Tag Archives: supplier management

The Secret of Successful Supplier Selection

Still using cost as a primary criteria for supplier selection? Our latest webinar shares all the secrets you need for success.

Have you been tasked with running a selection process for a new supplier but don’t know where to start?  Perhaps you’ve been using the same routine for years but feel it’s time to freshen it up?  Are the old ways just not delivering the outcomes you need?

In our recent Procurious-Ivalua Webinar, Critical Success Factors for Supplier Selection, our panel of experts revealed the secrets to how they get the outcomes they want from their sourcing processes. 

Here are five great take-aways from that discussion.

Supplier Selection – Get the Balance Right

Our panel reported that many organisations are not yet on a path that leads away a cost-driven focus.  Tech tools that are available to help with future cost modelling mean procurement can go to the market with uncertainty about this type of risk reduced.  When cost risk is managed this leaves the way clear for the road to value. 

A great example quoted in the discussion was a utility contract. The focus was on value rather than cost. It led to costs being reduced and also meant a more sustainable outcome was delivered. This lowered usage and introduced measures to promote sustainability. 

Can you introduce a selection process that balances cost, value and your organisation’s wider sustainability goals to select a supplier who is right for you?

Remember, One Size Doesn’t Fit All

Making sure a supplier is a good cultural fit for the organisation is a key requirement that all our panel members stressed.  Think about the impact of a cultural misalignment on your organisation’s reputation or brand.  

Cultures vary across the world and getting a cultural fit when you’ve got a global supply chain is hard. However, there are many things on which the buyer and supplier can agree. How about meeting with your supplier’s leadership team as part of the sourcing process? This would allow you to assess their management ethos to make sure that the cultural fit is there right from the start?

The unknown unknowns

Managing external factors and risks, particularly those that are not yet known, are something that supplier selection process is often expected to address.  All panel members reported the challenge of grappling with the unknown unknowns in the current period of global upheaval and change. 

The advent of technology-driven real time data is something panel members welcomed to manage supplier and supply chain risk.  It’s also a great way to check and monitor supplier financial health. 

Make use of the new tools that are available to ensure your organisation is prepared and have a backstop position to allow a response when situational or supplier risks change.

Be a customer of choice

When it came to the supplier-buyer relationship our panel had very clear advice.  Whether we’re a supplier or a buyer, we’re all looking of a return on the investment in the relationship we’re about to have.  Focus clearly on the outcomes both sides are trying to achieve. 

Make sure you put yourself in the seat of your supplier’s sales director – how can a contract with your organisation provide a supplier with the opportunity for fair value earnings or a sustainable revenue stream?

Start the conversation

Changing the way your organisation selects suppliers will not happen overnight.  When you’re engaging with stakeholders our panel advises you to talk in their terms not the language of procurement. 

Will the change you’re proposing add value?  Why will it improve customer experience?  Why could it safeguard or improve reputation?

So, go ahead and pick one of the secrets that the webinar panel shared as being critical factors for success and start that conversation with the business today.

A recording of the Procurious-Ivalua Webinar – Critical Success Factors for Selecting Your Suppliers with panel members Gordon Tytler, Rolls Royce, Stephen Carter, Ivalua, Fred Nijffels, Accenture and host Tania Seary, Procurious is available here.

Critical Factors for Selecting your Suppliers

What critical factors do you look for in your suppliers? What does an organisation have to offer to get their foot in your door?

When you think of procurement, and get beyond the savings agenda, then the first thing that comes to mind is managing suppliers. While employees may be the life-blood of an organisation, suppliers are definitely the nourishment and support that keep organisations alive.

Without suppliers and their extended supply chains, organisations wouldn’t have any raw materials to make into products, any products to sell, or anyone to deliver much-needed services. That’s why a good supplier relationship (or relationships) can be critical to your daily operations.

However, one bad apple, one flawed contractors could not only stop the seamless functioning of your supply chain. It could also harm those two vital elements for all businesses – trust and reputation.

Your Critical Factors

If supplier relationships are key, then surely procurement should be taking its time selecting the right ones. And given the importance of this, procurement also needs to be applying the right ‘critical factors’ when selecting their suppliers.

As has been discussed in the past on Procurious, there are a number of factors that must be considered when selecting suppliers. The only issue is that these don’t appear to have changed very much over the years, begging the question – is procurement doing everything it can to adapt these criteria in line with the external environment?

Sure, it’s high time that procurement was looking past the traditional criteria of cost and quality when making their assessments. But the truth is, there’s no getting away from them.

However, this isn’t necessarily a bad thing if they aren’t the only factors in the equation. As procurement professionals, you are probably only too aware of the myriad of other factors that you need to be accounting for, from cultural fit and financial stability, all the way through to ethics and sustainability.

So which are the critical factors that procurement should be using? Is there a list that we should all be looking at?

Join our Webinar

Help is at hand in the form of Procurious and Ivalua’s latest webinar, ‘Critical Factors for Selecting your Suppliers’.

