You can’t be a specialist in every function of your business. You have to partner with excellent people & companies to produce an efficient supply chain that delivers bottom line profit.
Entering into partnerships with contractors is all about improving supply chain performance – improving quality, increasing revenue, lowering operating costs, or all three.
We tend to incur a heap of time, money & resources developing the contract that establishes how these improvements will be delivered; we develop the scope, put it out to bid or quote, assess a range of suppliers, shortlist, negotiate, re-negotiate…and after what seems like a life time, agree to terms & sign on to the contract.
Job done! Performance improvement imminent!
Unfortunately, without effective management practices contracts will “leak” value. Leakage erodes all those improvements that you spent so much time & effort negotiating into the contract!
Here’s the kicker – It’s estimated that poor contractor management practices cost the average company the equivalent of 9% of their total revenue every year (Source).
The value of quality contractor management practices is clear. Unfortunately, in most cases contractor management practices are either poorly defined, poorly executed, lack ownership, or are nonexistent (Source).
We believe there are five key contractor management elements that need to be established right away. Once you have these foundational elements in place, you can enhance your contractor management system by building additional elements & rigor in as required.
Integrate the Contractor into the Business:
Contractors need to integrate and work effectively with the business. Too often contractors manage themselves & never fully integrate. This causes friction & limits the contractor’s ability to deliver the level of performance stipulated in the contract.
We recommend setting a single point of accountability in the business for managing the contractor’s scope, integration & performance. Establishing clear accountability will promote team work, a focus on joint results & benefits, and enable effective issue resolution.
Operationalise the Contract:
Contracts are large, confusing, door stop documents. Your operational team have 100 better things to do than read a 70 page contract and extract the key points. All those important benefits you negotiated into the contract get lost in the field.
We recommend developing a one page contract summary that captures the ~10 key things your team need to understand & enforce from the contract. Set them up to deliver & embed the benefits.
Control the Scope:
Contractor scope creep occurs in two highly predictable ways:
1) Emergent work arises. The contractor is already there, willing to take it on, & does a great job. Over time it becomes the new norm for the contractor to undertake this work.
2) There’s duplication in the skill sets of your contractors and your internal staff. In silo organizations especially, it’s far easier to use the contractor than try & coordinate internal staff who report to different managers with different priorities.
To prevent scope creep, we recommend clearly defining & enforcing the specific tasks that you want the contractor to complete & be paid for.
Forecast, Report, & Control:
You want to ensure that your contractors are fully utilized on high priority, value adding work.
To enable this, we recommend capturing, allocating & managing all contractor work through one system. Introduce a regular forecast & review meeting with the contractor. In this meeting analyze what’s been achieved, what hasn’t & why, & what’s planned for the next period. Everyone walks away from this meeting with a clear, prioritized plan.
Set & Enforce Payment Standards:
Poor payment practices are a primary source of contract leakage:
1) Invoices are submitted by the contractor with insufficient detail, are inaccurate, and/or are submitted too late to enable effective analysis before they’re approved for payment.
2) The business rep. approves the invoice with insufficient review & rigor.
3) Cumulative costs are not frequently tracked & reported, leading to month end/quarter end surprises.
We recommend enforcing invoice standards with the contractor, internal invoice approval standards within the business, & reporting cost performance on a regular basis.
About 3 Ps in Profit
Our Vision: Enabling more Australian small & medium businesses to succeed & thrive through genuine partnerships that deliver performance improvement & growth.
Our Mission: Improving & growing Australian small & medium businesses by focusing on the three fundamental elements that drive performance; planning & alignment, processes & systems, and people.
Want to find our more? We would welcome the opportunity to discuss your performance improvement objectives and how we can help you achieve them.