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SUPPLY LINES | The intersection of supply chain management and contract management Procurement & Contract Management Mesh Unpacking the role of contracting professionals in strategic procurement management. By Andrea S. Patrucco, Ph.D. and Ana-Maria Dimand, Ph.D. stablishing strong contracts to risks that can cause undesired management is likely to overlap with m is essential to protect supply consequences - from supply quality procurement management. chains in both the private and deterioration to supply interruption. Procurement (also referred to as the public sector. Every year, public purchasing, sourcing, or acquisition) organizations manage millions of The Role of Contract is officially defined by the Institute small and large contracts for procuring Management In the Supply Chain of Public Procurement (NIGP) as the critical goods and services. A supply chain can be defined as a function/department/agency respon However, the importance of network of individuals and organiza- sible for purchasing, renting, leasing, contract management is often pushed tions involved in creating products and/ or otherwise obtaining any supplies, aside by procurement agencies, and it or services and delivering them to final services, or construction. It involves is commonly associated with bureau- customers. Links on the network begin functions such as the description cracy, disputes, litigation, and penalties with the manufacturers of the raw of requirements, the selection and related to failed contractual obligations. materials and end when the finished solicitation of supply sources, the Efficient and effective procurement products and or services are delivered preparation and award of contracts, and supply chain management in the to the end users. and all phases of contract adminis- public sector are essential to ensure Supply chain management encom- tration.' From this definition, it should ethical spending of taxpayer dollars and passes the design and implementation be clear that procurement and contract effective delivery of public services. of managerial and operational management - often considered as The combination of simplified processes for appropriately handling two separate processes - represent two perceptions, the limited availability of the entire production flow for products intertwined concepts. the procurement workforce, and the and/or services - from the production of Contract management is formally administrative complexities of contract raw materials and components to the defined by the National Contract management has created the perfect delivery to the final customers. Management Association as the process storm in many public organizations. In the public sector, the supply of managing contracts throughout For them, following public contracting chain is represented by the network the contract life cycle while ensuring policies and adopting best practices has of contractors and subcontractors that customer satisfaction. It includes not always been feasible. contribute to public value creation by managing contract elements such as In practice, contract management providing public organizations with negotiations, changes, requirements does not always get the same attention products and services necessary to interpretations, deliverables, and resources as other supply chain deliver services to their end users (eg, contract terms and conditions, and processes. This exposes organizations citizens). In this context, supply chain risk management. Thus, contractEN FIGURE 1. Procurement Process and Contract Management Pre-award Award Post-award cenafication of needs Call for bids Contract Receipt of goods/services End of and market research spring and payment contract Planning Award Selection of suppliers and award Contract management Reporting preparation of contractis Evaluation Needs assessment Opening, dissemination and Contract implementation and Initial market research management of the call for administration Budget allocation bids procedure Review and control of quality and Initiating purchase requisition Receipt and evaluation of bids timeliness of supply Preparation of the call for bids Contract negotiation and award Invoice approvals and processing of payments. Source: This figure Is an adaptation of the purchasing process model frameworks Included In Backstrand, J., Suurmond, R.. van Raall, E., & Chen, C. (2019). Purchasing process models: Inspiration for teaching purchasing and supply management. Journal of Purchasing and Supply Management, 25(5), 100577. management involves all the activities Contract management is indeed personnel) and external users (eg., related to contract creation, execution, intertwined with the procurement suppliers and end users). They must and performance analysis after the process and, as such, it plays a key role ensure that the appropriate form of procurement agency selects one or in the implementation of procurement contract is selected. more suppliers. strategies and the achievement of Lastly, well-written contracts can If we consider the two definitions strategic procurement objectives. save public organizations money. of procurement and contract