Sign up now to join our panel of experts at 11am (BST) on Tuesday the 3rd of September:

  • Tania Seary, Founder, Procurious
  • Stephen Carter, Senior Marketing Manager, Ivalua
  • Fred Nijffels, Accenture Operations ANZ – Procurement & Supply Chain
  • Gordon Tytler, Director of Procurement, Rolls Royce

In the webinar, you’ll hear from a panel of experts on a range of topics including:

  • The importance of cultural fit in your supplier relationships;
  • If sustainability, social value and fair working practices are becoming more prominent for procurement;
  • What your suppliers are looking for in your organisation; and
  • How to start the conversation in your organisation to move away from just cost and quality criteria.

FAQs

Is the Critical Factors webinar available to anyone?

Absolutely! Anyone & everyone can register for the webinar and it won’t cost you a penny to do so. Simply sign up here.

How do I listen to the Critical Factors webinar?

Simply sign up here and you’ll be able to listen to the on-demand. 

Help – I can’t make it to the live-stream of the webinar!

No problem! If you can’t make the live-stream you can catch up whenever it suits you. We’ll be making it available on Procurious soon after the event (and will be sure to send you a link) so you can listen at your leisure!

Can I ask the speakers a question during the Critical Factors For Selecting Your Suppliers webinar?

If you’d like to ask one of our speakers a question please submit it via the Discussion Board on Procurious and we’ll do our very best to ensure it gets answered for you.

Don’t Miss Out!

This webinar promises to provide a fascinating insight for all procurement professionals into the Critical Factors you should be considering in supplier selection.

Make sure you don’t miss out by signing up today!

Best of the Procurious Blog – Five Best Negotiation Scenes In Film And TV

How much can you learn about negotiation by sitting on the couch watching movies? Plenty.

Shutterstock/ Fer Gregory

Want to become a better negotiator? You could diligently read up on the subject or attend some negotiation training courses, but for the couch potatoes amongst us, you might just learn more by watching some of your favourite films.

Negotiation scenes come in many varieties in film. Often they’re in the form of a hard sell (think Leonardo DiCaprio selling dodgy stocks in The Wolf of Wall Street), or a hostage situation (Tom Hanks negotiating for his freedom in Captain Phillips) or other life-threatening situations such as Mel Gibson trying to talk a suicidal man down from a ledge in Lethal Weapon.

But when it comes down to the nuts and bolts of haggling, the following five scenes give illuminating examples of how to win – or lose – in a high-stakes negotiation.

  1. Sticking to your final offer – Nightcrawler (2014)

Jake Gyllenhaal’s character Lou is trying to sell a video of a crime scene to Nina, a TV news manager. Watch for:

  • Lou being willing to haggle down to a certain level, after which he refuses to budge.
  • The power shift in the negotiation from Nina to Lou (aided in part by Lou’s creepy intensity).
  • Lou throwing in a number of extra conditions when he knows he has Nina beaten.
  • Best line: “When I say that a particular number is my lowest price, that’s my lowest price, and you can be assured that I arrived at whatever that number is very carefully.”

  1. Doing your homework before a negotiation: True Grit (2010)

In this Coen Brothers film, 14-year-old Mattie Ross (played by Hailee Steinfeld) shows what horse-trading is all about – literally. In order to raise money to hire a Deputy U.S. Marshal to help her track down her father’s killer, she approaches an auctioneer named Stonehill with two demands – that he buys back the ponies he sold he father, and that he pays her $300 for a horse stolen from his stable. At first, Stonehill laughs in dismissal, but Ross’s perseverance and detailed knowledge of the relevant law wears him down until he yields to her demands – plus a little bit more. Watch for:

  • The moment Stonehill mentions the valuation of the horse and hence kicks off the haggling process.
  • Mattie’s threatening to walk out on the negotiation and go to the law, causing Stonehill to adjust his offer in panic.
  • Best line: “I do not entertain hypotheticals – the world as it is is vexing enough.”

  1. Negotiating across cultures – Snatch (2000)

Warning: strong language.

When boxing promoter “Turkish” and his partner Tommy approach Irish Traveller “One Punch” Mickey O’Neil to ask him to participate in a fight, the prospect seems simple enough. The only problem is, Mickey (played by Brad Pitt) has an almost unintelligible accent. His price is the purchase of a fancy caravan “for me Ma”, and then proceeds to list off all the features he wants included in the deal … while Turkish and Tommy can’t understand a thing. Watch for:

  • Mickey’s impossible-to-understand list of caravan features. The video clip below includes subtitles, but cinema audiences had no such assistance when this film was released.
  • The bewilderment on Turkish and Tommy’s faces as they realise they don’t know what they’ve actually agreed to. The cultural barrier between the Irish Travellers and the other characters in the film is a running theme that goes far beyond the tricky accent.
  • Best line: “Did you understand a single word of what he just said?”

