Contracts and CRM - the way forward

Tony Inskip, Director at Zirkon reviews the importance of the supplier/customer relationship and wonders whether such contract guidelines are really necessary in the UK and what the alternatives are.

During the current economic climate, contract electronics manufacturing (CEM) companies are doing everything they can to not only win new business, but to keep hold of their existing customers.

The IPC, a US electronics industries association, has even gone as far as researching and developing guidelines for producing legal documentation, in order to ensure that the contractual side of the relationship runs smoothly right from the start.

Tony Inskip, Director at Zirkon reviews the importance of the supplier/customer relationship and wonders whether such contract guidelines are really necessary in the UK and what the alternatives are.

The electronics manufacturing industry in the UK is fast becoming solely small to medium sized CEMs, with the high volume, big league players closing or moving their operations overseas.

With customers uncertain of what the future holds, many are nervous about placing long-term orders or commitments and it is becoming fairly common for business contracts to be based on short, simple contracts and a gentleman's handshake.

In the current economic climate, it is critical that companies remain flexible in order to react quickly to the ever-changing market, and if potentially restricting standard contracts are in place, this may become impossible.

Standard contracts have already been adopted in other industries within the UK, for example the JCT contracts used within the construction industry.

What has been found in these cases is that there rarely is a 'standard' contract between the parties and that it is often tweaked in many areas to accommodate the specific requirements of each party.

This in itself can often lead to additional costs as the 'tweaking' is not always apparent and often necessitates a detailed inspection of the contract to identify where it is different from standard.

The time and costs incurred in reviewing could be better spent ensuring a successful, cost effective introduction of the project.

Furthermore, even though terms of trade may be signed up to within a contract, in practice they are frequently ignored - payment terms being a prime example.

Legal contracts, be it standardised or simple, can establish the traditional basis of a trading agreement but more often; customers are looking for a value-added partnership approach to their business relationships.

Therefore at the briefing stage, CEMs need to be looking not only at the specific requirements stated by the customer such as reduced time to market, lower costs or greater efficiency, but beyond that to the business as a whole, in order to provide the customer with more bespoke, more effective and more competitive solutions.

The degree of intimacy and understanding of the customer required by the CEM in today's markets is not something that can be dealt with in a contract, especially a standard one.

It is therefore a mistake to apply the same model of conducting business to each and every customer.

It is important to develop a unique relationship with each individual customer - some customers like to lead the relationship, while some prefer to sit back and hand the entire project over to the supplier.

It is becoming more and more common for companies to outsource their complete manufacturing operations, in order to cut their overheads and in effect, to run virtual businesses.

This is where the partnership approach taken by Zirkon is most effective, because we are effectively seen as an extension of the customer, which means that we can offer our valuable knowledge and expertise at every stage.

Without these relationships in place, even with a standard contract, if there is nothing that adds value, the customer will eventually start looking elsewhere.

As manufacturing costs within the UK are similar, significantly lower prices are normally an indication of someone willing to cut back on quality or service to win the business.

However, cuts in quality and service will ultimately lead the customer to have to review its decision, and can, in some cases, incur significant costs in researching and resourcing to an alternative supplier.

As price cutting cannot be sustained in the long term, it can even lead to some customers having to financially support their current CEM whilst looking for a new one.

When a company makes the decision to outsource, it is not just looking for a manufacturing outfit, but a partnering supplier that will work closely with them, understand them and work towards achieving the customers' goals.

In this instance, the ISO9000:2000 certification may be of far greater use and value to the CEM and customer than a good contract lawyer, as it is geared to enhancing customer satisfaction through better standards and services rather than penalising poor standards with costly penalty clauses.

The accreditation assures the customer that its supplier has systems in place to work proactively in order to identify any issues before they can become problems.

The current economic downturn means that suppliers have to pay much more attention to providing customer service.

Zirkon has won eight new clients over the last twelve months, as well as continuing to develop the strong relationships with existing customers.

There is no doubt that our strong CRM policy has been an influencing factor in this achievement.

By far the most important activity for businesses at this time is to be persistent - to be constantly visible to current and potential clients through regular communications.

This way you can gain a better understanding of your clients needs, and with strong relationships in place you shouldn't need to worry whether there are complex contracts in place - you can just concentrate on delivering the end result.

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