Knowledge Management

How the Magic of Focus Will Help You in Creating Value in a Low Prices Commodity World

Since entering into the low price commodity world, companies are looking for cost reduction opportunities to offset their income drop. There are several ways to reduce your costs and one major area is through the managing contracts. If you want to realise a lasting and sustainable material impact in your cash flow, you must focus on the right stuff. Our experience is that best-in-class companies have the right focus.

The world of process management has taken off. Whether it is a world of “Procure to pay”, “Order to cash” or “Drill to tank-fill”, most companies are doing great work improving their processes. These processes will eliminate waste, allow stream-lining and reduce costs. This is good BUT… treating contracts as a process without focus can be like taking the highlighter pen to the whole page. It starts to look more like “colouring in” and nothing gets highlighted.

Ask those responsible for financial and operational performance; most businesses usually have a handful of contracts that make the difference. These are the contracts that need special focus.

One of our Tips we mentioned is: Not all contracts/deals are of equal importance. The following three simple focus areas provides insight on how focus will realise material impact in your cash flow,

  1. A focussed approach and treatment will deliver significant results for your business. Key question to ask for is ‘what is the number contracts & what is the materiality level to focus on’ in your business. Any diversion of this core question will sub-optimise outcomes. Put your effort where the value is. Is it risk, cashflow, certainty, margin, marginal cost, baseline cost, cost to manage, cost to serve, … the list goes on.
  2. Bringing the right resources on your contract/deal team for your key contracts. Contracts are multi-dimensional and go well beyond agreeing price and quantity. Whether it is sales or procurement, you need to get the right team in place to fully understand and manage the contract. Commercial, Supply, Production, Operations, Legal and Finance representatives work best together when they shape the top end.
  3. Spending enough time upfront to plan your approach. More attention and planning upfront drives less time spent managing, less waste, aligned thinking, easier delegating, faster response times and ultimately improved value. Be prepared to spend enough time developing your portfolio and your approach will bring about significant benefits

In our earlier Blog “How Contracting Can Help Companies Win in a Low Prices Commodity World” we provided 5 tips about how to position your procurement to win and help manage costs. Ask yourself what are the critical contracts in your business and what are you doing to focus on them?

The Blog authors Anton Martin, Jon Bennett and Jeroen de Graaf are Partners at  Interested in a procurement health check or have something to add to this story? Share it in the comments or contacts us on the blog.

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