All organisations will, at some time, need to engage suppliers; either for materials or goods, or a long term project or outsourced service. Yet when it comes to third party outsourcing there is a history of poor quality, overrunning projects and budget overspends. Tales of unsuccessful supplier performance exist in both the commercial and public sector.
six tips for effective supplier management
So what can be done to address these issues? Our Associate Consultant, Neil Jones offers the following six tips:-
clarity is key
Be clear what ‘success’ looks like. Often companies award contracts and engage suppliers without a clear, unambiguous, simple statement of what they are trying to achieve. Clearly, KPIs (Key Performance Indicators) and SLAs (Service Level Agreements) are necessary to manage supplier performance. Nevertheless, it is sometimes easy to lose sight of the bigger picture and focus on the finer details. Can you (honestly) answer the following questions?
- Do they measure ‘quality’ as well as quantity (times, numbers, volume etc.)
- Do your KPIs /SLAs encourage continuous improvement by the supplier – or merely compliance?
- ‘Key’ is the most important part of KPIs. Are you trying to measure everything, or focussing on the things matter?
- Are you measuring the right things? Can you state in one or 2 sentences what the contract/project hopes to achieve?
- Are you aware of potential ‘scope creep’ and are guarding against it?
get your house in order
Make sure you get the administration and paperwork right. This involves ensuring that an audit trail is in place and that the appropriate documentation (changes to requirements, minutes of meetings with suppliers etc.) is maintained. Whilst not the most glamorous aspect of effective supplier management it is necessary to demonstrate the basis on which certain decisions were taken. In the public sector or in regulated industries you will need to respond to any challenges or investigations in the process of contract award and management.
A good starting point is to read the contract all the way through a couple of times. Whilst an in-depth legal knowledge is not necessarily important for effective supplier management, some understanding of key terms and typical clauses is always useful.
Another important administrative function is the provision of internal guidance and education. You may wish to produce a summary of key terms, risks and opportunities for senior managers. Alternatively, think about developing a users’ guide to the services being delivered under the contract; in this way, stakeholders can understand what they should get and what to do if they don’t.
Finally, consider who should get access to the contract itself. People will come up with all sorts of reasons as to why they should have a copy, and there may be no apparent harm in letting them see it. However, it is wise to limit access to those who need it. Keep a log of who has a hard copy and only send electronic copies in PDF. Otherwise, you may be swamped by “lay contract managers” interpreting and quoting the contract without the necessary context and understanding.
Remember also that their copy of the contract will be out of date as soon as the first change control note is agreed. This, and the administration required to keep on top of it is enough reason to limit access in the first place.
build relationships with your supplier
Focus on the ‘relationship’ with your supplier as well as on the written contract. Written contracts are inevitably ambiguous; if they weren’t why are contract law specialists so valued?
The contract exists to help you manage your relationship with your supplier. Goods & services are delivered by people, not by pieces of paper! Disputes, changes to requirements and continuous improvement are all much easier to achieve if you work with your supplier. Do you?
- meet regularly to share information and to review performance?
- give them feedback on successes, not just areas for improvement?
- recognise your own and your organisations’ shortcomings?
- If there is a dispute do you reach out to your supplier?…. or reach into your drawer for the contract?
Don’t forget, it’s not just relationships with your suppliers that need attention. Senior managers, key stakeholders and end-users all need to be brought on board, ideally at an early stage to ensure that you have the necessary internal support.
provide a flexible leadership style
Effective supplier management requires an appropriate (but flexible) leadership style when managing your suppliers. Sometimes suppliers will need clear direction. This is particularly important at the start of the relationship if they have not worked with your organisation previously. On other occasions, a much ‘lighter touch’ is needed as the supplier becomes more familiar with your requirements or when their motivation and skills are at an optimum level. Sometimes the best style involves letting your supplier get on with things themselves, but be available for support if needed.
stay true to your word
Fulfil your obligations. This might sound obvious but paying your suppliers on time is crucial. Not only will late payment impact on your suppliers’ (particularly SMEs) cash flow, but it will have a knock-on effect on your relationship with them.
Other obligations on you include the need to avoid too many variations or changes to requirements, as well as those issues of communication etc. referred to above. Clearly, your supplier’s obligations to you primarily revolve around doing the work on time, to the appropriate quality and to the agreed costs – as well as submitting their invoices on time!
plan, plan, plan!
Plan early for the end of the contract or project. The time to agree on the transfer of assets, possible transfer of staff, handover to a new supplier (or your own in-house team) is not when the contract is coming to an end. Also, think about the length of your contract.
- Is a long-term partnership in both your interests? Would a shorter length term allow you to take advantage of developments in the marketplace?
- Do you really need a preferred supplier or would a ‘framework agreement’ offer more flexibility?
- If you are considering changing supplier do you really understand the costs of changing? Or are you simply focussing on the immediate price reductions offered by a rival supplier?
Would you like to develop effective supplier management strategies or contract management skills? Click here to book on one of our upcoming Supplier & Contract Management courses