Supplier Change Management | Maximizing The Benefits Of Supplier Relationships
Supplier Change Management Services help organisations overcome the fear of moving suppliers. Often, clients view this as risky, time-consuming or difficult. Everyone remembers an experience where things haven’t gone as well as planned! This means that many supplier relationships can roll on even where the service or prices are not up to scratch.
However, there can be many reasons for wanting to change suppliers. For example, some suppliers can become stale if they have been the supplier for an extended period, or sometimes there is a general breakdown in the relationship.
There is disruption in some industries by new participants who quickly bring new and innovative services to market. In contrast, established players are finding it challenging to implement change.
Why should you make the change?
- Additional value or commercial benefit
- Increased innovation or new services to benefit the customer
Potential disadvantages of change
- The risks associated with changing a supplier (better the devil, you know?)
- Any costs of existing an existing contract
- The internal cost of changing suppliers both in terms of man-hours and any external support required to support the change (e.g. Legal)
- Limited resources to execute the changes needed
- Other organisation inertia means there is a limited appetite to change.
If the potential benefits of making the change outweigh the drawbacks, it is time for a change. It is essential to be honest, and detailed in this assessment. The Kahneman theory of “Loss Aversion” would suggest that 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 that don’t justify continued supply.
Prepare for Change
Existing suppliers are an important consideration in the overall managing supplier change programme. Ensure you understand and factor the following into the change management process:
What are the termination consequences under existing supply agreements? For exclusive contracts, are there any notice periods that may impact the timescales to appoint new suppliers? Other areas to watch out for are fees, penalties, TUPE obligations or other contractual implications. Data ownership is becoming more critical due to data privacy legislation and the increased adoption of connected car technologies.
To fully understand the scope of services provided by the existing supplier, it is often helpful to create a services map. Service definitions, process maps and a RACI matrix can give 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. Of course, the ideal solution is not to get into any conflict with the outgoing supplier, but it is good to plan in case this happens. It is vital to communicate the supplier responsibilities to users to know what to expect during the transition.
Manage The Existing Contract
It is essential to know the existing contract and communicate the supplier’s responsibilities to users to understand what to expect during the transition. In addition, understand the status of supplier performance measurements with any associated routes to address non-performance. This is especially important where legacy services continue after the new supplier has been appointed.
Business Continuity Plan
Have a documented business continuity plan which could activate in the event of disruption of supply. Include the continuity of critical functions in the event of a disruption and effective recovery afterwards.
Plan how you will access and transfer data. This is especially important where services are across borders or operate in different legal jurisdictions.
Resources and Project Planning
Plan for the change by establishing a change management project group. Plan the project and communicate effectively to all stakeholders. Project governance should include a project charter, budget, risk register, communications plan, and actions list. Also, issue regular updates to all in the project group.
Clearly define what products and services you want a new supplier to provide. This should include specifications concerning cost, quality, timeliness and delivery method. In addition, establish a transition timeline for when the different services will transfer and which users it will impact.
Implement the Plan
When approaching the procurement process to appoint a new supplier, you can follow the following routes:
- Request for Information (RFI) – useful when the supply market is not as well known to the buyer or creates a long list 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 the art of the possible. However, be careful to get a balanced view that isn’t influenced by the competitive advantages of a particular supplier. Let suppliers know the tender process is coming as they can then allocate the necessary internal resources to facilitate a quality response within the required timescales.
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 essential rather than covering 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 simultaneously.
Key tips for running the procurement process
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 covering all angles. Separate the core service requirements from the ‘nice to haves’.
Share with suppliers your organisation’s culture so the supplier can understand a little more about how you operate.
Ask questions that will allow you to differentiate between suppliers rather than closed yes or no answers.
Obtain references and case studies to support the response. References should be relevant to your type of business or fleet. For example, if you run a company car fleet, a reference regarding delivering a commercial vehicle fleet will be of limited value. Ask for contact details to verify the users experience rather than taking the marketing material for granted.
Be clear about the ground rules such as:
- Who is in the project stakeholder group and their requirements or interests from the process?
- The timescales of the RFP, including deadlines.
- How the RFP will be scored both for pricing and quality elements.
- Any contracting principles which require inclusion and any red flags that are non-negotiable.
- Provide detailed feedback to those who are not successful at each stage of the process. Suitable suppliers will want to learn from the process, so feedback is essential.
Select a preferred bidder, then conduct final negotiations and contract discussions. Performance measures such as service level agreements (SLA’s) and key performance indicators (KPI’s) should form part of the contract discussions. These performance measures should focus on what is essential and remove those with no real value. Unfortunately, some standards are set as they are easy to measure rather than them being important.
Document the escalation route to address performance failures within the contract. Where measures are critical, they should have suitable performance penalties attached.
If the supplier cannot fulfil the contract to your satisfaction, you should always reserve the right to walk away.
Following the conclusion of the contract, you can begin the transition to the new supplier. Stakeholders must be available to support the change effectively. You, as the customer, should also take overall responsibility for the transition and not be led by the supplier. This way, you can keep control over the process and not be dictated to by the supplier.
Maintain control over the process, reduce risk and ensure timescales and deliverables are followed.
Once the implementation has taken place, it is always helpful to run a ‘lessons learned’ session to harvest any information which will be useful when running similar types of exercises in the future.
After successfully implementing the new supplier, it is vital to manage the new supplier to realise the value from making the change. Identify key stakeholders 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 organisation from a strategic level. This may involve the supplier changing service provision or priorities due to any internal movements or changes.
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. For example, take advantage of digitisation innovation or new product implementations.
Monitor and adjust service provision to enhance the services being provided. This may be through adopting new services with the same supplier or just re-configuring existing processes to improve the service delivery capability.
Develop effective communication lines reporting the supplier performance and any internal factors that may impact the supplier’s operation ability. Share performance measures into the broader stakeholder base and solicit feedback to validate that this reflects the reality of the situation. Gather stakeholder opinion regarding service delivery regular temperature checks.
Analyse performance in line with contractual obligations. Understand key performance metrics such as SLA’s and KPI’s. Take corrective action where you identify deviance in performance, and report back on the effectiveness of the measures. Escalate important issues or poor performance. Be prepared to walk away from the contract if service levels do not improve to the required standard. On the other hand, reward strong performance with an extension to the contract or adopt additional services.
Can we help?
At EVP we have extensive experience of managing supplier change, procurement processes and implementing change.