  1. Coercion – Ocean’s 11 (2001)

“Frank”, played by the late Bernie Mac, has been tasked with sourcing the transport needed for the team to undertake the crime of the century. The dealer names his best offer, and Frank appears to accept. So far, everything seems to be going smoothly … until the handshake. Frank extends the grip to a full 60 seconds, apparently crushing the car dealer’s hand while chatting amiably the whole time. The car dealer, desperately uncomfortable and in pain, abruptly drops his price before freeing his hand. Watch for:

  • The range of emotions playing over the car dealer’s face as he realises he can’t free his hand.
  • Frank’s feigned surprise and gratitude when the dealer drops his price.
  • Best line: “If you were willing to pay cash, I’d be willing to drop that down to seven-SIX-teen each.”

  1. The power of silence: 30 Rock (TV series 2006-13)

By simply sitting in near-silence and looking stern, grumpy babysitter (Sherri) is able to make Jack Donaghy so nervous that he doubles her pay for working half the time. Donaghy (Alec Baldwin) comes into the negotiation with his usual swagger, but Sherri’s silence causes him to blabber and rapidly cave. Appalled at his own performance, he confronts Sherri a second time. Watch for:

  • Sherri’s tactical silence when Jack pauses to let her speak.
  • Jack rolling his eyes when he realises how badly he came out of the negotiation.
  • Best line: “I made every mistake you can in a negotiation. I spoke first, I smiled … I negotiated with myself!”

Want to suggest some other films or TV shows with great negotiation scenes? Leave a comment below!

6 Ways To Prevent A Negotiation Blow Up

There’s no denying that negotiations can be tough. And the best thing you can do to lessen the tension and prevent a negotiation blow up is to be prepared…

Palms are sweaty, knees weak, arms are heavy…

No, it’s not the start of an Eminem song… (well, it is, but that’s not what we’re getting at!)

You’re preparing for a big negotiation with a group of key suppliers and you’re already anticipating a disastrous outcome.

Perhaps you already know the people you’re dealing with are difficult to work with, or you’ve heard about their reputation.

Or maybe you know your own negotiation skills leave a lot to be desired when it comes to crisis management.

Whatever the reason, there’s no denying that negotiations can be tough. And the best thing you can do to lessen the tension and prevent a negotiation blow up is to be prepared.

We joined a recent Negotiation Roundtable organized by CABL (Conti Advanced Business Learning), a firm that specialises in Negotiation & Influencing, on the topic of Emotions and Negotiation. We wanted to hear advice from a number of procurement and sales leaders on how to keep your negotiations sweet.

Giuseppe Conti, the founder of CABL, led the conversation by discussing how emotions can influence decision making during negotiations and the ways to increase effectiveness when this factor is taken into account.

  1. Practice mindfulness

If you enter into your negotiation like a coiled spring, chances are the spring won’t stay coiled for long. The calmer you are the calmer you’re likely to remain for the duration of the meeting.

Olga Guerous, VP Commercial – Mars,  recalled a confrontation she experienced early on in her career. A particularly difficult supplier, who’s emotions were “all over the place” became so angry that he was forced to “leave the room midway through a negotiation and remained in the corridor for fifteen minutes in order to calm down.

“He came back and apologised but the situation wasn’t redeemable and he didn’t get what he wanted. Losing his temper made him lose any power and control he had in the negotiation. Having full control of your emotions is a key benefit in negotiations.”

Paul André, Director Reduced Risk Commercial Supply – JTI agreed, recommending, low breathing and mindfulness to help create a barrier to your emotions.

  1. Practice what you’re going to say

If you’re nervous or apprehensive about an impending negotiation, there’s nothing wrong with rehearsing in advance, to ensure you come across as intended.

Regina Roos, VP &  Sales Segment Leader Mineral and Mining – Schneider Electric,  said: “In the morning in front of the mirror I smile and practice some conversations, particularly ones that help you respond to people that are angry.

“When you are talking you can’t see yourself.  When you look in the mirror you can practice your facial expressions so it is not ironic or sarcastic. I call it ‘the mascara moment’.”

Francesco Lucchetta, Director EMEAI Supply – Pentair, agreed asserting the ” importance of making people aware of emotions without showing them, making an effort to keep the exchange respectful and controlled”

  1. Be physically prepared

Regina Roos recalled working with a procurement leader who took a very unique approach to managing his negotiations. At the beginning of every meeting and regularly throughout he would direct participants to the bathrooms.

“The need to take a break, to go to the toilet can create problems and impact on emotions during a negotiation. It’s good to take a minute, recharge your batteries and re-enter the discussion with a fresh perspective.”

Olga Guerous agreed in the importance of taking regular breaks throughout the negotiation process, even if it’s simply a break in the current conversation.  “It’s a powerful technique, when emotions are running high, to completely deviate from that topic, particularly if you believe you are going to have minimal success. Switch to a less contentious discussion and return to the difficult point later, whether it’s in a few minutes or a few hours.”

  1. Prepare to be confident

Preparation before a negotiation is crucial to help regulate emotions because it gives you the confidence to calmly assert your position and communicate your key points.

Ifti Ahmed, Managing Partner – Titanium Partners, argued that the most important way to control emotions is through self-confidence. “Confidence comes from preparation. If you’re prepared – you’re confident. If you think you’re going to win – you’re confident. If you think you’re going to lose – that’s when the emotions come into it.

