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Question
Module: Contract & Category Management in P&S
Task
You have been asked to prepare a business report evaluating category and contract management in
your organisation.
As part of your report, you must evaluate each of the following in relation to your organisation:
I. Examine the requirements for initiating and preparing the introduction of a category
management process
II. Critically compare strategic and conventional sourcing processes and their role in category
management
III. Compare and contrast the tools and techniques that can be applied to map categories of
direct and indirect expenditure
IV. Based on your previous answers assess innovative measures to improve the supply chain
(when thinking about categories and category management)
V. Differentiate between contract administration and contract management (in the context of
category management)
VI. Based on your previous answers assess risks and implementation of risk management
techniques in contracts (in the context of category management)
Solution
Executive Summary
This business report has been used for evaluating the category and contract management in Eco2Solar Company. In particular, Eco2Solar operates to improve their project management (PM) and Cost Management (CM) as part of their category management has been evaluated. The areas of focus has included an evaluation of requirements for initiating and preparing category management, strategic and conventional sourcing process and role in contract management, tools and techniques for mapping categories of direct and indirect expenditure. From the findings obtained, innovative measures for improving the supply chain in light of categories and category management has been recommended.
Further, in this business report, the contract administration and contract management in case of category management has similarly been evaluated in context of category management this is with assessment of risks and implementation of risk management techniques in contracts being reviewed in context of category management.
In order to appreciate the best practice in category and contract management in the selected Eco2Solar construction spend area, use of quantitative and desk research has been pursued to obtain relevant data. Additionally, different tools have been applied such as Mendelow Stakeholders analysis, CIPS Category Management Cycle, CIPS Contract Management Cycle, Suppliers positioning, PESTLE analysis and SWOT analysis.
Considering this business report findings, Eco2Solar need to improve their approach for risk management and efficiency and effectiveness of category and contract management. From these finding, the stakeholders collaboration in Eco2Solar need to be improved which can be done by embrace of blockchain technologies. Also, by identifying their PS&M teams training and capacity development, they would be able to improve on their category management. In the contemporary procurement environment, the training and capacity development has been noted as the best practice to manage gaps in their operations. Also, the findings indicate the need for Eco2Solar to improve their category management of their construction spend by coming up with appropriate SLA’s agreement and KPIs while ensuring they capitalise on innovativeness. For the project management and cost management, this being a long-term investment would require an improved auditing. This can entail embrace of analytics to analyse and present contract management data and appropriate management strategy. The importance of improved collaboration is ensuring stakeholders active involvement and awareness on core decisions made as this could harness their practice, contribution and suggestions noted. By successfully pursuing stakeholder analysis, it is important to maintain stakeholders relations which promote Eco2Solar organisation image and increase their market share.
All the evidence collated have been sourced from the CIPS Modules notes, different tools for analysis of contract and category management approaches. With Eco2Solar transitioning from the COVID-19 pandemic, a leverage on various opportunities in their energy industry in UK through leveraging on competitive advantage is instrumental.
Considering the findings in this business report, various recommendations could be offered. They are;
- To use blockchain innovation, cloud-based technology, learning and development opportunities leverage, KPIs and digitise contract management strategies for improving stakeholders relations hence optimum efficiencies
- Increase allocated budget in PS&M owing to the emerging needs from the COVID-19 pandemic prevalence
- Come up with efficient PS&M control teams for enhancing integration and harmonisation of purchase strategy in business unit
- Prioritise on creating of collaboration in their procurement with 80% of vendors for securing online teams to attain increased cost savings
- Engage institutions in ensuring skills improvement, competencies and talents acquisition
- Attain approved budget to pursue risk evaluation on the different identified risks
Table of Contents
1.1 Project Title (Key Terms) 4
2.1 Eco2Solar Organisation Background. 6
2.2 Why this Business Report Matters and Objectives. 7
3.0 Requirements for initiating and Preparing Introduction of Category Management Process. 9
4.0 Strategic and Conventional Sourcing Processes and role in Category Management 12
4.1 Situation, Target and Proposal (STP) 14
5.0 Tools and Techniques for Mapping Categories of Direct and Indirect Expenditure. 15
5.1 Direct and Indirect Expenditure. 15
5.2 Tools and Techniques Comparison and Contrasting. 17
5.2.2 Situational Analysis (Kraljic Matrix Analysis) 18
5.2.3 Comparing and Contrasting STEEPLE and Kraljic Analysis Tools. 20
6.0 Innovative Measures for Improving Supply Chain. 20
6.1 Dealing with complexity and volatility. 20
6.2 Dynamic Supply Networks. 21
6.3 Disruptive influences on supply chains. 22
6.4 Implementation of Automation. 22
7.0 Contract Administration and Contract Management 23
9.0 Conclusion and Recommendations. 26
Figure 1:Contract Management Phases in Eco2Solar 6
Figure 2:Eco2Solar Customers 8
Figure 3:Category and Contract Management Change Factors. 9
Figure 4:Change and Culture Acceptance Factors Model 9
Figure 5:4 Rights of Procurement in Eco2Solar 10
Figure 6:CIPS Category Management Cycle. 13
Figure 7:Indirect Expenditure in Eco2Solar 17
Figure 9:Situational Analysis by application of Kraljic Analysis. 20
Figure 10:Different stages of contract administration and contract management 24
Figure 11:Supply Risk and Mitigation Approaches. 25
Table 1:Eco2Solar Organisation PESTLE Analysis. 11
Table 2:Summary of comparison of direct and indirect expenses 18
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1.0 Introduction
1.1 Project Title (Key Terms)
Today, contract management and category management is core for improvement of the purchasing and supply management process. This is while managing the entire costs of operations. Considering Eco2Solar organisation, an area in their corporate strategy is pursuing prompt acquisition by strengthened product offering, accelerated innovativeness, achieving client demands in a rapid manner and partnership opportunities expansion (Eco2Solar, 2022).