They must include information management, it should be clear that A Blurry Line? in the contract in a clear, concise, contract management involves several Despite coming into play at the end of complete, and orderly way, to be key activities are part of procurement the procurement cycle, contract man- sure to univocally identify supplier management agement and contracting professionals obligations and outline mechanisms for In particular, if we look at the play a crucial role in the correct func- supplier monitoring and performance procurement process structure tioning of government supply chains. evaluation. Figure 2 highlights some of (illustrated in Figure 1), we can Contracting professionals must be the primary responsibilities overseen by see that contract management is able to anticipate the needs of several contract management. perceived as starting immediately parties, including internal users (e.g., An extensive blurry line dominates after the conclusion of the award agency subject matter experts, legal the conversation about the responsi- phase of the procurement cycle. representatives, and maintenance bilities of contract management and Contract management, in this context, includes those activities related to FIGURE 2. Contract Management Responsibilities the management and evaluation of Pre-contract anerd Post-contract award Doing a contract governance Monitor contract changesard suppliers' offers and supplier selection. Beane risk management Contract And it is involved in many, if not all, of Define reQuonship cornrol delmenes and payments. management management Measure and analyze contract the activities of the post-award phase Deane continst partormarica administrative procedures Discuss compliance with (including those related to the order-de- and record keeping contract terms livery-payment cycle). Source: Author analysis and elaboration.SUPPLY LINES procurement relating to "who does risk management. The most strategic the American Society for Testing what." In most public organizations, responsibilities of procurement and Materials, or the International contract management activities are professionals do not (or should not) end Organization for Standardization (1SO). spread throughout, involving many with the contract award. which can assist public organizations in different people, in different roles. Procurement and contracting the definition of the contract perfor- The varying practices and views professionals should be responsible for mance requirements. Alternatively. on the role of procurement in contract the whole contract life cycle - from pre- to contract management can define and supply chain management create post-award (i.e., Figure 1). They ensure internal requirements and perfor- confusion. A contributing factor could be that post-award activities comply with the mance measures based on existing that practices are not consistent across agreed-upon obligations. In this regard, benchmarking, past performance of organizations or types of contracts. monitoring and evaluating supplier other suppliers, technical data, and/or There are three scenarios. First, performance represent critical activities. previously adopted key performance procurement is responsible for contract One of the main objectives of indicators. management. Second, procurement's contract management is to ensure the role ends with contract award. Third contract is satisfactorily performed, and Contract Management and is a hybrid approach where the the responsibilities of both parties are Procurement Strategles involvement depends on the type clearly understood. For procurement From a strategic perspective, a high of contract, and the management is organizations to understand whether level of contract management maturity shared between the client-agency or not they are getting what they paid is required to enable an appropriate within the organization and for after the contract is awarded, it is implementation of procurement strat- procurement. Regardless, the process fundamental that clear performance egies. When defining the purchasing requires collaboration between various targets and expectations are formalized and relationship approach to be estab- entities within the agency. at the contract level. ished with a supplier, procurement An additional source of confusion To effectively accomplish this, does not have a "fit-for-all" strategy. relates to the activities that contract contracting and procurement officers For example, purchasing waste management entails. Contract can refer to existing commercial management services is very different management spans far beyond performance standards. They are from purchasing personal protective checking off legal obligations, established by organizations such as the equipment for hospitals. Both are including aspects of relationship and American National Standards Institute, different from purchasing consumables FIGURE 3. Procurement Strategies Based on the Kraljic Matrix BOTTLENECK STRATEGIC > Low-cost, high-risk purchases: supplier has higher High-cost, high-risk purchases: supplier has higher bargaining power bargaining power High Limited number of suppliers available Limited number of suppliers available Favor higher supplier participation to decrease supply risk Collaboration for mutual Interests Search for best-In-class suppliers NON-CRITICAL LEVERAGE Low-cost, low-risk purchases: agency has higher . High-cost, low-risk purchases: agency has higher bargaining power bargaining power Low Many potential suppliers available * Many potential suppliers available Supply Risk Stimulate competition to maximize price savings Collaboration at agency's convenience Competition among best-in-class suppliers Low High Strategic Importance Source: Adapted from Kraljic, P. (1983). Purchasing must become supply management. Harvard Business Review, 61(5), 109-117. 