This period of unique supply and demand uncertainty provides a rare opportunity to calmly review, test, and renegotiate key selling and buying agreements. I recommend that you pull them out, allocate to staff, and set a goal, for each contract, to reduce the cost-to-serve or increase revenue.
Then, each Monday morning ask those assigned staff these three essential questions.
- What did you renegotiate last week?
- How much will it save or increase revenue?
- When does it take effect?
Taking a fine-tooth comb to supply or customer contracts and putting a weekly spotlight on margin improvement can both unite cross-functional staff and deliver material profit improvements. If you haven’t considered or are unsure of how to roll out this practice, here’s a guide to get you started:
You Will Need: Whiteboard / Highlighter / Sticky notes / Supplier and customer contracts / A quiet space
1. Go to a quiet space & lock the door.
2. On a whiteboard make:
- A left-sided column of key contracts ranked by annual value.
- A top row of key staff who participate in the contract.
3. Start reading the highest value contract and, with the highlighter and sticky notes close by, at each clause, ask yourself the following:
- Which of my staff manages this clause?
- What is the value of the clause in terms of money, time, or security?
- Do we need more, less, or the same amount of this clause?
4. Highlight each material clause (not all will be).
5. Allocate a sticky note for each highlighted clause and write on it the following:
- clause number or reference
- name of relevant staff person
- value or worth
- and this question; “Do we need more, less, or same of this item?”
6. Place sticky notes on whiteboard under respective staff names.
7. Send a photo of the whiteboard to staff and ask each to start work on their sticky notes.
8. Schedule a Monday meeting for staff with the three questions above as the agenda.
9. Take up the second highest value contract and repeat the process.
Expert Tip: Quick margin wins are typically found within any clause that mentions: Price, units, volume, time, forecasting, payment terms, delivery, service levels, or rebates.
You will find: Asking staff these three key questions will drive accountability and profit consciousness, at a time when this has never been more needed. Better still, they will establish a set of behaviours and benefits that will deliver value long into the future.
Paul Allen, Managing Director, Margin Partners