Situation
Experienced losses due to contract issues
GlobalCo had a number of autonomous business units and was beginning an initiative to streamline business practices across the entire organization. One of the first business practices identified to be addressed was contracting, particularly after experiencing a series of losses due to contracting issues the previous year.
Synaptic Decisions was asked to help improve their contracting process and identify quick value opportunities to either increase margins or reduce value leakage.
Approach
Determining where there is value
We divided the project into two phases. The first phase focused on improvement opportunities across the entire contract portfolio. The second phase was a “deep dive” on specific high opportunity contracts to immediately increase their margins or reduce their value leakage.
Phase 1:
- Select a portfolio of 100 high value contracts and conduct contract reviews using our 5 C’s of Contracting Excellence© framework
- Identify key opportunities in the contracts to either increase overall margin or reduce potential value leakage
- Distill key issues and risks from individual contracts into broader themes that could be inferred upon the entire contract portfolio
Phase 2:
- Interview key contract stakeholder to gain understanding of contracting environment
- Perform detailed analysis on key value opportunities
- Develop recommendations to capture an hold onto identified value
Insights & Recommendations
Leaving money on the table
One example of our “deep dive” work during this project was finding a contract with a pricing mechanism that was misaligned with the spot market. And, when combined with the contract’s volume provision, a valuable option was being given away to the customer at the expense of GlobalCo. The contract afforded customer the option to buy at the lower of contract or market price.
Results
Shutting down the value leakage
- For the example contract discussed, we eliminated a $6.6 MM value leakage by re-structuring pricing and quantity provisions
- Additionally, the client leveraged this and our other recommended contracting practices across its other sales contracts