IN today’s business world, where speed and agility are the currencies for success, shorter procurement cycles are slowly becoming the necessity of the hour.
Supply chain professionals are constantly racing against competitive forces to remain relevant.
Organisations have to deal with unforgiving customers in a world of business that is fraught with intense competition. The shifting priorities of customers are glaring for all to see.
Today’s corporate milieu has witnessed a near insatiable pressure to capture the wallet share of customers and making sure it stays captured.
Supply chains are having their mettle tested to the limit. Procurement professionals are forced to use time as a competitive advantage since they are alive to the fact that whenever something goes wrong, being able to react faster than your competitors can easily turn out to be a game changer.
To ignore flexibility and agility in a highly volatile business environment is akin to staring directly into the abyss of failure.
In an effort to remain on the races, procurement professionals can barely afford to invest their time, effort and cost in repetitive and time-sapping procurement process flows hence the continued interest in framework agreements.
The introduction and use of framework agreements is highly regarded as a relief to the onerous tender processes associated with public procurement.
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Such forms of agreements are designed to establish the terms and conditions that are meant to govern supply chain contracts that may be awarded during the currency of the agreed procurement period.
Framework agreements involve the establishment of a master agreement with pre-negotiated terms and conditions for a pre-determined duration of time, leading to procurement process flows that are honest and more adult.
In most cases, framework agreements will involve the selection of single or multiple vendors or contractors to be part of the preferred list of suppliers over a stipulated period of time.
Single or multiple vendors are chosen based on competitive processes that assess various capabilities that demonstrates a minimum competence level.
Vendors and contractors are evaluated and approved based on their capabilities, expertise and compliance with the evaluation criteria that will have been stipulated in the standard bidding document.
The evaluation criteria will focus on pre-qualifying suppliers based on specific criteria, such as financial stability, technical capabilities, cost-effectiveness, technical ability and organisational competencies, experience or compliance with regulatory requirements.
This will ensure a pool of qualified suppliers; consultants and contractors are readily available for future use as and when required without necessarily conducting the onerous tender processes.
At the heart of a framework agreement lies the pre-selection of a vetted group of suppliers. Think of them as custom-made suits, perfectly tailored to fit the specific needs of the business.
Framework agreements are also referred to as trading agreements, standing offers, umbrella agreements or blanket orders. They are a strategic lever for unleashing the full potential of highly-qualified and highly-experienced suppliers, contractors or consultants in various product categories.
They are generally regarded as important strategic tools when the procuring entity determines that the procurement need or requirement is expected to arise on a repeated, indefinite, or urgent basis during a given period of time.
Procurement framework agreements are normally structured in such a way that they run for an average period of three to four years. For suppliers, being shortlisted on such a procurement arrangement will imply that they will have an open opportunity to build mutually long-term beneficial business relationships with procuring entities.
Framework agreements will generally level the playing field, granting equal access to all businesses and organisations pursuing public sector interests.
It must be noted that with framework agreements, prospective bidders participate in the tender not for a specific piece of work but for inclusion on a framework agreement.
They ordinarily streamline the procurement process by creating a reliable, ready-to-use list of suppliers, who have already gone through an initial vetting process, winning a place on the framework.
All prospective suppliers and contractors will be vetted providing assurance of their quality, sustainability and value for money. It simplifies the procurement process by setting these terms and conditions in advance for a specified period of time.
After establishing a blanket contract for the supply of goods and services, procurement professionals will be required to subject the shortlisted suppliers to a competitive bidding process through a “call off” arrangement.
Call-offs will be issued out in alignment with the agreed-upon terms and conditions as and when the need arises. Individual requirements are therefore “called off” in a series of mini competitions.
Call-off contracts have shorter durations and are based on specific requirements. These mini competitions usually involve significantly less administrative work than a standard tender process, reducing the administrative burden in the supply chain process flows.
Call-offs are strategic tools to simplify the procurement of goods and services by significantly streamlining the procurement cycle.
Both the supplier and the procuring entity will benefit from not participating in unnecessary frequent re-negotiation of terms and conditions.
