We are focusing more expenditure on fewer suppliers. What should be our priorities in managing this?
First, be very sure why you are doing this, and assess the possible effect on suppliers with whom you may do less or no business in future. If your strategy is to build closer relationships leading to ‘preferred customer’ treatment, or to stimulate innovation and better processes, then fewer sources would be a legitimate goal. Another may be to lever price discounts from larger volumes. However, aggregating deals purely for cost reduction purposes is an ‘inside-out’ approach that can be dangerous. It is better to take the ‘outside-in’ view. Think strategically about how the supply market must behave in future so that it performs as you need it to. The gap between ‘today’ and ‘the future’ defines the actions which create the desired market condition. Deals, aggregated or not, then sit in this strategy. The latter determines how much business may be given to a supplier, the way the relationship is managed, and the fall-backs prepared ‘just in case’.
‘Piling high and buying cheaper’ is not the only way to leverage maximum value. Identify additional ways doing business with you is valuable to the supplier. With a main supplier, where two or more are used simultaneously, the big lever might well be the volume one. But, for the smaller, other levers can maintain interest in you as a potential/bigger customer.
Whatever the strategic goal, big relationships need close, and ongoing, management. A three-tier relationship-management approach works well. Daily contacts are handled by the user groups receiving supplies or services. Then there will be monthly contract management meetings where supplier representatives, buyers and relevant operational colleagues review supplier performance and the business outlook. Above this sits a relationship management board, comprising senior executives meeting bi-annually.
Increasingly our company (and life in general) is infected by top-down edicts to apply rigid process to our business activity. This reduces effectiveness, stifles initiative and often flies in the face of common sense. Is this a widespread affliction or am I paranoid?
Sadly, your frustration is justified because the people who promulgate these edicts often don’t understand the real world in which their ideas are to be applied. If it’s any consolation, you are not alone. A few years ago an eminent head teacher resigned his post, expressing his frustration thus: “We have been overtaken by a culture of box-ticking geeks who seem to think that you can fatten a pig just by measuring it.”
The problem is confusion between ‘procedure’ and ‘process.’ Procedure is a rigid sequence of instructions whereas process is about a flexible, progressive movement towards an outcome. Trying to run business by rigid procedure is like painting by numbers: the painter is not trusted to select their own colours or choose where to use them. So say ‘goodbye’ to motivation and creativity. The more one is in control of a situation, then the more relevant it is to follow procedure.
Commercial life presents unexpected situations when buyers need to develop responses unique to the situation and impossible to prescribe beforehand. Management control is provided by the key policies and principles that constitute the DNA of procurement process. However, many bosses find it difficult to develop, empower and trust buyers to apply these principles in the heat of the front-line situation.
In a best-practice context there will be procedures but, to quote one exemplar company: “They apply to most situations encountered and exist to save the buyer from re-inventing wheels. In circumstances where they do not apply, the buyer is authorised to develop an appropriate alternative approach so long as it clearly embodies the mandatory procurement policies.” That sounds like the key to procurement effectiveness.
We are a large public service organisation and our political masters want us to place more business with SMEs to help rejuvenate the economy. What do you advise?
This is enlightened politics, as SMEs are often more in touch with what makes business thrive than the corporate behemoths that were, once, SMEs! As firms grow they encounter a leadership dilemma: to manage what the company has become or to manage what it was created to do. Sadly, the choice is not usually that clear. The relentless demands of the growing business draw attention away from its raison d’être. Corporate fog descends and business transformation is eventually needed to clear it.
You can help SMEs to grow without becoming ‘corporate.’ Recognise that standards, skills and disciplines familiar in your organisation may be the stuff of dreams for SMEs. You can guide them to a place where their entrepreneurial flair thrives in a more purposeful way. This means establishing facts about supply expenditure and risk; creating a principled process for interacting with supply markets; establishing a framework for delegating commitment authority, and developing key skills such as negotiation and contract management.
? Dr Richard Russill is a business coach, presenter and author specialising in supply risk, cost and relationship management… and a few other things besides