If it helps you, don’t be ashamed of preparing everything you have to say in writing and sticking to that script.

  1. Plan your stand-up routine

There’s nothing like a touch of light humour to diffuse an escalating argument. Alessandra Silvano, Global Category Director CAPEX & MRO – Carlsberg, explained that his favourite way to blow out tension during negotiations is to crack a joke.

“Of course it has to be tactful, considered and culturally appropriate but it can be a useful and powerful way to break the tension.  Be sure you are not offending anyone and perhaps keep it exclusively to jokes about yourself!”

  1. Pick your venue wisely

Location-choice can make or break the success of your negotiation. If you want to ensure all participants remain civil, calm and professional there’s nothing like a neutral or public space to guarantee best behaviour.

“I’m a very emotional person and I find it difficult to process,” said Alessandra. “The venue of the negotiation has a big impact for me. I try to pick a relaxing, informal setting, such as a dinner. In an office environment it’s easy to get angry. In a nice restaurant I’m more relaxed and it’s easier to joke around and control emotions.”

Eight Critical Actions for Managing Your Supplier Pool

Establishing a pool of preferred or pre-qualified suppliers is  a great idea as long as you are actively managing your supplier pool.  Here’s how it’s done…

Last year Government Technology published an article describing how the state of Colorado has turned to a process they call “mini-RFP’s” to streamline and expedite procurement in their IT category.

The author Jessica Mulholland reports the state performed a prequalification of vendors and awarded multiple contracts to address a “specific set of issues and implementations”.

This select group of vendors operating under pre-negotiated legal terms are solicited when new work comes up.  The lowest bidder is awarded leveraging their prenegotiated terms and conditions.

This is a concept that I have seen quite a few times before.  Many private organisations operate in this manner.  Essentially awarding MSA’s that include no rates or commercial terms, just legal terms.

It should be noted that the reason this is more expeditious is because it streamlines the contracting portion of the procurement process.  This isn’t a shortcut to procurement, you still need a scope of work, you still need a bid period, and you still need analysis.  The time saved is the time with legal.

Prequalification of suppliers isn’t anything new, but it is a unique approach in public procurement.  I’m no expert on the legality of this as a government practice, but I will address this from a private business perspective.

1.Agreements without Commercial Rates

Perhaps this is a nuance of the public sector and possibly the reason why the state of Colorado can have a closed bid, but in private business there is simply no good reason to have an MSA without pre-negotiated rates.  Nonetheless, I have seen this quite a few times.  If you are going to go so far as to negotiate legal terms, locking in rates and commercial terms should be a no-brainer.

2. Obstacles to inclusion

If you plan to add a pre-qualification process to your organisation, consider keeping the process simple and straight-forward.  It should not take more than a couple of weeks to complete the process.  Anything more than that and you may find that your process becomes an obstacle for inclusion.

3. Scale the Pool

Be sure to have a large enough pool to allow for multiple projects to occur at the same time without depleting your bench.  There is nothing worse than having an emergency project when all of your pre-qualified vendors are at capacity and you have no one left to award.

4. Diversify your Pool

Your pool of pre-qualified suppliers should be as diverse as the projects you contract.  When I talk of diversity here, I’m not speaking of minority owned businesses.  That is important too, but more than that you need to make sure your pool of vendors has large firms for the big projects as well as small firms for the small projects.  Don’t just include all the big guys or you may find you have no one at all.

5. Score Performance

If you are going to establish a pool of pre-qualified suppliers it’s important to score each performance.  Develop Key Performance Indicators (KPI) to evaluate how the suppliers performed and make sure to collect a report for each engagement.  This will give you actionable data to evaluate the performance of each supplier.

6. Aggregate and Report KPI’s

Grading the suppliers on each project is essential, but when you collect and aggregate that data across a year, now you have powerful data.  Anyone can have a bad project, but with a consolidated view of a vendors performance over a year, you can address specific problems, identify weaknesses, and generally grade each supplier objectively. With this data, you can elevate suppliers that perform well and downgrade those who perform poorly.

7. Evaluate your Pool at Least Once per Year

With your performance data in hand, you should meet with your suppliers annually and share the results of your scoring.  This may be a difficult conversation, but if you are basing your comments on facts, it will be easier.  In addition to reviewing existing suppliers, this is the time to look outside of your pool to identify new or up-and-coming suppliers to add.  You should also evaluate the state of your organisation to right-size your pool.

8. Update your Agreements

Above all else, don’t let agreement expire.  Track the end of all agreements and create reminders on your calendar to ensure you are proactively renewing, terminating, or renegotiating agreements before they expire.

Establishing a pool of preferred or pre-qualified suppliers is  a great idea as long as you are actively managing your supplier pool.  Keep on top of your contracts and you will soon see the fruits of your labor.

Do you have prenegotiated or prequalified Suppliers in your organisation?  If so, do you follow these recommendations?  Are there any best practices you recommend?  Tell me your stories.


