Governance

Initiating Vendor Governance Effectively through Digitised Contract Segmentation

E
Ethan Healy 1 year ago

How to Achieve Maximum Vendor Governance through Digitised Contract Segmentation

Find out how you can enable digitised segmentation of your contractual agreements, and enhance the structural approach to take in tiering your suppliers. 

Brooklyn Vendor Assurance (BVA) supports you in enabling digitised segmentation of your contractual agreements. We help to enhance the structural approach you take in tiering your suppliers. It’s important to maintain a valuable relationship with the supplier and assess the strategic importance of the contracts in question. So, what do you do currently to segment those suppliers? Do those methods allow the business to gain fast and sufficient guidance to support your segmentation policy?

Contract Segmentation is an important part of supplier relationship management. Having segmentation procedures in place helps procurement to differentiate suppliers across a range of tiers. This allows you to prepare the supply base against different responsibilities internally and identify valuable opportunities per each agreement with the vendor. Categorising your contracts across 5 tiers, all of which assigned based on strategic importance and criticality, is beneficial to the management of the sparse supply chains we see today.

Without a simple, automated way to segregate your contracts, the organisation will struggle to achieve relationship goals at the highest level, which help to sustain supply chain growth. Vendor Management processes currently consist of managing segmentation policies and contract tiering manually, through disjointed documents and communications. Contract Managers often receive a bundle of inaccurate information causing the important factors of each contract to become a blur. Without sufficient segmentation, you could risk “over-managing” your contracts. So, ensuring your contracts are segmented, and that strategic details are held under a single pane of glass is key to improving the opportunity of value, and focused time amongst each contract tier.

What can you do to enhance contract segmentation?

Organisations need to maximise the value obtained from each contract by generating a digital segmentation policy. Post-award, this enables you to sufficiently onboard the vendor and make critical decisions across ongoing vendor and contract management:

  • Focus your contract tiering around tailorable measurements that target specific criteria, in which the contract is assessed against. You can then determine the best possible outcomes for managing the vendor across the contract’s lifecycle.
  • Ensure you are able to generate an overall contract score against the labelled criteria, bringing forward a set of suggestions for the contract manager. Ask yourself; how often should I be reviewing active contractual agreements? How can I avoid contract value leakage, and ensure I leave no stone unturned when holding discussions with third-party representatives?
  • Discover where the contract is positioned against key policies and processes. Each contract tier should be measured against the organisation’s controls, in order to determine a set cadence of sustainability against ongoing best practices.

From all of this, you can strategically categorise the whole of the supply chain, from Tier 1 to Tier 5. The idea of enabling a digitised segmentation policy helps to drive expansion and collaboration across the supply chain. Organisations need to be able to automatically determine how their contracts align with key policy and procurement satisfaction, an extremely important factor across long term supplier relations post-award.

Classify your third-party agreements through simple surveying, and therefore strengthen a quantified portfolio of third-party products and services. Ensure the business assesses the contract against business spend and determine where large portions of the budget are being allocated. This helps to populate a landscape of your supply chain. Emphasise contracts of most importance in terms of performance, third-party compliance, strategy and vendor relationship strength. Build up rankings based on trust and analyse where trust may be somewhat lower in comparison to other vendors in agreement, based on access rights, and a security-based scope.

Most importantly, organisations should proactively take measures which ensure maximum value from the contractual agreements in place, to the organisation’s strategic objectives and future projects. Assess the competitive position a vendor could improve for you across the market by multiple contracts.

And, if you face regulatory pressures from the auditor, you should be able to utilise best practice segmentation processes. Show the auditor how you segment your vendors or contracts and determine where they sit against your supply chain policy. Always be ready for the key hurdle of how you ensure contract tiers are managed accordingly, by matching those tiers against key policies, ensuring sufficient management of all your key contracts to the business’s aims.

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