If you are an aspiring Procurement, Operations or Project Manager, you will be familiar with the term ‘Competitive Advantage’. It gives leverage to your venture in the marketplace, allows you to survive the cut-throat business world and helps you build a loyal customer base. Competitive advantages can make or break your company’s future, which is why it deserves your complete attention, dedication and effort. The million dollar question is, how does one go about acquiring a competitive advantage?
The answer is Procurement and Contract Management. In Contract Management, a procurement contract is signed by the business and the supplier in order to protect their interests. These contracts include details on pricing, deadlines, quantities, quality, delivery specifications and so on.
Whether you run a Biscuit Factory or a Couture Label, you will rely on a supplier for the perfect raw materials. From the finest flour to quality velvet, businesses compete at a cut-throat level to close contracts with the perfect supplier. This, ideally, will be a supplier who balances quality with pricing to get you the perfect product and profit margin. When you are able to close a contract with a supplier who obeys industry standards, strives to innovate and adheres to contract deadlines, your business will reap the benefits.
Here are some ways in which Procurement Contracts can get your Business a Competitive Advantage:
Procurement contracts allow businesses to outsource their needs to third parties. This is particularly useful when sourcing raw materials is an expensive, laborious process. For example, let us assume that a Haute Couture label seeks to source the finest hand-spun Chinese silk available. If they were to do this themselves, they would personally need to acquire countless legal permits, set up infrastructure for raising silkworms themselves, find professionals versed in raising silkworms, acquiring the silk strands and spinning the fabric. and so on. On the other hand, if they were to outsource this, they would only need to sign a contract with a company. This company will already have the appropriate location, infrastructure, silkworm farms and expert spinners on their payroll. As a business owner, you are spared the financial and practical hassle of individually acquiring these conditions while simultaneously tasking this to an experienced and prepped supplier.
Contracts carry a legal guarantee. Suppliers are legally bound to recruit and deliver materials to the businesses at the stipulated time and quantity, which can help businesses stick to their schedule and release products to the public on a timely basis. At the same time, these contracts protect supplier interests too - businesses are just as legally obligated to offer payments and other obligations to the suppliers at the stipulated time as well. Contracts also prevent either party from arbitrarily changing terms like increasing the costs of the materials, delaying delivery or not paying for services offered. Contracts protect all the parties involved and keep the production process running smoothly. Since contracts can foster a healthy and trusting relationship between the supplier and buyer (business), it can keep the supplier from switching their services to a competing business.
A crucial part of the Procurement & Contract Management process is to offer a better deal than your direct competitors to close the contract with the supplier. Once you do this, you will be able to streamline your operations, bring down expenditure and still offer a quality product or service to your customers. Keeping an eye on the supplier market to see new opportunities for better and more affordable raw materials will help businesses keep their position above the competition. For example, consider the Biscuit factory. The business is contemplating adding chocolate cream biscuits to their product inventory. As a result, they are now in search of quality cocoa to make the cream filling of their biscuits. They find that a rival biscuit company is also planning to release chocolate cream biscuits. In order to get ahead of the rivals, the biscuit company contacted the cocoa suppliers first and placed a more favourable offer to them. In addition to monetary and strategic benefits, they made the offer time-sensitive as well, so that the supplier may not consider the offer of the competitors. In the end, the supplier chooses to sign the contract with the company over the rivals. This gives the company an edge over the competitors.
All in all, Contract Management in Procurement is the precursor to optimised supply chains, high profit margins and market dominance. If any of these, and the aforementioned, benefits sound good to you, then that is a sign that you need to prioritise your Procurement strategy.
MBA in General Management- FastTrack
Guglielmo Marconi University, Italy
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Chartered Management Institute, UK
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Scottish Qualifications Authority, UK
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