In UK energy sector where Eco2Solar organisation operates, being a perfect competition, their mandate is to ensure an entity acquire profits while at the same time dominating this sector. In this regard, contract management is a major area for Eco2Solar administration and management as a best practice in modern operations. Currently, Eco2Solar works through Global Procurement Contracts Team (PCT) for ensuring procurement contracts are consistent with set standards, guidelines, and internal policies. This is not implemented in the entire spend categories. For example, in the project management and cost management, owing to inexistence of PCT implemented, category managers play a significant function to review contract, negotiations (Commercial and Legal) and to sign documentations. After this, Eco2Solar legal teams are engaged for approval. Therefore, by operating a holistic contract management, it would lead to Eco2Solar organisation leveraging on the competitive advantage and dominating UK energy sector. This is while guaranteeing minimal contract implementation delays, poor negotiation, and rework, fully compliance and liability failing and inefficient approval and to sign workflow. The contract management phases are as shown in figure 1;
Figure 1:Contract Management Phases in Eco2Solar
In figure 1 summary, in the different departments in Eco2Solar which operates the PCT, they achieve a consistent contracts implementation of appropriate standards, guidelines and internal policies. This is to succeed in reviewing contract and negotiation services for all their commodities through application of contract management, service level agreements and mastering their agreements. Through the adoption of the strategy, in contract closure phase, audit as a recommendation would be appropriate to evaluate entire functions, communication approaches and to notify the suppliers and requests.
1.2 Project Scope
As noted earlier, the aim of this report is evaluating category and contract management in Eco2Solar organisation. The areas of evaluation would be intended to achieve the following;
- As part of examining the requirements for initiating and preparing introduction of category management, training needs/opportunities and appropriate delivery approach
- Identify the critical success factors (CSF) for strategic as opposed to conventional sourcing process and role in category management
- Developing KPI’s as part of the tools and techniques for mapping categories of direct and indirect expenditure
- Innovative measures for improving supply chain
- Contract administration and contract management differences
- Assessment of risks and implementation of risk management techniques in contracts
The importance of the identified areas of this strategy is to improve the category and contract management of Eco2Solar organisation, reduce entire delays and manage extra incurred costs.
Today, Eco2Solar organisation has identified construction spend category which do not prioritise on PCT, noted as a practical strategy to ensure consistent contracts within set standards, guideline and internal policies developed. By successfully improving contract management, Eco2Solar would achieve the following;
- Reduced delays with contract turnaround leading to delayed projects, more costs incurred
- Poor quality in their negotiations and re-evaluation of suppliers terms hence inconsistent with Eco2Solar legal requirements and comply with corporate legal and procurement information
- Comply and note failure due to poorly identified performance obligations
- Inefficient sourcing for approval and signing their workflow
By focusing on the noted research areas, various dynamics of contract management, Eco2Solar operations and relationship with external business environment practitioners and suppliers relationships put into account. The best practice in contract management improvement would hence be evaluated with appropriate recommendations provided. These areas entail risk-oriented contract and category management, tools set and process to support an improvement in contract management and supply teams. By doing this the best practice for success in the organisation contract management would be achieved.
