Benchmarking in Procurement Contract to Improve Performance

Abstract

In recent years, there has been unprecedented interest shown by organisations to adopt the best practices followed by the Industrial leaders. Competition in the Oil & gas market, companies becoming global player and advanced technology have made it difficult for the small and medium sized service providers to sustain in the market. This made them to tighten the expenditures and reduce cost in further investments. This trend changed when the smaller companies turned their focus towards improving efficiencies rather than cost cutting. One such major tool adopted for achieving this objective is Benchmarking. This thesis tries to identify and solve the problems existing in contracts and how benchmarking can be used in contracts to improve the overall performance of the organisation. Procurement contracts were taken as the main subject. Detailed review of available literature on contracts and major issues experienced in contracts were studied. Market analysis helped in analyzing various procurement contracts used by the leading oil and gas companies. Inputs taken from the contractual documents of these companies and the contract management process followed. Thus, by analyzing the process and criteria based on which the system is built, a contract lifecycle framework was drafted. The framework is the collection of best practices followed by the Industrial leaders and inputs derived from leading consultancy firms. This framework gives the contract management team an overall picture of the process flow. Improvements can be made to a system only if there are any measurements made. The evaluation table provides a set of practices associated with the framework, which must be performed by the contract management team. The table gives how a bottom performer and Top performer approaches that particular set of practices. The evaluation does not provide any results or solutions to the existing problems. It provides an insight about the current practice followed in the company and where they stand in terms of quality. Certain Key Performance Indicators associated with the framework is then identified. The formulas are used to calculate the performance measures and are compared against the best practices. Based on the framework and benchmarking criteria, this method is suggested for companies who have a basic contract management system to become more organised. This will improve the overall performance of the organisation.