How Agile Contract Management Cultivates a Streamlined Supply Chain
Last Updated January 5, 2021
Relationships are the foundation across the entirety of the supply chain system, and contract managers oversee these relationships in a formalized way. Though organizations may agree to terms and conditions within supply chain contracts, relationships between the two parties are still at the core. An Agile contract can help honor these relationships and create better outcomes for all parties involved.
What is Agile Contract Management?
Agile methodology emphasizes individuals and interactions over process and tools, and prioritizes adaptability and rapid development. For contract managers in the supply chain industry, this mindset is valuable because it embraces flexibility, collaboration and a more iterative approach, postures that can help cultivate better collaboration and stronger relationships with customers. Agile contract management also enables businesses to adapt and accommodate more rapidly, so that when demand or technology changes, the entire contract doesn’t have to be amended.
Agile contract management requires all parties involved to collaborate and negotiate regularly on short, manageable sub-cycles, which naturally tends to help strengthen relationships. The goal of Agile contract management is to maximize value from the deal – in other words, everyone should win.
Rules of Agile Contract Management
Historically, contracts were focused on eschewing liability, avoiding conflicts and establishing hefty penalties for breaches. Today, contracts incorporate those items as well as help ensure compliance and quality. Pressure to demonstrate flexibility because of perpetual change driven by technology in the supply change industry has forced business to adapt.
Overall, this process should follow four steps:
- Establish Priorities and Emphasize Outcomes – Agile contracts are rooted in flexibility; all parties need to identify the top priorities, outcomes to avoid and ideal results. When these high-level final perspectives are kept in mind, all parties have more freedom to focus on less critical details along the way.
- Seek Feedback – Feedback between parties should kick off immediately and continue throughout the contract management process. True agility requires all parties involved to provide recommendations, feedback and seek compromise.
- Prioritize collaboration – An Agile contract should be approached as a collaborative effort from the outside, rather than two parties competing for the best individual outcome as adversaries.
- Value transparency – Although an open feedback loop and collaboration lay the framework for transparency in Agile contract management, all parties must also value transparency in the face of issues. An attempt to mask or minimize an issue may result in the issue expanding in the long run or it may spur conflict or deception. The spirit of Agile is to adjust as needed – even if a problem or issue spurs the adjustment.
An Agile contract reflects the collaborative effort of everyone involved, representing buy-in from all parties, instead of a fraught negotiation. In the long run, this can help nurture long-term, mutually beneficial relationships.
Improving Supply Chain Performance: Agile Contract Management
When organizations approach contract management combatively or poorly, and then fail to manage what was agreed upon, results are often costly. Business relations can weaken or disintegrate, expensive disputes can result, or all parties can end up entangled in court battles.
Operationally, failing to manage contracts and ensuring expectations are met once signed can result in underperforming projects, “off-contract” spending, lapsed contracts, contract breaches, wasted money and scope creep. More strategic costs often involve supplier relationships, particularly if an organization neglects its contract management and continues to partner with a weak supplier, unaware of the areas where the supplier is not meeting the terms it promised. A contract is a living document that should be actively managed.
Contract management necessitates a final review to ensure the organization can deliver on all the items it commits to, whether it is legal- or sales-oriented. This isn’t a process that should be rushed, according to Villanova’s Advanced Contract Management course curriculum, as this review requires not only careful review of the contract’s content, but also a thoughtful comparison of other similar market agreements for fairness.
Contract management can also play an integral role in client relationships, as these relationships should be established with the benefit of all parties in mind, and each individual contract treated with that perspective. Suppliers are often assessing the organizations they partner with and measuring results. Thoughtful contract management can help ensure nothing is incorrectly agreed to, as well as help cultivate strong relationships across the industry.
Forbes identifies several ways Agile contracts can be applied to the supply chain in its article, “How to Create an Agile Supply Chain.” Benefits include the following:
- Better alignment with need – Applying the Scrum framework, an Agile supply chain management team can break down the overall supply into smaller teams, each pursuing faster, better output for their segment and better align the supply chain to customer need.
- Cultivating an environment for improvement – Agile’s devotion to efficiency means suppliers should be rewarded for finding better means to deliver. But instead of penalizing them when they fail in a new approach, Agile contracts should forgive errors and appreciate them as learning opportunities.
- Embracing adjustments within the contract – Contracts can include flexible options like zero-volume or buy-backs to allow freedom to scale to demand, which can help reduce waste.
Like Agile software development, Agile contract managers must be willing to listen to all parties involved, and adapt based on feedback. By seeking feedback, both at a supplier level and at an overall supply chain level, Agile contract managers can ensure each link in the supply chain adds value and contributes to making the overall supply chain efficient.
Interested in learning more about Contract Management? View the Contract Management program page.