This article was originally published on Luis Gile’s website. Check out more of his content here. 

Sign up for today’s webinar: Clean Up Your Act! Category Management AI-Style. 

How Not To Break Up With Suppliers: 5 Tips From the Movies

What can Hugh Grant, Will Ferrell and Homer Simpson teach us about ending important relationships in procurement?

Credit: PolyGram/Working Title Films, Four Weddings and a Funeral (1994)

Knowing me, knowing you (a-haaaa)
We just have to face it
This time we’re through
Breaking up is never easy, I know
But I have to go…

ABBA – Knowing Me, Knowing You (1976)

I’m not the first to draw a parallel between romantic break-ups and ending a relationship with a strategic supplier. The similarities are many: the relationships may have existed for years (decades in some cases), you’ve been through both good times and bad together, and sometimes your two companies are so interwoven that there can be no hope of a clean break.

But… all good things must come to an end sooner or later. Without going into the tell-tale signs of when it’s time to let a supplier go (that’s an article in itself), I’d like to concentrate on how not to end a supplier relationship. And – once again – let’s look to Hollywood to provide an illustration for each point.

1. Don’t make a shock announcement

“Ricky – you and I – we both know this marriage has been over for a long, long time.”

“I honestly did NOT know that!”

Don’t be like Carley Bobby in Talladega Nights. If you’ve ever been on the receiving end of a shock break-up, it’s incredibly unpleasant for the person who was hitherto living under the assumption that things were going smoothly.

Giving your suppliers no hint that the relationship isn’t working is both unfair and unprofessional. Break-up “shock” can be avoided by holding regular and ongoing catch-ups where KPIs are tracked and red flags discussed, along with honest communication about your organisation’s willingness to continue the relationship into the future.

Don’t be fake! If you’re deeply unhappy with your supplier’s performance but you’re all smiles and encouragement whenever you meet, it really won’t help the situation as the supplier will see no reason to make changes or improvements.

And who knows? If you’re able to have an honest discussion with your supplier about why you won’t be renewing their contract, it may become the catalyst for a change in behaviour that ends up removing the need to break up altogether.

2. Don’t be blasé

“Welcome to Dumpsville, population: YOU.”

Don’t be like Homer Simpson. After it’s revealed that Bart has tricked Edna Krabappel with a series of fake love letters, the Simpson family rally around to compose a final letter that will sensitively end the relationship without further breaking the heart of poor Edna. Homer, unfortunately, just doesn’t get it.

Don’t be flippant. Be serious – the decision to change suppliers can potentially impact people’s careers and livelihoods. In the case of small suppliers, it may even bring them to the brink of bankruptcy if your business makes up a high proportion of their income.

Make time for a proper conversation. Schedule a face-to-face meeting if possible, or a phone call as the next-best option – but don’t hide behind an email.

Similarly …

3. Don’t be cold

“Rhett! If you go, where shall I go? What shall I do?”

“Frankly, my dear, I don’t give a damn.”

After Rhett Butler delivers this zinger to Scarlett O’Hara in the closing moments of Gone With The Wind, she collapses sobbing on the stairwell. Scarlett is heartbroken, and clearly needs help – but Rhett has already gone, striding determinedly off into the heavy fog.

The equivalent behaviour in procurement would involve calling a supplier to end the relationship, then hanging up without giving them an opportunity to debrief and discuss. It’s entirely possible that the supplier won’t want to talk (and might even hang up on you), but if they do want a discussion you need to make yourself available.

To share a story from my FMCG days, I remember sitting next to a procurement colleague who had the unenviable job of ending a relationship with a small supplier over the phone. The call lasted about one and a half hours. After the initial, difficult part of the conversation, the supplier asked her for advice on what they should do next – and that’s when the whole tone of the conversation shifted to that of a positive coaching session. By the end of the call, the supplier was still understandably upset but also armed with plenty of advice for the future.

One last thing to keep in mind is that business requirements are cyclical. Although you may not want to work with a particular supplier any more, who knows what the situation will be a few years down the track. If you ended the relationship coldly or otherwise unprofessionally, it’s going to be very difficult to pick up from where you left off.

4. Don’t do it at the wrong time

“Do you love someone else? Do you, Charles?”

“… I do.”

Don’t be like Hugh Grant in Four Weddings and a Funeral. While he ultimately makes the right decision, his shocking timing earns him a much-deserved punch to the face from his jilted bride.

In a way this advice contradicts what I wrote above about keeping your suppliers fully informed about how the relationship is going, but you do need to use some common sense when it comes to picking your moment.

Suppliers who value a relationship will often go the extra mile, whether this means putting more staff onto a project, or working additional hours without passing those costs on to you. It pays to keep in mind that once a supplier knows they’re soon to be let go, they may not perform with quite so much gusto in those last few weeks or months of the contract.

Another parallel to help illustrate this point is when someone in your team is working out the last few weeks of their employment after taking a redundancy – you’re never going to see their best work in that period.

5. Don’t send mixed messages

“Please don’t go.”

