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Evolving your procurement strategy with relational contracts

on October 29, 2022

Evolving your procurement strategy with relational contracts can be used to increase contract standardization and visibility across the entire supply chain – ensuring contracts are managed appropriately to secure supply and value for the organization. 

Nowadays, the success of companies can be traced back to the adoption of lean management practices based on relational contracting.  In procurement, these refer to long-term relations with a restricted group of dedicated suppliers, instead of open competitive procurements. Relational contracts have even found their way into the traditionally more rigid public procurement, reducing reliance on open competitive auctions and leaving more scope for flexible, restricted auctions. Evolving your procurement strategy with relational contracts is the way of the future. And if you want to know what procurement will look like in 2025 have a look at this article.

Moving away from contractual obligations managed in a rudimentary way such as spreadsheets, word docs, emails, in-house legacy repositories and so on is crucial if you want to stay relevant. Relational contracts offer a better way to track, trace and report commitments.  

Smart contacts can greatly improve managing the contractual obligation as they keep electronic traces for contract documents and an immutable database for contract data. This allows organizations to streamline and control their contracting processes more effectively. With the use of smart contracts, companies can utilize their contract data as intelligence for reporting and tracking purposes. 

One of the main benefits of using smart contracts for evolving your procurement strategy with relational contracts is that they provide a bridge between all electronic databases and the real world.  You can set obligations have a set of defined milestones, which help track the progress of execution. The tasks provide all participants and management at various organization levels with a full view of obligation traceability. 

Evolving your procurement strategy with relational contracts requires systematic and efficient planning, execution, monitoring, and evaluation to ensure that all parties fulfil their contractual obligations with the ultimate goal of achieving contractual results. With this in mind, a smart contract can help you with:

 • Tracking and monitoring cost, time, quality and deliverables;  

• Collaborating to improve performance and promote opportunities for ongoing innovation e.g. value engineering in appropriate contracts;  

• Stating clear roles and responsibilities of participants;  

• Managing relationships with the supplier/contractor/consultant and key stakeholders;  

• Taking care of payments in accordance with agreed terms;  

• Being proactive throughout the contract to anticipate problems and issues before they arise; and  

Solving problems and issues as they arise, quickly, effectively, fairly, and in a transparent manner 

Contract Management is typically positioned within a Procurement and/or Project Management/Delivery function in an organization.  It has significant upstream and downstream effects on an organization’s broader operations and finance groups. Managing individual contracts without at least some level of automation can be disastrous when it comes to missed deadlines, unresolved disputes, unpaid invoices and wasted resources. 

Therefore, evolving your procurement strategy with relational contracts can be used to increase contract standardization and visibility across the entire supply chain – ensuring no contract expires unintentionally and is managed appropriately to secure supply and value for the organization, in a planned and coherent manner on an ongoing basis. 

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