Every threat to society creates winners and losers – brands, businesses and individuals who will profit from the pandemic and those who will lose out.
When buyers chose to stockpile toilet rolls at the beginning of the crisis, the unexpected surge in demand increased profits for the manufacturers of toilet rolls. However, these profits are short lived as some households were then sitting on their annual purchase of toilet rolls!
But here is the interesting thing – the time value of money means a pound today is worth more than a pound tomorrow, because inflation increases prices over time.
As the pandemic hit earlier this year, we experienced hyperinflation where the price of goods increased, eroding the real value of the pound. In theory, this means the toilet roll bought in March is better value for money than the same toilet roll bought today.
What I am getting at is that if you choose to spend your budget now, you will get more for your money today by striking a great deal with a supplier. It is a buyer’s market after all.
There is always an element of risk and reward when negotiating and entering into new contracts. A risk assessment of your immediate suppliers’ contingency plans and their sub-contracting arrangements is not the most thrilling prospect – certainly with so many other priorities at the moment – but it may determine if your existing contracts are still fit-for-purpose.
Below are five reasons to re-negotiate a contract now for the greatest return on investment for your time.
Your contract no longer meets your schools or your suppliers’ needs
Your pre-Covid-19 specification may no longer be fit-for-purpose. Your supplier may have liquidity problems and be on the brink of collapse. Unprecedented demand and shortages in supply has put upward pressure on the price of goods.
If your new requirements put pressure on a supplier’s profit margins or time this could make your current contract unsustainable. Your supplier may not have the capacity to spend an additional 25 per cent of their time cleaning your school to your new requirements, for example. Your contract charges may not allow them the financial freedom to invest in more resource. At worst this could lead to substandard cleaning.
- Identify which suppliers present the greatest risk to your school if they default on their contracts or became insolvent.
- Increase communication with your “at risk” suppliers, listen to their concerns and work together to find contractual solutions.
- Build a contingency by developing new suppliers alongside existing ones.
The contract is no longer competitive
More new suppliers are entering the education marketplace offering new, innovative ways to better serve the education sector. This is often achieved by replacing manual activities with low-cost technology solutions for increased efficiency.
By staying up-to-date with advances in technology, savvy buyers fully understand the costs associated and the rapid advancements in this market. By preparing an ICT strategy for your school you can avoid buying old technology or over-specifying what you actually need. A fully ICT integrated school is the holy grail to saving both time and money.
- Benchmark solutions to determine their whole life costs.
- Create a roadmap for your school and performance specifications.
- Protect your school and mitigate risk with a software Escrow agreement (see online).
Only one supplier bid for your contract
Did the market get to hear about your contract? Did you go to tender at the right time? If your tender process only attracted one bidder, the answer to these questions may be no. Creating and communicating competition is key to achieving the best prices.
- Engage the market through a Request for Information (RFI) process, a common business process whose purpose is to collect written information about the capabilities of various suppliers.
- Seek supply both locally and nationally to benchmark costs and quality.
- Use a competitive tender process or mini-competition process.
There are too many suppliers on your contract
Managing a contract with multiple suppliers provides choice but can be cumbersome. How much demand on your time and resources is managing this contract taking? Is having choice worth it? Do all contract suppliers supply what you need, when you need it?
- Create larger contracts with less suppliers.
- Offer commitment contracts in return for keener pricing and/or volume discounts.
- Delegate responsibility for management information reporting to suppliers.
You are receiving a poor service from your incumbent supplier
If your supplier has not lived up to their contractual obligations, presented you with price hikes or demonstrated a complete lack of contingency planning, it may be time to cut them loose.
- Identify which suppliers value your school’s custom and which do not.
- Monitor, measure and record your suppliers’ performance and hold regular performance meetings.
- Build a contingency by developing new suppliers alongside existing ones.
Conclusion
I will leave you with five top tips for managing the risks associated with supplier contracts:
- Always research a marketplace, suppliers and pricing before going out to tender.
- Seek your own professional legal advice before supplier contractual discussions.
- Plan your exit strategy before terminating the contract.
- Implement robust contract management processes and procedures.
- Agree service levels with suppliers at the outset of a contract.
- Naomi Clews is an independent, procurement and supply chain consultant. She provides seminars, training and guidance on how to save money, contract manage your suppliers and develop your negotiation skills. Visit www.naomiclewsconsultancy.com