“I am not spending the rest of my life with a loser. I’m gone.”

 “Good, then get the hell out of my life! Who needs you? Beat it! Leave me alone! … [2 seconds later] “I’m sorry baby, I didn’t mean that either…”

Adam Sandler is at his best in this scene from Happy Gilmore where he’s alternately screaming abuse and crooning love songs into his apartment building’s intercom. While he desperately wants to stop his girlfriend leaving, he’s also consumed by a schizophrenic desire to get in the last, angry word.

Suppliers want to know where they stand with you and your organisation so they can plan for the future and invest in your relationship with confidence. Again; good communication, honesty and transparency are the way to go. Crystal-clear KPIs will help you clearly delineate where suppliers are performing well, and where they need to improve if they want their contract renewed.

The other factor that can muddy the waters of supplier relationships is misalignment within your own organisation. This can involve the supplier receiving contradictory messages from the different parts of your organisation that they work with, pulling them in different directions and ultimately harming their ability to meet your company’s overall requirements.

Do you have another example from cinema that illustrates one of the points above? Share a link below!

3 Ways To Take The Pain Out of Contract Management

Managing supplier contracts is one of the most fundamental and, arguably, simple tasks undertaken by procurement teams. But for many it’s also a major source of anxiety. So why does procurement find it so difficult to successfully manage supplier contracts?

 

Given the ever-improving technology landscape and growing popularity of cloud-based SaaS solutions, one would assume that effective contract management is now commonplace among procurement professionals. Almost a hygiene factor, surely? Not in our experience.

The key challenge is maintaining contract repositories with rigour and to the high standards required. But even where organisations have well-embedded enterprise resource planning systems, this alone does not guarantee that contracts are being successfully managed.

This is rarely about a lack of willingness to improve the process – in fact, most teams are hugely concerned about it, with the majority actively looking for better ways to manage contracts.

Why so hard?

Supplier contracts provide a detailed overview of the pipeline of current and upcoming projects within an organisation. Without this line of sight, the procurement function is likely to be on the backfoot when projects end and contracts terminate. This is of particular concern in areas such as telecoms and software, where significant penalties are charged when contracts automatically roll over.`

Much of the problem lies with how contracts are filed, stored and updated – often in multiple systems or, even worse, in individual desk drawers across many different departments depending on who ‘owns’ them. As a result, procurement can potentially have zero visibility over many contracts, creating significant risks if suppliers are not being managed effectively throughout the contract lifecycle.

Given that up to 70% of spend is repeated year on year, failing to have visibility over contract expirations and extensions in sufficient time to fully leverage all the strategic sourcing levers available means vital savings opportunities are likely to slide under the radar.

Easy as 1, 2, 3

A well-maintained and up-to-date contract repository can provide a complete overview of all contracts in operation – from those in a supplier cluster, e.g. a central supplier contract with several sub-contracts to those that function company-wide.

The key is integrating contract management into everyday processes so that it becomes part of what procurement teams do rather than an afterthought. Three quick steps to achieving this are to:

  1. Make your team accountable – Include contract KPIs in your procurement team’s objectives. All buyers and category managers should be responsible for ensuring that they hold signed supplier contracts for the categories they work on. It should be their responsibility to gather them from other departments, even though they are not the ‘owners’, and to upload them into a contract management solution.
  2. Capitalise on the results – Procurement leaders should routinely review their teams’ compliance with keeping contract management solutions up to date and actively use the output to drive better category planning and organise quarterly workloads.
  3. Choose the right technology solution – Using a standalone contract management solution is helpful, but on its own it can get neglected very quickly. Select an integrated procurement technology solution that links contract management with other modules such as spend analytics and supplier performance management. An integrated solution that connects different modules together provides more insightful output that can inform better decision-making, e.g. linking spend analytics with contract management allows procurement teams to track supplier contract compliance and ‘spend under management’ – key indicators to how well procurement is doing within the wider organisation.

The way forward

Embedding contract management best practices into the procurement function and then incentivising the team to keep the repository up to date is crucial. Centralising information storage and assigning responsibility for maintaining it takes the guesswork out of who manages which contract within a large business – vitally important when managing multiple contracts.

Once this is in place the procurement function can then use the combined data to define company-wide procurement initiatives spanning numerous projects, managing risks and spend in a way that would not have been possible before. Now that’s not so hard is it?

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Improve Contract Compliance by Thinking Like Sales…Not Procurement

Call us crazy but we reckon Procurement would be better off looking at the Contract Management process the same way sales does…

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If you’re anything like me as a procurement practitioner, you think of our end-to-end process in a linear fashion. It usually starts with spend analysis or some other source of information (budget, ERP, BI system output, etc.) and ends with Contract Management and/or Supplier Performance Management. For us, this is completely logical because the sub-processes that we view as the most “active” portions of procurement – strategic sourcing and negotiation – have been dealt with at this point.

In Contract Management and Supplier Performance there is something of a phased handoff back to the budget owners. After all, the spend we bring under management is rarely associated with a procurement need; we are often just temporary custodians of someone else’s spend.