The call-offs are regarded as mini competitions meant to allow procuring entities to further refine their purchase requirements whilst retaining the benefit of the collaborative planning aspects of framework agreements.
This is particularly more relevant in high-risk and high-spend project activities given that goods and services could be sourced over multiple delivery dates across the length of a project.
Call-offs enable a rapid adaptation to changing conditions or requirements. They are attuned to the ever-evolving market landscape.
They generally serve as the backbone of operational efficiency, bringing an economic flavour to the supply chain. They normally include provisions for changes in project scope, timelines and pricing, minimising repetitive negotiations.
They provide bespoke timescales to suit your requirements as and when the need arises. Call-offs are faster and less laborious than a full tender process.
Such legal frameworks will promote all deemed responsible vendors to compete in a fair and open space business environment.
With call offs, there is no need to hold excess inventory, which is an unnecessary cost to the business. Procurement professionals can “call off” stock when it is required, making recurring transactions more efficient.
This will pave way for quicker and more efficient contract awards for commonly procured goods, leading to a quicker procurement turnaround time.
There is also less downtime between identifying the need for new procurement requirements and fulfilling them on time in full, which is a considerable benefit for an agile supply chain network.
What are the benefits of framework agreements others may ask. For suppliers, they increase the visibility and chances for actively participating in business opportunities that will facilitate the securing of multiple contracts from multiple procuring entities and improved purchasing power through bulk discounts.
The vast and broader market exposure can lead to increased business opportunities and multiple revenue sources for suppliers, service providers and consultants.
Future supply requirements and services are known beforehand, securing a predictable market presence by being part of a supply framework agreement.
Organisations will also benefit immensely from economies of scale, leading to potential cost savings and increased efficiency. There is a possibility of being awarded multiple contracts without necessarily participating in a costly and often times onerous tender process.
Framework agreements are, therefore, a profitable conduit for offering the potential for greater business stability, especially during uncertain times.
The other benefit associated with framework agreements revolves around the significant reduction on the need for spending a lot of money on tender related costs.
No time is wasted re-advertising or re-evaluating the selection and award criteria for contracts, avoiding costs of repeat bidding. They can save organisations from the hustles of having to issue repeated tenders for the same type of goods, works, or services.
They allow repeat procurement with less administrative overheads. It will also reduce the need for repetitive paperwork and approvals, eliminating the constant back-and-forth between departments for approvals on every single order.
For participating vendors, it will significantly reduce the cost of sales by avoiding regular advertising costs that can then be passed on to the end user.
The other often cited benefit of framework agreements is that they have the potential to minimise disputes given that vendors and or consultants will certainly operate with confidence fully aware that their rights and obligations are well defined right from the onset.
The establishment of long-term business relationship with reliable suppliers will promote consistency, efficiency and a sense of partnership, leading to the promotion of continuous improvement initiatives.
The opportunity to share information and expertise nourishes a long-term mutually beneficial business relationship. This will promote a healthy platform for continued collaboration and sustainability over time.
Framework agreements offer the structure needed to measure and improve performance during project implementation. They can create a more diverse and competitive market with a wide range of skillsets and degree of experience.
They also provide a great ladder for small to medium enterprises to build up their experience in procurement by partnering with best-in-class companies.
In conclusion, it must be pointed out that framework agreements are generally regarded as a silver bullet for streamlining procurement processes and top management commitment to their mutual success is important.
With full commitment, both parties can craft agreements that stand the test of time and change, fostering a collaborative environment that can lead to improved efficiency and cost savings which can be particularly useful in responding to unexpected customer demands.
Framework agreements are tools of trade undergoing exponential change. In the shifting business landscape, your organisation needs to be agile, yet methodical.
It must stand out as a beacon of strategic innovation, tailoring supply chain offerings accordingly. Framework agreements are a means to an end, and the end is enhanced top-line value. They must stay relevant to remain front and centre in the minds of procurement professionals.
- Nyika is a supply chain practitioner based in Harare. — [email protected]
