The Full Story
Companies purchase their goods and services from a supply chain channel. The habit for tendering, which is based on the belief that competition brings the best between companies, has proven to be inefficient because most tenders assume that there is no other variable than purchase price. It basically assumes that the process of tendering, the specification of the product/service and delivery of such product/service has no further potential for improvement. The purchase price is the differentiator.
When companies recognise that this old model, which served the industry well for some time, lacks the emotional commitment and knowledge of suppliers, they try to pick the best suppliers and work with them through an outsource contract. This contract is describing what product/service is expected against commercial- and general terms and conditions that protect the interests of the customer. “
A McKinsey analysis of 8 collaborative contracts indicate that these early adopters have resulted in a 15-20% improvement in cost and schedule performance compared to traditional transactional contracts.
So knowing the tangible value creation of doing so, how can we move from the competitive game to the collaborative game? How do we inspire and support organizations to start investing in the relationship first?
With supply chains becoming ever more complex there is increased demand for collaborative working and for these relationships to deliver successful outcomes.
Collaborative Relationships outcomes are defined as “To enhance value and reduce costs for everybody in the supply chain” (Prof. Richard Wilding, 2008). In the competitive game there is little room for investments as there is no solid long term outlook that makes it valuable or even viable. Also there is no guarantee that the current transactional relation stays the same. If a better price comes along the long term investment is at risk.
Within a collaborative relationship the partners are looking for ways to optimize business for the long term. If this requires an investment from one of the parties then this party knows that the return will be there as part of the relationship. This will strengthen the relationship as well as provide a better financial outcome for both parties. The same applies for cost reduction. In the zero sum game there is no invitation for the supplier to show how working together might benefit both parties. As price is the sole driver the start of real conversations start after the deal is awarded. Quite often we see that the offering party then comes up with additional costs to secure some margin after all.
From a collaborative perspective parties engage in each other's business and together look for the optimal setting. Cost reductions can be found for example in work that is done on both sides of the deal. Or by using the knowledge of the partner to help draft the right requirements or specifications. Most important is that there is fruitful soil to build on when the partners invest in the relationship. All parties are there to work on a shared vision, which is an open invitation to share knowledge and discover together new ways of working that will impact their bottom line.
“Companies now need to build operating models that enable value chain agility and fast responsiveness to market fluctuations. New skill sets and ecosystem collaborations will play a big role in creating the agility and responsiveness that’s now needed. Other industries have leveraged partnerships to develop new customer value propositions and drive product and service innovations. There’s no reason oil and gas companies can’t do the same.”
(Muqsit Ashraf, Senior Managing Director, Accenture, Lead – Energy Industry sector)
The solution is a flexible, anticipatory and collaborative framework and governance structure to manage a dynamic business relationship. With collaborative contracting we deliver a solution that enables parties to build the operating models of the future.
With this solution we unleash individual potential and disrupt one of the most challenging industries of our times with all its areas and dynamics. People who love what we do join us along the way. Together we revolutionize the way that we do business forever, which is perceived as great value. As such our methodology is adopted by more and more companies in the Oil & Gas industry. The people who have worked with it will be our advocates within Organizations that we have inspired.
As NRG Ignite we are the source of energy that translates theoretical models into practical, easy to use, ways of working. For that we have been acknowledged as world changers, people have relied on us for providing insights and direction. We bravely inspire and fuel the potential for companies to unleash their deepest creativity to deliver their Purpose into the world.