Contract and Supplier Management Guidance

Selecting a Route

Regardless of how formal a procurement strategy is, or is not, there is always thought and decision making on how the contract or agreement will be set up, who the potential supply base is and what the desired outcome is. The Procurement Manager should follow the strategy route established by their Organisation.

A straightforward way of assessing the potential level of C&SM required is to consider the:

• value (both monetary and importance to the organisation) and;
• risk (also considering diversity of supply base and reputation) of the contract/agreement.

If you are awarding a Framework Agreement in Lots, you will need to decide whether the Lots are sufficiently similar to adopt the same C&SM strategy for each, or whether a different approach may be needed for each Lot.

By considering these and determining if they are Low, Medium or High you will as a result select a contract and supplier management route: routine, managed or strategic.

'Routine' Contract and Supplier Management

Contracts that are low value and low risk are classed as 'Routine'. This can cover procurements that are non-business critical and/or have an abundant supply base, and also Procurement Journey Route 1 contracts. In general, contract management of these agreements will include gathering management information, monitoring trends, and maintaining awareness of key category risks.
AIM: Ensure continuity of supply and risk awareness

'Managed' Contract and Supplier Management

Contracts where the value and/or risk are classed as medium to high will normally fall into the 'Managed' route. Procurement Managers shall ensure continuity of supply and value for money through ongoing effective contract management. Typical contract management activities and tools include supplier review meetings, use of KPI's, user feedback gathering and use of a Risk register. These contracts could be where there is abundant supply and therefore a chance to improve price ('Leverage'), or limited supply of a not critical/high cost item which needs management to maintain consistent supply ('Bottleneck').
AIM: Ensure continuity of supply, value for money, risk management and supplier performance. Seek supplier development where possible. Retain/gain market knowledge.

'Strategic' Contract and Supplier Management

Contracts that have high value and/or high risk will be managed strategically to ensure effective service delivery. Additional tools that could be used include balanced scorecards and Service Level Agreements. Through strategic contract management opportunities for supplier development and greater market knowledge can be utilised.
AIM: Ensure effective contract delivery and supplier performance, risk management and maximisation of supplier and market development opportunities.

Within each route are a range of typical approaches, tools and templates that can be selected by the Procurement Manager to build up their C&SM process. It is the responsibility of the Procurement Manager to select and define the tools and process that are proportionate and relevant for their contract/agreement. See 'Selecting Your Tools' for further information.

Strategy Template 1 - APUC Basic