Over £597M* was lost within the UK
housing sector due to supplier mismanagement or suppliers not being proactively
managed by housing organisations. Signing a supply contract or framework
agreement is just the start of a partnership that could last many years.
The Failure to Manage Supplier
Organisations that fail to manage their
suppliers will inadvertently allow service quality to decline at the expense of
increased costs. The contract or framework agreement service specification will
form the basis for the customer/supplier relationship and establish an
organisation's product and service offering.
The service specification must prescribe
the commercial, legal, or quality management system standards a supplier must
adhere to. However, the specification should not be so prescriptive
that it fails to stimulate service growth, as supplier relationships become
partnerships, or prevent solutions to supply issues from being adopted to allow
suppliers to avoid their obligations.
It is imperative that organisations
proactively manage suppliers to ensure that service standards are achieved and
even surpassed, whilst costs are minimised. Communication is critical to
achieving this and must be formalised so that an organisation and its supply
base can track and trace their progress towards maximum service at the least
cost.
Supplier Onboarding
The critical step of the Supplier
Onboarding process is for both parties to understand what each other requires to
maximise the service offered while minimising the costs and risks related to
operating under the contract or framework agreement.
Highlighting the critical success
factors is key between the parties in the initial stages of forming a mutually
profitable relationship. An initial meeting with the supplier should be
held to explore and ensure that the supplier fully understands the following:
- Expected trading volume.
- Order process that will be used.
- Operational processes and procedures to be used.
- How costs will be managed.
- Service Quality and Standards to be achieved.
- Delivery process and lead time.
The critical issue for both parties is
to review and, where possible, eradicate any potential problem or bottleneck
that might occur to prevent both parties from maximising the value that can be
extracted from the contract or framework agreement.
Managing Supply Issues
National issues, such as an inability to
recruit staff, must be considered by an organisation and its suppliers. Without
staff, an organisation’s suppliers will not be able to function to fulfil their
obligations to their customers.
It would be unfair to sully a supplier's
reputation if its ability to service an organisation's needs was due to a
national inability to recruit, for example. The critical issue is for both the
organisation and the supplier to identify the key issues preventing the
fulfilment of service delivery.
Supplier management is a crucial skill
in identifying and overcoming issues that are often outside the direct control
of an organisation and its supply base. To overcome these issues, both sides
must form a partnership.
In the case of being unable to employ
staff, for example, it is in the vested interest of both parties to seek a
solution that resolves the issue. There would be little to be gained from the
organisation transferring the issue to another supplier, only to find that the
problem continues because it is a national labour issue.
Meeting With Suppliers
Supplier meetings should be held monthly
for major suppliers (annual spend levels above £100K), quarterly for
intermediate suppliers (annual spend between £50K - £100K), and biannually or
annually for suppliers whose annual spend falls below £50K but whose service is
crucial for an organisation to function. The timing of meetings and respective
spend levels may vary between industry sectors.
A supplier must always deal with urgent
supply issues as they occur. However, severe non-urgent supply issues should be
noted between supplier meetings and form the basis of the agenda for the next
meeting to ensure that all service issues are captured and dealt with. A
supplier can only improve its service offering if it knows where it needs to
meet an organisation's expectations.
Supply issues must be resolved to
benefit an organisation's stakeholders, customers, and suppliers. Setting
impossible targets for suppliers to achieve will only increase costs or lower
an organisation's service offering. Organisations must be fair to suppliers but
should never let suppliers dictate their relationship with their customers.
It is common for organisational contract
or framework agreement managers to want to avoid upsetting suppliers.
However, assertiveness is essential when suppliers try to obviate their
obligation to resolve poor service levels. The contract or framework
agreement manager must ensure they hold the supplier to account for their
poor service, as failing to do so will inadvertently contribute towards an
organisation's poor customer service.
Using an independent third-party
mediator can assist organisations in overcoming supply issues where the
supplier is uncooperative or unwilling to meet their supply obligations. A
strong lead is required to manage issues.
Additional articles can be found at Procurement Made Easy. This site looks at procurement issues to assist organisations and people in increasing the quality, efficiency, and effectiveness of their product and service supply to the customers' delight. ©️ Procurement Made Easy. All rights reserved.
*CIPS - 2019