Unfortunately, the procurement phase that covers implementation and ongoing Contract Management includes the following two milestones:

  • The majority of the supplier’s value is created for the business.
  • Weaknesses and disturbances come to light, threatening to diminish total value and reduce contract compliance.

Procurement may see the contract phase as the end of the project, but our internal stakeholders (and in many cases, our suppliers) see this as the beginning of the effort. Everything up to this point has been theoretical, now it is real.

Contract compliance: think like sales

As crazy as it sounds, procurement would be better off looking at the Contract Management process the same way sales does. The day after you sign a contract is the first day of a new sales cycle. Your contract win is a prospect once again, maybe not for the same product or service they just bought, but for expanded coverage, increased volume, a longer commitment, or an alternate type of offering. This is the worst possible time to go hands-off, especially if you think there is the potential for more business.

Procurement may be guaranteed “more business” from their captive clients (a.k.a., internal stakeholders), but if those clients aren’t satisfied with the services and support they receive, they have no incentive to be loyal; to procurement or to the contract. In the alternate scenario, procurement stays involved to ensure a smooth transition to the new contract and serves as an advocate for the business as well as the supplier during the agreement lifespan. In this case, spend is far more likely to stay on contract where it lowers risk, increases savings, and delivers the desired value.

Here are a few examples of how procurement’s proactive investment in contract compliance can build loyalty for the future:

If the shirt fits…

In a sourcing project for driver uniforms at a freight company, several business divisions were combining their demand for the very first time. Each division brought their supplier and their current service levels to the table. Although being an incumbent was an advantage, the mandate was to select one provider for the whole company. This would inevitably lead to someone losing their incumbent so another division could keep theirs. After the selection was made, procurement redirected the team members who had been responsible for the sourcing effort to manage the rollout at the division transitioning to the new supplier. This not only minimized disruption to the business, it prevented the rise of resentment – something that could easily have lowered compliance and become a barrier for future sourcing efforts.

Have your supplier’s back

Sometimes you can tell that compliance is going to be an issue before the ink on the contract is dry. During a reverse auction for “35% water-added ham” at a wholesale grocer, procurement discovered that the category owner was secretly telling their incumbent supplier what they needed to do in order to win. After much drama, the supplier was excluded from the business because of their willingness to undermine the negotiation process. That left us with a guarantee of a new supplier and an ANGRY category owner. No supplier selected at that point was going to have an easy time with implementation. Knowing that contract compliance would be an issue, procurement took extra time to include metrics and SLAs in the agreement and worked with the new supplier to ensure that they would be able to report their performance back in detail. This effectively created a framework where they could quantitatively prove their performance. The wholesaler got the product they needed and the supplier was protected from unfair, costly complaints about their performance. Orders for “35% water-added ham” were placed and fulfilled with no disruption to local grocery chains. Yum.

Compliance credit where it’s due.

If procurement goes hands-off during Contract Management, we get no credit for value creation, but full credit for having created the circumstances leading to buyer inconvenience and frustration. The amazing thing is, that effective Contract Management is borne out when projected savings become realized savings – or not. And actual purchases become managed spend – or not. Without active Contract Management, there is a good chance that procurement’s efforts will be undermined and we’ll inadvertently create a tense relationship with internal stakeholders who we will, no doubt, need to work with again in the future.

In a Determine webinar featuring Spend Matters’ Jason Busch, Contract Compliance: Why It Matters to Procurement, he stated that contract compliance is more important than procurement performance. Strong words, but there are many components to that truth — and it’s a must-watch on-demand video.

Contract compliance and procurement’s role in ensuring it are a big and growing topic. You’ll find information on the subject in Determine’s extensive library of resources, or contact them to schedule a personalized demonstration of the Determine Cloud Platform.

This blog was orginally written for Determine by Kelly Barner .

Procurement Is Everywhere But It Wears Hundreds Of Disguises

When procurement wears a mask, layers of stage make-up or one of its other many disguises, you might find it tricky to identify. But, as Daniel Ball explains, procurement is everywhere and in all of our organisations- it might just be presenting itself in a different way…

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It’s fair to say that, as a concept, procurement tends to be associated with large businesses.

However, any organisation from the smallest to the largest buys things that they need from chosen suppliers. And, however small the organisation, they face much of the same procurement challenges that we all do. So why do we not consider them all to be ‘in procurement’?

The many disguises of procurement

In reality, the entry point starts when a business begins and evolves in sophistication and complexity with their growth. Although we think of procurement in terms of an established function, role or set of rules, much of the practical procurement going on out there is actually in a formative or evolutionary stage, depending on the maturity and needs of the organisation in question.

This is a vital insight for those of us working to support the procurement profession. We have to remember that we’re not dealing with a perfect procurement-badged world, nor one which conforms to all of the industry buzzwords and ‘best practices’.

In most cases, we’re dealing with people in a state of flux, who might well not call themselves procurement professionals; after all, there are hundreds of different guises in which procurement presents itself. This is particularly prevalent in high growth mid-sized businesses who are feeling the pain of change or ‘growing up’ more severely than most.

