Vested contracting: 5 rules to transform outsourcing

In this video for the Institute of Supply Management, Kate Vitasek of the University of Tennessee shares her research on relational contracting. The opportunities to change the way contracts are approached is applicable to almost every sector, although the research has been initially focused on outsourcing and services, as outsourcing often plays a critical part in an organisation’s operations.

Outsourcing constitutes the future supply of specific, often tailored, on-going services, so pinning down the contract can be a painful and adversarial experience, and not the best start to a relationship. Kate explains five rules on how to make vested outsourcing work that should be food for thought for any business.

How DHL implemented a vested outsourcing model for reverse logistics

This substantial presentation is a case study by Ruud de Groot of DHL, explaining how the collaborative approach taken by DHL in EMEA led to the implementation of a vested contract for reverse logistics designed to reward the achievement of specific operational goals. Through this contract DHL explored the use of Intel technology elsewhere in their supply chain to drive broader cost & efficiency improvements.

Future supply chains, like this case study, must be customer-centric and technology-driven, constructed through collaboration. There’s plenty for all to learn from this insightful session.

Incomplete contracts

In this short video, Oliver Hart talks about incomplete contracts on behalf of Harvard University and the Royal Economic Society. When contracts deal with transactions that may continue for years ahead, it’s impossible to cover everything. So the critical question is, Who gets to decide on the things that are left out?

Somebody has to have residual control and decision rights, and allocating control rights may be as important as allocating cashflow rights. So control rights should be more distinctly written into contracts than is often the case.

Getting started on Key Account Management

Dr Olivier Rivière (AKAM Board Member) explains that successful KAM introductions rest on three 'pillars': KAM infrastructure - which means the specific processes that will enact KAM - Key Account teams, and Key Account plans.

Key Account Managers don't achieve much on their own, so KA teams should be selected and enabled from the beginning, which is sadly often not the case, working to a KA plan. And what of the Key Account Managers? They need to be 'Swiss army knives', marathon runners, and more....

The obligation of leadership for Key Account Managers

Leadership is not optional for key account managers, explains Dr Diana Woodburn (AKAM Chairman), their customers want it, their KA team needs it, and their mission absolutely requires them to act as leaders internally, to gain the resources and decisions KAM implementation requires. But curiously, companies rarely send them on leadership development courses, despite the fact that they have one of the toughest leadership jobs in the organisation - with responsibility but without authority. So many are currently poor leaders, hoping it doesn't matter - but it does!

Creating value through partnership

Tyrone Morris (Client Managing Director, Xerox Corporation) explains the importance of partnering with clients and gaining an awareness of the whole company before entering the Procurement process.

Having a best-in-class bid team only works if it wins, and the chances of winning are hugely reduced if there's no closeness with the customer by the time the bid is out.

Characteristics of best practice key account managers

There is no single set of characteristics that identify outstanding key account managers, says Tyrone Morris - the best results come from matching customers with the right key account manager for that account. He/she may not perform as well with another key account, nor do the best sales managers necessarily make good key account managers. Working with a team is critical, but a strong understanding of the customer probably tops the list.

Should CEOs be involved with key accounts?

Every CEO should know and build relationships with key customers, according to David Pearson, Managing Director SONY UK - even those with an accountancy or operational background who don't have customer contact experience in their history. Top-to-top relationships can help to solve difficult issues. But the CEO must not become the go-to person for the account, sapping the authority from the key account manager.

What's the role of the CEO in key customer relationships?

David Pearson is clear that the role is primarily diplomatic, aimed at building the supplier's standing with the customer and identifying/agreeing mutual advantage between the two companies at a high level. Meeting a couple of times a year opens channels of communication at senior levels that can avert potential disaster.



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