Managing Supplier Change | Maximizing The Benefits Of New Supplier Relationships
Managing supplier change is seen by many organisations 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 are allowed to roll on even where the service or prices being delivered are not great.
However, 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 sometimes there is 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 whereas established players are finding it difficult to implement change..
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)
- Limited resources to execute the changes needed
- Other organisation inertia means there is limited appetite to change.
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
Existing suppliers are an important consideration in the overall managing supplier change programme. The following should be understood and factored into the change management process:
What are the termination consequences under existing supply agreements. For exclusive contracts, are there any notice periods which may impact on the timescales to be able to appoint new suppliers? Other areas to watch out for are fees, penalties, TUPE obligations or other contractual implications. Handling and ownership of data is becoming more important due to data privacy legislation and the increased adoption of connected car technologies.
In order to fully understand the scope of services provided by the existing supplier it is often useful to create a services map. 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. It is important to communicate the supplier responsibilities to users so they are aware of what to expect during transition.
Manage The Existing Contract
It is important to know what is in the existing contract and communicate the supplier responsibilities to users so they are aware of what to expect during transition. 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 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.
Resources and Project Planning
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. Regular updates should be issued to all in the project group.
Clearly define what products and services you want a new supplier to provide. This should include required specification in relation to cost, quality, timeliness and delivery method. A transition timeline should be established for when the different services will be transferred 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) – normally used where the supply market it not as well known to the buyer or to create 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 and one which 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 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 procurement process
Objectives | Have clear objectives for the RFP and communicate these to the suppliers.
Specification | Create a concise and clear service or product specification focusing on what is important rather than trying to cover all angles. Separate the core service requirements from the nice to haves.
Transparency | Share with suppliers the culture of your organisation so the supplier can understand a little more about how you operate.
Open Ended Questions | Ask questions which will allow you to differentiate between suppliers rather than closed yes or no answers.
Experience | Ask for references and case studies to support the response. References should be relevant to your type of business or fleet. If you run a company car fleet then a reference regarding the deliver of a commercial vehicle fleet will be of limited value. Ask for contact details so you can verify the users experience rather than taking the marketing material for granted.
Process | 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 principals which need to be included and if there are any red flags which are non-negotiable.
- Provide detailed feedback to those who are not successful at each stage of the process. Good suppliers will want to learn from the process so feedback is important.
When a preferred bidder has been selected then you should 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 be focused on what is important and remove the ones which don’t have any real value. Measures are often put forward as they are easy to measure rather than them being important.
The escalation route to address performance failures should be documented in the contract. Where measures are very important, they should have suitable performance penalties attached.
You should always reserve the right 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. This way you can keep control over the process and not be dictated to by the supplier.
Maintaining 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 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. Take advantages of digitization innovation or new product implementations.
Monitor and adjust service provision to enhance the services being provided. This may be through the adoption of new services with the same supplier or just re-configuring existing processes to enhance the service delivery capability.
Develop effective communication lines clearly reporting the supplier performance and any internal factors which may impact on the suppliers ability to operate. Share performance measures within the wider stakeholder base and solicit feedback to validate that this reflects the reality of the situation. Take regular temperature checks from stakeholders to gauge options on the services being delivered.
Analyze performance in line with contractual obligations. Understand key performance 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. Escalate important issues or poor performance. Be prepared to walk away from the contract if service levels do not improve to the required standard. Reward strong performance with an extension to the contract or the adoption of additional services.
Can we help?
At EVP we have extensive experience of managing supplier change, procurement processes and implementing change.