16 CONTRACT MANAGEMENT MARCH 2023 NCMATABLE 1. Procurement Items Classification and Suitable Contract Management Approaches Classification Contract management practices that support procurement strategies Non-critical purchases Buyer-convenient forms of contracts (e.g., fixed-price or unit-price) One-off contracts to exploit competition Establish framework agreements to simplify the acquisition process Performance measures focused on efficiency and rationalization Minimize contract monitoring efforts Leverage purchases Buyer-convenient forms of contracts (e.g., fixed-price or unit-price) Short-term contracts to exploit competition . Consolidate demand within the same contracts Formalization of performance measures focused on efficiency and quality (value for money) Penaltyincentive mechanisms linked to performance Contract monitoring efforts focused on performance evaluation Bottleneck purchases Supplier-convenient forms of contracts (e.g., cost-plus, time and materials) - push for cap mechanisms (e g., guaranteed maximum price) Long-term contracts to ensure supply continuity Consolidate demand within the same contracts to be more attractive for the suppliers Contract monitoring focused on supply risk assessment and mitigation Strategic purchases Supplier-convenient forms of contracts (e.g., cost-plus, time and materials) Long-term contracts to ensure supply continuity Formalization of contingency contract mechanisms In case of supply discontinuity Formalization of collaboration mechanisms at the contract level Formalization of performance measures focused on several aspects Penalty/Incentive mechanisms linked to performance Contract monitoring focused on supply risk assessment and mitigation and performance evaluation for agency offices. For these reasons, leverage, bottleneck). For each one, a activities, which represent the critical procurement agencies usually adopt specific type of procurement strategy area for managing supply chain risks. the so-called "portfolio management" and relationship approach is suggested. Public organizations should invest in approach. It is a strategic approach Positioning of goods and services increasing resources and competencies to procurement where organizations from a portfolio management for appropriately managing and segment their spending into areas that perspective as different procurement improving this part of the procurement contain similar or related products and/ strategies are associated with different process. Higher levels of maturity or services (also called "procurement contract management approaches, as and supply chain skills, to reflect the categories"). Then the organizations summarized in Table 1. responsibilities noted in Figure 2, can implement different procurement strat- also be obtained with initiatives in egies in line with this segmentation. Conclusion education and training. CM A valuable tool to support the Efficient and effective procurement portfolio management approach is the and supply chain management in the Andrea S. Patrucco, Ph.D., Is Assistant Professor of Supply Chain Management In "Kraljic matrix" (Figure 3). This model public sector are essential to ensure the Department of Marketing and Logistics at helps procurement agencies classify the ethical spending of taxpayer dollars and the Florida International University College of Business. goods and services purchased based on effective delivery of public services. two dimensions. First is the strategic Procurement officers are stretched Ana-Maria Dimand, Ph.D. Is Assistant Professor of Public Policy and Administration at the School importance (i.e., the impact that thin by various responsibilities and of Public Service at Bolse State University goods and services have on essential hats worn in an organizational setting. performance outcomes). The second Now, with the great resignation, ENDNOTES 1 https:/www.nigp.org/dictionary-of-terms?searc dimension is the supply risk (the proba- governments at all levels have lost h-procurement&page-2 bility of incurring unexpected supply a significant number of employees, 2 https: www.mcimahq.org/common Uploadedx20 Miles standards:20Practices ANSI-NCMARCO events). According to the classification, including in procurement. ASDA201-2019520 120123).pdf 3 https/www.proximagroup.com/why-contract- the matrix outlines four different types This should not justify a lack of management-is-so-difficult-to-get-right-in- of procurement (strategic, non-critical, attention to contract management public-sector NCMA CONTRACT MANAGEMENT MARCH 2023 17