A proposed contract management framework for Eskom Transmission Division (ETD)
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Date
2005
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Abstract
Eskom Transmission Division (ETD) is being forced to rethink its business development strategies, in order to deal with rapid technological, capital and social changes. As a result, there is a high need for contract managers to learn to procure goods and services effectively and efficiently. Subsequently, the capabilities and skills of buyers, and in particular contract managers, need to reflect Eskom's challenges faced in delivering on South Africa's developmental needs for affordable electrification. Because of the complex nature of contract management, it is required that a detailed and carefully written contract management framework that defines the commercial supplier relationship, contract management aspects of the results and the desired behaviour of the contracting parties, be established beforehand. Therefore, there needs to be greater emphasis on structuring and delivering of procurement training in the future, as contract managers will need to have skills to be able to work within a cross functional team, be strategic thinkers, and manage supplier base and relationships. A variety of methods can be used to implement training and they range from formal education, coaching, on job training and intemet training. The ETD senior managers need to monitor the performance of the contract managers wants the training methods have been introduced to identify the gaps. The aim is for this contract management framework to provide intangible elements of quality cost to enable contract managers to perform strategic sourcing in order to be innovative in their decision making. The contract management framework will focus on identifying and discussing strategic ideas that will enhance and improve the effectiveness of contract management at ETD. Contract managers need to be trained to enhance and update their skills. The training should focuses on: • Total cost of ownership in selecting the suppliers rather than concentrating on price only, • Reducing their supplier base and building strategic relationship with their suppliers, • Formation of formal cross functional teams, • Formation and management of supplier relationships, A Proposed Contract Management Framework for Eskom Transmission Division (ETD) By Thembisile Khomo ix • Monitoring and Measuring the performance of the suppliers and contract managers, • Strategic Sourcing, and all other cost reduction methods. This contract management framework will focus on the following cost saving and risk sharing opportunities, which will result in an efficient and effective contract management at ETD: • Expenditure Analysis In terms of expenditure analysis ETD should consider reducing the supplier base in order to consolidate and leverage expenditure and to manage the relationship with strategic suppliers more effectively. This will result in contract managers concentrating more on long term partnership and strategic relationships with its suppliers. As a result, ETD could benefit in terms of an increase in access to technology, where those suppliers that have received more volume and longer-term contracts become willing to invest in the manufacturing equipment that will improve their equipment production and processes. Because of the long term relationship that will be developed with these suppliers, they will also be willing to share the costs and risks with ETD. • Training and the Skills of Contract Managers It is very important for contract managers to be trained and have the required skills to manage contract. This was confirmed by the case study conducted in one of the ETD contract to refurbish transformers. In analyzing this contract, it was found that: ~ The rates quoted in the contract are above the market rates. ~ ETD contract managers do not challenge the specifications or operating practices and quotation costs. As a result most of the quotation costs or rates and ideas of how the transformers should be refurbished come from Rotek. ~ Contract managers do not know how much they spent in paying the labour, materials and other varied costs associated with the refurbishment of the contract. ETD has been paying numerous indirect costs or rates, such as A Proposed Contract Management Framework for Eskom Transmission Division (ETD) By Thembisile Khomo x additional overtime, rework due to unacceptable components quality, materials costs on heavily engineered components and so forth. All this contract mismanagement matters could have been avoided if the contract was managed effectively, and there is collaborative relationship with the supplier to ensure a solid working relationship and to reduce lead-time and costs. This relationship should be based on trust, cooperation, interdependence, joint quality improvement efforts, information sharing, risk and benefit sharing, and joint problem solving. Especially during the future capital expansion projects which ETD will be engaged in, there will be a high need for dependable suppliers to provide the required design and technological input needed for marketable profitable products and for satisfactory services to result. • Cross functional teams The formation of formal cross functional teams will help in making the decisions that impact multiple functional areas. Without the representatives of various areas the decisions are likely to meet resistance. Thus, if the representatives of each of the functional areas are involved on the team, they will provide beneficial input in the resulting agreement. In turn, each representative will be responsible for ensuring acceptance by his or her functional area, of the team's decisions. Cross functional teams also enhance problem resolution as the team will be bringing their different expertise in solving problems or making decisions. • Top Management Support For successful implementation of this framework, ETD top management need to support it by communicating its importance in terms of helping contract managers to think out of the box and see the competitive benefits of the new ways of managing the contracts. • Cost Reduction The cost reduction can be through the use of: A Proposed Contract Management Framework for Eskom Transmission Division (ETD) By Thembisile Khomo xi ~ Total cost of ownership (TeO) - where not only the price is considered when evaluating tenders from the supplier, but quality, delivery, maintenance, disposal and other cost saving ideas, including flexibility levels offered by the suppliers are considered by the contract managers. Thus, the contract managers need to have the skill to see the value stream, sequence of value creating steps required to design, make and deliver the product and to learn to remove the waste, mistakes and rigidities. Therefore in analyzing Tea, it is vitally important to understand the suppliers' market and financial reports to come to an effective solution with regard to the factors that make up the prices for the product or services they procure in addition what drives cost into the product or service in the market place. ~ Strategic sourcing - contract managers should focus on development of competitive value based pricing, where the overall costs are considered, and innovative strategic sourcing, where consideration is based on new products and services that deliver a competent advantage and new ways of doing business. For example, how quickly can the supplier adapt to changing ETD requirements? ~ Performance monitoring and measurement - contract managers need to continuous monitor the performance of suppliers based upon metrics that are directly derived from the service. By monitoring the performance of the supplier the contract manager will know in advance about any production or service delivery problem and come with mitigation steps together with the cross functional team. This will then prevent ETD in continuously accepting late and inadequate products or poor services from the suppliers. ~ Supplier relationship - the formation of supplier relationship with suppliers will benefit ETD in risk sharing and cost reduction. Therefore, the objective of a contract management framework must be to establish relationships with suppliers that have resources in order to integrate their specialist capabilities in a way that yield significant value potential from both sides. A Proposed Contract Management Framework for Eskom Transmission Division (ETD) By Thembisile Khomo xii ~ Training of contract managers - as there is greater emphasis on structuring and delivering of procurement training in the future, contract managers will need to have skills to be able to work within a cross functional team, be strategic thinkers, and manage supplier base and relationships. A variety of methods can therefore be used to implement training, which can range from formal education, coaching, on job training and internet training. Networking with other contract managers can also assist in the development of personal skills and adoption of better practices whether formally (as part of membership of a professional body) or informally (at conferences), exchanging ideas and meeting with other professionals can be extremely useful. The ETD senior managers need to monitor the performance of the contract managers wants the training methods have been introduced to identify the gaps. • Conclusion In conclusion, before a new contract is established, it is important to review the success and failures of the current contract, in order to establish a clearer understanding of what makes contract management successful. These lessons will then form the basis of planning tender requirements and negotiations for the next contract. For successful contract management, contract managers should ensure that a preferred relationship type and pricing structure is selected, and agreed succession plan. A contract review should also examine the cost-effectiveness and efficiency issues.
Description
Thesis (M.Com.)- University of Kwazulu-Natal, 2005
Keywords
Personnel training--Eskom Transmission Division., Eskom Transmission Division (ETD)--Personnel management., Theses--Management studies.