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What Comes Before SOW Best Practices? (Part 2)

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Spend Matters welcomes this sponsored article from Michael Matherly, who leads the SOW practice for Geometric Results, the world’s largest independent, conflict-free MSP solutions provider.

The first installment in our statement of work best practices series tried to answer the question, “What comes before best practices?” We soon realized there isn’t an easy answer. While some companies discover they aren’t complying with SOW contract terms, others may find their pricing structures and payment practices are the problem. Bottom line: Companies often discover what best practices look like only after they’ve recovered from a few bad ones.

In our experience, implementing best practices that help organizations control costs, avoid risks and deliver deeper savings can be one key to SOW success. Here are a couple of real life examples of not-so-great practices that led to positive changes.

Poor Communication Costs Thousands

We recently worked with a company that failed to share a new master rate card, resulting in the West Coast office paying the old rates, which were higher. The supplier manager in the New York office negotiated a master vendor rate card for U.S.-based services with a management consulting firm. The new rate card, or even a hint that it existed, wasn’t shared with the West Coast office for more than two months. During that time, the West Coast buyer negotiated and executed two new SOWs and one amendment at the old rates, which resulted in sourcing leakage (which happens when negotiated terms don’t make it into the contract) that cost the company $173,000.

Supplier Due Diligence Uncovers Risk

A new client needed help with spend analysis to create a supplier consolidation strategy, so our team established a plan to reduce the number of suppliers from 21 to seven and create a preferred supplier list. As part of SOW compliance, we conducted due diligence before beginning contract renegotiations with the seven newly targeted suppliers. We found that one supplier’s certificate of insurance (COI) was out of compliance with our client’s insurance requirements and another COI was missing. We required the two suppliers to submit updated, compliant COIs before moving forward with the relationships. The out-of-compliance supplier could not obtain required insurance coverage, which led to the discovery that the supplier was financially unstable enough to be removed from the program. This find likely saved the client from what could have been a monumental risk.

Summary

Process breakdowns that lead to problems like sourcing leakage and failed supplier monitoring are easy to see in retrospect; they are also likely to happen again (and again) if not fixed. Here are the five basic criteria of procurement-related best practices:

  1. Defined, analyzed and validated processes or practices that will produce the desired compliance or outcome
  2. Policy statements that govern related risks and emphasize the importance of compliance
  3. Communication of the policy and process requirements to all relevant parties
  4. Technology to scale the practice across geographies, business units and functional areas
  5. Independent controls to prevent non-compliance or quickly identify non-compliance and alert responsible parties in a timely manner.

Our industry is beginning to recognize that a full-service contingent labor program, supported by an experienced, respected managed services provider and a full-function vendor management system, is the quickest and most credible way for organizations to implement procurement best practices across multiple spend types, geographies and business units.

In our final installment, we’ll look at best practices as a way to drive greater compliance and to bring more spend under program management.

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