In agreements between suppliers and buyers, protecting one's own interests is key. With legally sealed contracts, most companies try to limit their own risk. Such contracts stand in the way of long-term improvements and innovation through chain cooperation. Within the construction industry, a completely new contract model based on the principles of chain cooperation has therefore been drawn up. In an online session, SCELP explored whether this contract model could be applied more widely in the supply chain. "It is important for chain partners to think carefully about their shared vision beforehand," he says.
Many supply chain contracts contain penalty clauses. If a supplier makes a mistake, it is financially punished for it. As a result, the supplier does look forward to proactively reporting its mistake. "Much more interesting than the penalty is the solution," argues consultant Erik van den Boogaard of Peilon. "How do you get both parties to work together to fix the error? Or rather prevent it? Instead of including a penalty clause, it is better to agree that making a mistake is allowed, but improving is required."
New contract model
Within the construction sector, Van den Boogaard is one of the driving forces behind a new contract model that promotes chain cooperation. During an online session, SCELP explored whether this contract model could also be applied in other supply chains. Jack van der Veen, professor of supply chain management at Nyenrode Business University and one of the initiators of SCELP, is convinced. "Chain cooperation is the future, but it doesn't arise by itself. And is based on fundamentally different principles than traditional chain relationships. To realise all the blessings of chain cooperation, we need concrete practical tools like this contract model. Everyone can get started with these."
Van der Veen admits he initially had doubts about the idea of enshrining chain cooperation in contracts. "Contracts and chain cooperation seem to be contradictory concepts. Chain cooperation is based on mutual trust. You don't need a contract for that, do you? But the contract model from the construction sector is a legally tenable contract model that is widely applicable."
Solidified distrust
The traditional contract model is based on the principle that there are two parties who each have their own interests and do not fully trust each other. To prevent both parties from 'faking' each other, everything is legally sealed on paper. "A contract is nothing but solidified mistrust. That can work well in many cases, but not in high-strategy situations in highly complex environments. After all, you cannot foresee all eventualities and include them in the contract," Van der Veen explains.
The contract model for chain cooperation is based on a completely different principle; the principle that companies cannot create a mature supply chain on their own. "For that, you need chain partners. And you have to bind them to you in a different way than with a classic contract. In those, too little attention is paid to ethical components such as trust, togetherness and reciprocity."
Vision document
Van den Boogaard explains that those ethical components can very well be captured in a form of contract. "It is important to think carefully beforehand about the shared vision of the partners who conform to the contract. That vision is laid down in a vision document that outlines the playing field and rules for chain cooperation. In construction, we can see that this actually works. If a problem arises, it always works out because the frameworks for chain cooperation have been drawn up in advance."
Based on the vision document, a generic cooperation agreement is then drawn up, which can be further specified in a project or process agreement. "You don't do this process for one construction project. The time chain partners have to invest in each other is quite substantial. That's why we prefer to talk about process- or project-transcending cooperation," Van den Boogaard explains.
Transparency and maturity
During the online SCELP session, participants intensively discussed the potential of the new contract model. Some see in their supply chain the number of contracts with penalty clauses only increasing and would like to change that. Others wonder with which suppliers you should or should not use the contract model for chain cooperation. And what do you do in supply chains with skewed power relations? Does such a contract make sense then?
Van den Boogaard has now gained a lot of experience in the construction sector with implementation of the new contract model. "In all examples of chain cooperation, two things are crucial: transparency and maturity. First of all, it is important that companies deploy task-mature experts: experts who understand the importance of chain cooperation and can oversee the chain. Transparency is important because you don't want to pay your suppliers too much, but also not too little. After all, you want your partners to remain long-term partners. That won't work if they go bankrupt."
SCELP's next meeting will be on the topic of sustainability and will take place on Wednesday 23 March 2022 at Nyenrode Business University.
