Changing Suppliers – Realising the Benefits
Why do you want to change?
There can be many reasons for wanting to change suppliers. Some suppliers can become stale if they have been the supplier for a long period of time or just a general breakdown in the relationship. Some industries are being disrupted by new participants who are quickly bringing new and innovative services to market.
Reasons for wanting to make a change include the following categories:
- Additional value or commercial benefit
- Increased innovation or new services to benefit the customer
These benefits will be set off against the potential disadvantages of making a change which could include:
- The risks associated with changing a supplier (better the devil you know?)
- Any costs of existing an existing contract
- Internal cost of changing suppliers both in terms of man hours and any external support required to support the change (e.g. Legal)
If the perceived benefits of making the change outweigh the drawbacks, then it is time for a change. It is important to be honest and detailed in this assessment as the Kahneman theory of “Loss Aversion” would suggest most people inherently want double the benefit before being convinced to make a change. This can lead to poor suppliers being retained even in circumstances which don’t justify continued supply.
Prepare for change
Management of existing suppliers is very important when making a transition to a new supplier. The following should be understood and factored into the change management process:
- Termination consequences under existing supply agreements. This could include fees, penalties, TUPE obligations or other contractual implications. Factors may impact on the timescales to appoint new providers.
- Fully understand what services are provided by the existing supplier. Service definitions, process maps and a RACI matrix can provide a clear understanding of the status quo. Services should be split into contracted and non-contracted to cover additional elements covered by the existing supply base.
- Identify dispute resolution paths in case of any relationship breakdown with the existing supplier. The ideal solution is not to get into any conflict with the outgoing supplier but it is good practice to plan in case this happens.
- Understand the status of SLA and KPI measurements with any associated routes to address non-performance. This is especially important where legacy services continue after the new supplier has been appointed.
- Have a clearly documented business continuity plan which could activate in the event of disruption of supply. This should include ensuring continuity of critical functions in the event of disruption, and effective recovery afterwards
- Plan how data will be accessed and/or transferred. This is especially important where services are operated cross border or in different legal jurisdictions.
- Plan for the change buy establishing a change management project group. Plan the project and communicate effectively to all stakeholders. Project governance should include a project charter, project plan, budget, risk register, communications plan and actions list.
- Clearly define what products and services you want a new supplier to provide. This should include required specification in relation to quality, timeliness and delivery method.
Implement the Plan
When approaching the procurement exercise to appoint a new supplier there can be a number of routes to follow:
- Request for Information (RFI) – normally used where the supply market it not as well known to the buyer or to create a longlist of potential suppliers.
- Request for Quote (RFQ), Request for Proposal (RFP) or Invitation to Tender (ITT) – a detailed quote or full commercial proposal.
In our experience it is always best to engage the market before releasing any documents. Suppliers can help inform on how to approach the market and what could be the best approach however be careful to get a balanced view. It is important to let suppliers know the tender process is coming as they can then allocate the necessary internal resources to facilitate a quality response.
When drafting the RFP documentation be clear on what you are trying to achieve, to find the best supplier to meet your needs. Focus on what is important rather than trying to cover every potential requirement within the documentation.
Make sure the suppliers have enough time to craft a suitable response as they may be responding to multiple tenders at the same time.
Key tips for running the RFP or ITT:
- Have clear objectives for the RFP and communicate these to the suppliers
- Create a concise and clear service or product specification focusing on what is important rather than trying to cover all angles.
- Share with suppliers the culture of your organisation so the supplier can understand a little more about how you operate.
- Ask questions which will allow you to differentiate between suppliers.
- Ask for references and case studies to support the response
- Be clear about the ground rules such as:
- Who is in the project stakeholder group and their requirements from the process
- The timescales of the RFP including deadlines
- How the RFP will be scored
- Any contracting principals which need to be included
- Provide detailed feedback to those who are not successful bidders
Once a preferred bidder has been selected then you should conduct final negotiations and contract discussions. Service level agreements and key performance indicators should form part of the contract discussions. You should always have the ability to walk away if the contract cannot be concluded to your satisfaction or anything material has changed from the RFP response.
Following the conclusion of the contract you can begin transition to the new supplier. It is vital that stakeholders are available to support the transition effectively. You as the customer should also take overall responsibility for the transition and not be led by the supplier.
The customer should maintain control over the process and reducing risk and ensuring timescales and deliverables are adhered to.
Once the implementation has taken place it is always useful to run a lessons learned session to harvest any information which will be useful when running similar types of exercises in the future.
Following the successful implementation of the new supplier it important to manage the new supplier to realize the value from making the change. Key stakeholders should be identified to form the supplier management panel. An effective supplier relationship management process will incorporate the following elements:
- Maintain strategic alignment – ensure that the supplier is aware of the priorities of the organization from a strategic level. This may involve the supplier changing service provision or priorities as a consequence of any movements.
- Implement change – manage new projects as they arise with the supplier, reducing risks and keeping user experience as the central focus. Put the onus on the supplier to help drive innovation and efficiency enhancements.
- Operational excellence –monitor and adjust service provision to enhance the services being provided.
- Monitor Performance – have effective communication lines clearly reporting the supplier performance and any internal factors which may impact on the suppliers ability to operate.
- Manage Contracts – analyze performance in line with contractual obligations. Understand key metrics such as SLA’s and KPI’s. Take corrective action where deviance in performance are identified and report back on the effectiveness of the measures.
Can we help?
At EVP we have extensive experience of managing procurement processes and implementing change. If you could like some assistance please get in touch.