Contract Management: A Simple Diagram Says it All

We're bigger fans of prose here than fancy-schmancy consulting graphics. Even though many of us have had past careers as consultants, sometimes we think that people use pictures to tell words because they'd rather hide behind visual takeaways and storylines than go into the weeds at the level necessary to really educate, influence and inform.

But this afternoon, we've decided to do away with the usual expository analysis and go back to diagrams. We actually think this one says a lot and will get you thinking in new ways. It's from a webinar that Peter Smith and I did together on contract management recently. We encourage you to think about how good contract management can save bad procurement (but how the inverse is not possible).

Why is Contract Management Important?

Source: Peter Smith, Spend Matters UK/Europe

- Jason Busch

Voices (5)

  1. Philip:

    I agree with the chart. With a contract in place, you can at least look back at spend with a given supplier and try to reconcile any transactions that did not follow the guidelines. Without the contract in place, you have no point of reference.

  2. Patrick Willemsen:


    I fully agree ith Jeff, the "?" can only be "Failure"


  3. Jeff Gordon:

    True, Peter… sometimes preaching to the converted will capture an extra sinner here and there. But maybe I’m just too jaded. And what’s really funny is that while I used to be almost entirely contract management-focused, I’ve flipped over to being almost entirely sourcing-focused. The result is that my employers realize significant cost savings … and if the contract is needed, then it’s needed… but if not, my savings and proper selection process are still there to support the procurement side of things. But what’s REALLY ironic is that while the contract may turn out never to be needed by the buyer, it’s actually needed by procurement the next time they go to buy from that supplier.

    So even if the buyer doesn’t need a good contract, sourcing does. Yet most sourcing groups don’t recognize this need at all… and are willing to do almost anything to push an order through, even if it’s on bad paper. Stereotypically, this is purchasing departments, but I’ve seen it everywhere. So sourcing folks should be preaching this stuff, too… but they don’t.

    Unfortunately, at the end of the day, it takes getting severely burned for most people to get the memo.

  4. Peter Smith:

    I don’t disagree fundamentally – I’d really rather not start with a incompetent procurement process and a poor contract! But my point is that a really good contract manager might just be able to turn things around – even to the point of saying to the supplier – "look, we both know this is a lousy contract, let’s tear it up and work out how we can make this thing effective for both of us". I have seen that happen.. Not often but it is possible.
    I’m also with you on the point about who takes notice or doesn’t. It’s the old preaching to the converted thing. But I guess we just keep going on the principle that one more procurement sinner repenting makes it all worthwhile…!

  5. Jeff Gordon:

    It’s been awhile since I’ve had something to say. The truth is that I stopped blogging because people aren’t really listening. The folks who NEED to listen, I mean. Because those of us truly IN this business, KNOW this business and what you’re diagramming above is simple truth.

    It’s sorta’ like the Presidential Debates – those that need to hear it most, aren’t listening.

    And that’s what’s frustrating. Even companies using electronic methods to manage their contracts are simply warehousing them in these databases. They’re not paying attention to them, they’re not MANAGING them.

    But that’s not why I wanted to comment.

    I don’t think your chart is right. Even outstanding contract management can’t "save" bad procurement.

    Procurement is about sourcing – finding the right tool for the job at a "fair" price. Having drafted tens of thousands of contracts, I can tell that without a doubt, there’s no contract that can be written that can turn a bad decision on the procurement side into success. It’s not a question mark – it’s Failure.

    So the important takeaway is that only through good contract management and good procurement do you realize success.

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