Contract Management – Navigating Negotiations for a Successful Long-Term Partnership

Nathan Dorsch
Sourcing Specialist, Berlin KraftWorks Inc.

Once the ink dries on the contractual signatures, it can feel like a weight has been lifted. Negotiations are over for another round, and both sides have an agreement they are satisfied with – so what now? In long-term partnership agreements, often spanning several years and hundreds of millions of dollars of business between partners, the management of the agreement and the relationship becomes critical. Successful agreements set clear expectations and behaviours for both parties - allowing all involved to focus on improving the overall system that produces and delivers materials, components, or services from supplier to customer. This approach results in better quality, lower prices, and a higher level of engagement between all involved.

Negotiation of supply agreements is a key function for any Sourcing Professional, and requires strategic planning, an extensive knowledge of a firm’s supply partners, and internal cross-functional alignment. Every stakeholder wants to be heard, and wants their say in contract content, planning - and needs to be kept updated through the negotiation process.  As the lead negotiator, the Sourcing Professional must be detailed, meticulous, and determined, as well as an excellent communicator to see the supply agreement through to closure and execution.

Taking a System Thinking Approach to Contract Management
Considering the supply contract from a system thinking perspective, one needs to take a view of how each supplier fits into the overall value chain, and consider the significance that each partnership brings. Involving all stakeholders early in the contract structure and negotiation processes, keeping discussions focused on business and terms at hand, and searching for ‘win-win’ scenarios will ensure that agreements close positively for both parties. In turn, the execution portion of the contract will begin with both firms focused on joint success, collaboration, and continuous improvement in order to achieve the mutual goals set out for the contract term ahead.

There are times however, where the path to ‘win-win’ is not always clear. There are situations where a smaller firm relies on a much larger firm for key components to their product. What do we do when a supplier does not need our business?  Instances like this require a Sourcing Professional to take on a sales role – selling the organization, the product and the future to a larger supply partner. Additional efforts in the form of constant contact on the phone and in person – and transparency in plans and requirements - lead to credibility between the larger supplier and smaller customer. Putting in these efforts and taking a sales and promotional role can lead to a collaborative reciprocal relationship even with organizational size imbalance.
 
Key Components for Building and Maintaining a Long-Term Supplier Partnership
A few things to remember during contract structure and negotiation that will go a long way in maintaining and building a partnership with a supplier after it has been signed:

• Plan and structure agreements with input from all stakeholders
  • Finance teams need to be consulted to ensure compliance with payment terms, tax codes, and communication of updated material costs
  • Legal teams need to be engaged to provide input and feedback to the contract structure, and legal implications of any concessions or changes to the original
  • Take in considerations from customs, logistics, receiving, purchasing, and regulatory functions to ensure concerns are captured and regulations are being followed
• Develop a ‘negotiation mandate’ to outline high, mid, and bottom line positions on key terms
  • Socialize this internally, review and vet with stakeholders and management team
  • Use as a touchstone throughout negotiations and closure to ensure focus on most critical items is maintained
• Establish the key contacts, escalations, and form of meetings with the supplier
  • Ensure the key contact is the decision-maker and has appropriate authority
  • Determine frequency and locations of meetings
  • Set specific follow-up timelines
• Keep discussions professional
  • Negotiations can take many forms, and many turns until an agreement is reached
  • All parties must work to maintain a professional tone and rapport, making the transition to execution phases and cooperation under a new agreement much easier

Ultimately, while negotiation of a mutually beneficial supply agreement is a critical part of the Sourcing Professional’s job – along with securing supply and pricing, governing behaviours, and setting expectations, it is the relationship with the supplier that is the foundation of successful growth between partners. A positive, transparent, reciprocal and cross-functional relationship will lend itself to profitable long-term partnerships.