12 December 2013 | Adviser Q&A
Our company is not monitoring and managing our suppliers’ performance very efficiently. Can you suggest how to set up an accurate system which also delivers additional contract savings?
Systems analyst, Brisbane
Gavin Hodgson, global strategic sourcing manager, Harsco Corporation
Like a tango, a successful contract requires two parties working towards the same goal. To that end, a Service Level Agreement (SLA) ought, as a matter of course, to be put in place to aid the management of all contracts.
First, understand which elements are of the essence of the contract, and then build these in as your key performance indicators. Realistic, mutually-agreed SLAs ensure a contract lives and breathes rather than becoming a series of linked transactions. Ideally, they should be tied to an incentive or penalty structure, to maintain motivation.
Thereafter, focus on unlocking incremental value rather than on delivering ‘contract savings’. Areas that may seem insignificant to one party can have dramatic cost implications for the other. Value takes many forms, and it requires the willingness of both parties to examine each other’s performance candidly and identify opportunities for continuous improvement to derive mutual benefit. This represents the first step on the longer, but more rewarding, journey to relationship management.
Steve Johnson, head of global procurement and supply chain management, Prosafe
First, establish realistic objectives per supplier or product/service. To reduce cost, you may have to be flexible on lead times or quality. Remember the cost/time quality model.
Second, establish how important you are to them as a customer, as well as how important the supplier is to your business. The ‘Simply Joined Supplier Profiling’ app I developed offers ideas on how to approach the relationship dependent on the balance of influence. Tailor the system to meet your resources. A burdensome system will tie you up in administration. Industry models such as FPAL.com in the UK oil and gas industry (Achilles Group) may cover the bulk of your needs so you could subscribe to these if suitable.
You must have the buy-in from the end users who will be needed to give you feedback in a timely fashion. Last, appreciate that in some instances, it will be your organisation that causes some of the performance problems, so be prepared to accept that sometimes the client is not always right.
Mark McCarthy, senior sales director (UK&I, Netherlands and Nordics), Ariba
To manage supplier risk and performance you need accurate and up-to-date supplier information for all your trading partnerships, readily accessible by stakeholders across your organisation – at the point of decision. The key is to connect to an intelligent business network.
Increasing numbers of companies are adopting our Ariba Supplier Network to achieve this, relying on cloud-based technology to connect to a global network of partners. Internal stakeholders and vendor personnel alike can collaborate to manage supplier information, assess risk and monitor both qualitative and quantitative supplier performance factors.
Other examples of supplier collaboration through this type of network include identifying potential new suppliers, sourcing activities, contract management and transactional collaboration (orders, invoices and payments).
With solutions like this you can reduce your supply cost and risk, and cut information processing costs by 60-80 per cent.
1. work together – a successful contract requires two parties working towards the same goal
2. approach the relationship with regard to your balance of influence with the supplier
3. connect with an intelligent business network to get accurate up-to-date supplier information