2.0 Background
2.1 Eco2Solar Organisation Background
 The organisation of focus in this report is Eco2Solar which is the leading installer of solar PV and Green Technologies for the UK’s housebuilding sector. It has been in active operations since 2007 and has been intended to address the climate change issues. This is with CO2 emissions reduction and fuel shortage through a facilitation of the solar energy use. Eco2Solar has over the years been providing solar energy solutions for newly constructed homes and commercial installations. Their main customers are as illustrated in figure 2;
For the organisation success, their main target sectors include health centers (40%), operations in schools (50%), care homes (30%) and large apartment installation (20%). Owing to its commercial success, their profits range upto £10 million which has informed by its latest investment on Worcestershire County Council and the Sanctuary Housing occupying 50% of their spend category (Eco2Solar, 2022). Through their global commercial strategy, the organisation has been in a position of attaining their entire objectives. Based on this background information, it is important evaluating the most
2.2 Why this Business Report Matters and Objectives
For Eco2Solar to optimise their operations, category and contract management would need to be put into account and improved. Therefore, this business report is intended to ensure that a good strategy is established for successful procurement process implementation. Through the focus of construction services as a spend area and how project management and cost management is harnessed, these objectives would be achieved. For the sake of evidencing the need for change process, a set of change management as recommended in CIPS Module 4 and 5 would be a priority. In figure 3, the identified aspects entail environmental, market requirements, business imperatives, organisation and culture.
Figure 3:Category and Contract Management Change Factors
Further, to embrace category and contract management changes in Eco2Solar, the organisation is interested in transitioning to various cultural acceptance demands. This is in line with Balogun and Hope Model which note on the change process increase. Hence, this process can lead to successful adaptation and in-depth evolution. This offers an appropriate guidance on altering their operations in a gradual manner (see figure 4);
Figure 4:Change and Culture Acceptance Factors Model
The importance of change in Eco2Solar organisation is guided by the fact that Eco2Solar organisation background is defined with an immense efficiencies and timely decision making. For achieving this, it is important to note on critical influence of revenues generation and managing costs. This is while ensuring the best practice of use of traditional procurement strategies incurred by costs savings and optimisation of their entire operations. This is also supported by Methven O’Brien and Martin-Ortega (2019) findings from 5 Rights Procurement Model (see figure 5) as influencing Eco2Solar organisation need for harnessing all stakeholders engagement with most appropriate suppliers of their constructions spend category. This is informed by the suppliers compatibility level, credibility, reliability and likely need to embrace in innovation and development for growth purposes. This is while ensuring there is a guarantee of increased commitment to attain consistent and development of sustainable relations.
Figure 5:4 Rights of Procurement in Eco2Solar
3.0 Requirements for initiating and Preparing Introduction of Category Management Process
The need to introduce category management process in Eco2Solar organisation is informed by the fact that they have different items which are sourced distinctively, on different timelines and varying conditions. For recognising the requirements to initiate and prepare introduction of category management process, external and internal factors ought to be prioritised (Shameem et al., 2018).
For the external factors, the category and contract management would be informed by need to embrace modernised technologies while ensuring appropriate embrace on change. Through the application of PESTLE Analysis tool (Christodoulou & Cullinane, 2019), it is possible to evaluate macro-environment eliciting direct implication on promotion and influence of the Eco2Solar organisation change (see table 1);
Table 1:Eco2Solar Organisation PESTLE Analysis
Further, for the internal analysis, the SWOT analysis which focus on strengths and weaknesses (Internal factors) and opportunities and threats (external factors) can be put into account;
Strengths- This include presence of specified standards, guidelines and internal policies in Eco2Solar category and contract management. Through an investment in iSourcing, Eco2Solar pursue a holistic reporting system, planning, efficient and effective.
Weaknesses- Reliance on conventional sourcing approaches which limit success in contract and category management. Category managers for the identified construction spend category have a mandate to implement the contract management albeit of lack of sufficient understanding and awareness of effective contract management. For the Eco2Solar category managers, they lack elaborate background in legal matters for holistically implementing their contract management. The weak areas encountered are;
- Delayed contract turnaround leading to delayed project start and immense business costs
- Low success negotiation outcome and rework of suppliers terms and conditions
- Compliant issues and hindrances to poorly evidenced performance obligation
- Ineffectiveness of approval and signing of workflows
Opportunities- As part of modernising their contract and category management, Eco2Solar need to promote integration of their PCT system in all areas of their operations.
Threats– Multiple competitors in place in offering of the construction consultancy services lead to failure of suppliers to offer timely and expected area offering with immense costs incurred.
As affirmed in PESTLE and SWOT analysis findings, contract and category management is essential for pursuing a common strategy for same services with critical demand drivers and their suppliers. The importance of category management is to come up with various practices for best sourcing of services and gaining a detailed image for procurement spend in Eco2Solar company. This lead to the organisation leverage on economies of scale with discount costs and aggregated supply arrangements to cover many transactions. In CIPS (2022), category management style can be used to ensure Eco2Solar identify, prepare, deliver, and improve their operations (see figure 5);
Figure 6:CIPS Category Management Cycle
4.0 Strategic and Conventional Sourcing Processes and role in Category Management
Adopting the definition of Frederico et al. (2021)
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