Now’s The Time To Take A Fine-tooth Comb To Customer Contracts
Originally Published: Inside Small Business, 10 June 2020, by Paul Allen
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 made a wholesale start on this practice, here’s a guide to get you started:
You Will Need: Whiteboard / Highlighter / Sticky notes / Supplier and customer contracts / A quiet space
- Go to quiet space & lock the door.
- On whiteboard make:
- a left-sided column of key contracts ranked by annual value; and
- a top row of key staff who participate in the contract
- 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?
- Highlight each material clause (not all will be).
- 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?”.
- Place sticky notes on whiteboard under respective staff names.
- Send a photo of the whiteboard to staff and ask each to start work on their sticky notes.
- Schedule a Monday meeting for staff with the three questions above as the agenda.
- Take up the second-highest value contract and repeat 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.