Over £597M* was lost within the UK housing sector through supplier mismanagement or suppliers not proactively being managed by housing organisations. Signing a supply contract or framework agreement is just the start of a partnership that could last many years.
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.
It is crucial that the service specification prescriptively specifies the commercial, legal, or quality management system standards that 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 track and trace their progress towards maximum service at the least cost.
The critical step of the Supplier Onboarding process is for both parties to understand what each other requires in maximising the service offered whilst 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.
National issues such as an inability to recruit staff must be considered by an organisation and its suppliers, as with staff, an organisation’s suppliers will be able to function to fulfil their obligations to their customers.
It would be unfair to sully the reputation of a supplier if its ability to service the needs of an organisation were due to a national inability to recruit, for example. The critical issue is for both the organisation and supplier to identify the key issues preventing the fulfilment of service delivery.
Supplier management is a crucial skill in identifying and overcoming issues often outside the direct control of an organisation and its supply base. Both sides must form a partnership approach to overcoming these issues.
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.
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, non-urgent supply issues of a severe nature 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 an organisation's relationship with its
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, and a strong lead is required to manage issues.
*CIPS - 2019
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