Contract Management

Issue

A major mining company enlisted The Highland Group to develop a more robust approach to working capital management, implement policies, procedures and practices that are conducive to optimum management of contracts already in place, and create accountability for and visibility to actual contract spend.

Highland Approach

Highland began with an assessment to identify the changes to policies, procedures and practices needed to achieve the Driver Goals and the benefits of doing so. The resulting implementation plan focused on Accounts Payable, Contract Negotiations, Contract Management and Spend Management.

Actions Taken

In Accounts Payable:

• Changed payment frequency, terms enforcement and payment terms extension, resulting in DPO (Days Payable Outstanding) moving from an average of 18 days to 40 days.

In Contract Negotiations:

• Worked with Centralized Procurement to renegotiate terms with the top 25+ vendors, achieving an average savings of 13% on 29 contracts with an annualized savings of $9.1 million (over $2 million realized before the end of the project).

In Contract Management:

• Reduced and controlled contract spend by implementing a System For Managing, which gave the “owners” of contracts monitoring capability of 70% of the contract spend on a daily/weekly basis.

In Spend Management:

• Developed a special application to manage actual spend with drill-down capabilities by category and supplier, resulting in an actual expense 7.3% ($18.2 million) below revised spend through the end of the project.