Five challenges we must address when ‘hiring’ our suppliers

What do we get wrong when we ‘hire’ our suppliers? What can procurement learn from the hiring processes we have in place for our staff and how can those lessons be adopted in better practice procurement functions?

Challenge 1: Procurement documentation, especially specifications, are often developed by one person with technical or procurement expertise, but rarely both. How can one person know the organisation well enough and have all the skills to clearly describe what is needed from the supplier?

  • Identify clearly what you need to buy. This can be complicated. Get all stakeholder in a workshop to agree the problems, possible solutions, and how to measure success.
  • Identify if the market can deliver the services. This may require building a market for a service bought from an immature market.
  • You will then need to develop good procurement documentation describing the problem and what success looks like (ie, outcome-based specifications). Rather than prescribing how things should be done, the document states the problem and why it needs solving.

Challenge 2: Capital works contract templates are often used to procure ongoing services. But the risk profile of capital projects differs vastly from that of delivering services

Procurements for ongoing services relate to business as usual, such as facilities management and fleet, travel and HR services. Always:

  • Ensure documentation and contract T&Cs mitigate the appropriate risks (for example, intellectual property rather than safety).
  • Construction-based or goods delivery contracts will not encourage a partnership-based relationship.  Clearly state likely service volumes and respective responsibilities of your organisation and the supplier.
  • Include transition-in and transition-out requirements, as there was probably a contract for these services beforehand, and there will probably be one after.
  • Focus on continuous improvement, as things will change throughout the contract.

Challenge 3: What’s shocking is the vast volume of documentation released by procurement teams. Instead of showing why a supplier should work with the client, the documents more often show why they shouldn’t. The documents are overly prescriptive, while information about the required services, and how the relationship will be managed and performance assessed is scarce.

  • Design an interactive approach. Before writing, speak to potential suppliers, including the incumbent. Ask about changes in the market and how they would approach solving the business problems.
  • Be clear about likely service volumes to help the supplier accurately price the services.

Challenge 4: Too often procurement asks the same pool of suppliers for a quote. The organisation misses out on ‘fresh blood’ and current suppliers become complacent.

  • Talk to other buyers and players in the market as well as internal stakeholders about other suppliers that could do the job. People often move around in the industry, so they will know what suppliers are out there. And, of course, scour the internet and market reports to understand who is available.

Challenge 5: Too many contracts are awarded on price. You wouldn’t employ the candidate who asks for the lowest salary, would you?

  • Define evaluation criteria that include capacity, experience and approach to solving your problem. Include a test for cultural fit. Does the supplier understand where you are likely to struggle? Are their business approach and problem-solving methodology aligned with yours? Do they behave in ways needed for success?
  • If you are buying unique services, avoid weighting price but determine if the benefits of the proposal (non-price score)
    outweigh the risk (including price).
  • Conduct interviews, referee checks and demonstrations, trials or case studies. Try to visit other customers to see the supplier and employees in action. Ensure those who will deliver the contract and its performance management attend these meetings. Ask questions that ensure they understand your challenges (and the ones they will face).

This is the second of a series of articles that focus on what can be translated from the world of managing and leading staff to the world of leading suppliers. Read on to explore:

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What COVID-19 means for procurement in Australia

Our research report tells the story of how procurement teams across Australia made the most of this crisis.

What's inside?

  • 2020 will be remembered as the year in which procurement became a lot more important
  • At first glance, the focus of procurement shifted dramatically over the past 12 months
  • Government organisations and private sector businesses experienced the pandemic very differently
  • Operational challenges replaced supply risk mitigations as the key issue
  • Savings are back on the agenda
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