What challenges do mid-sized companies face?

Wax Digital wanted to find out what kind of challenges mid-sized companies are faced with during expansion.  We asked 200 senior business management and procurement professionals at fast-growth, mid-sized UK businesses about the pain points they have experienced as their organisation has grown.

Without giving too much away, here are 3 of the key highlights our research uncovered; demonstrating the kinds of procurement-related issues hampering their ability to support business growth.

  1. 83 per cent of respondents surveyed said they didn’t challenge their suppliers on cost or performance adequately, whilst 78 per cent struggled to control spend, citing departmental purchasing autonomy as a problem. Three quarters also said that they don’t have sufficient purchasing technology or systems in place to keep up with the pace of growth.
  2. UK mid-sized businesses have a broad range of growth challenges that are all linked back to both upstream and downstream procurement needs. Even though they’re not yet talking procurement these businesses are dealing with procurement’s problems and need a solution.
  3. In fact, mid-sized businesses are perhaps the segment of the UK economy most in need of professional procurement practice. Their reasons for, and rate of, change are so extreme they must get their house in order before it becomes too unwieldy and difficult to control.

The results of the research will be revealed in full next week via Wax Digital’s website.

What are your media consumption habits?

Wax Digital are conducting a quick survey to understand more about how procurement professionals use media for work. If you’ve got a few minutes spare to tell us how you stay on top of latest industry news and trends, we’d love to hear from you!  It’s just a few simple questions on your media consumption habits. And, to say thanks, we’ll put your name into a draw to win a £200 donation to a charity of your choice.  Complete the survey here.

Why “Free Help” With Buying Decisions Costs More

As consumers, we’re wary of so-called “free” products and services as there’s always a hidden cost. Why, then, are procurement teams willing to accept free help with supplier selection?

Businesses often seek help with their buying decisions, especially in complicated categories such as telco or energy. Preparing an RFP requires a willingness to trudge through data swamps, while analysing supplier responses requires more than a strong coffee to do properly.

When a third-party broker says that they’ll help – for free – the temptation is to say yes, if only to avoid data swamps and caffeine addiction. However, you need to keep in mind that the people who help “for free” are still going to get paid, just not directly by you. They’ll collect their pay from your suppliers who are willing to pay a commission to get the opportunity to service your organisation. In turn, those suppliers recover commissions from their customers (you), either as a line item on the bill or through higher prices. In the end, you’re still paying for the service, just not up-front.

For large businesses with lots of cost centres, this can be a good way to share the cost of getting help. Branch stores pay their bills and, without realising it, pay for the help you received through higher prices. Procurement managers who use this approach can look like heroes because they claim savings and a successful outcome without having to win broad company endorsement for using expensive 3rd-party assistance.

Selecting suppliers for the wrong reasons

The danger of commission payments is that different suppliers pay different amounts. Some commissions contain a ratchet mechanism with longer contract terms, while higher contract values generate higher commissions.

Unfortunately, brokers who offer their services for free are incentivised to select the suppliers who pay them the most, rather than those who deliver the greatest value to the customer. The usual outcome is long-dated contracts with a single source supplier. At least the billing is easy, but your business will end up paying more in the long-term due to lack of value.

Up-front payments

Paying brokers up-front changes their incentives. Instead of focusing on supplier commissions, they now focus on demonstrating their value to you in a bid to win further business from your organisation. “Brokers” go upmarket and call themselves “consultants”, working harder to realise the greatest-possible savings and service levels. Customer and consultant incentives align.

The positive consequences of fee-for-service payments are shorter contract terms and more suppliers. Shorter contracts reflect a balance between testing market prices with the logistics of changing suppliers. Having more suppliers means you are able to split your requirements across the lowest priced suppliers to get the best possible price for your portfolio of demand, rather than being herded toward a single-source supplier.

“Free” services in IT

For software companies, “free” represents a gateway product, or a way of demonstrating the value of a software product to the customer. It means the software provider doesn’t have to employ a slick-suited sales person and can scale the work of their t-shirt clad developers. Salesforce, one of the leading dealers of enterprise SaaS, costs their customers on average $45,000 per annum. The entry level CRM package is $5 per user but customers quickly pay more to satisfy their needs, getting more value from the base CRM product as they buy additional features and capability.

Our approach at Kansoly is the same. We’re a cloud-based telco procurement platform for businesses running RFPs and reverse auctions. Our base product is free, where we offer to run a telco RFP for you for nothing. What’s in it for us? We gain customer insights and supplier engagement, both vital for making our product better and delivering more value to our larger, fee-paying customers. Our free customers get competition for their services and cost analysis that they would otherwise have to invest in.

Brokers and consultants have always been part of the procurement landscape, but their incentives are defined by the way they’re paid. However, the development of Saas procurement platforms increasingly means that free offers aren’t always related to low-value outcomes.

Bruce Macfarlane is the founder of Kansoly, a telco procurement platform for business. Kansoly runs RFPs and reverse auctions for data, mobile, or fixed line.