structures, the need to shift the role and purpose of traditional contracts, commercial, legal and procurement groups.

Drawing on all the evidence, IACCM is preparing a definitive view of how we prepare for and build this future. You are welcome to join us, or to share your views of how trading relationship management should be redefined.

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