How to Avoid Stale Supplier Relationships with Better Vision: Part 1 of a Three Part Series.
“The only thing worse than being blind is having sight but no vision.” Helen Keller
PART 1 – COMBATING COMPLACENCY
The problem with many long term service relationships is that over time, they can get stale. Parties get comfortable, especially when the Service is receiving “Green Scorecards” and Key or Critical Performance Indicators (KPI’s/CPI’s) are being met.
But watch-out the Watermelon Effect – it may look green but crack it open and you will see a lot of red inside!
This is a wake-up call that the Service needs attention. Expectations increase over time, what was good a year ago will not be enough this year.
In some cases it takes real courage to confront the fact that you and your organization are getting comfortable with mediocraty. In this and the next 2 posts, I’ll give you some encouragement and some tips on how to step up, be a courageous business leader and deliver winning Service engagements.
Outsourcing Agreements & Complacency
Outsourcing agreements are typically 5+ years in length in order to pay out the investment associated with starting up a Service. Commercial outsourcing deals will typically be 5, 7 or 10 years with the right to extend by another year or two. Government deals will sometimes be even longer.
While this timeline makes sense at the onset, many businesses fail to take the commercial steps to establish the proper follow up agreement. This results in simply extending the current deal without setting the bar higher and demanding the best from both parties.
Why do companies allow this kind of Scourge of Complacency?
- There is perceived value in the current contract set up that outweighs the need to do anything other than continue with the status-quo.
- When compared to other company deals, this one might look better. But is being at the top of the ‘loser bracket’ a good place to be?
- There is comfort in working with the resources assigned to the account: a perceived right on the part of the supplier or obligation on the part of the client to continue as is.
- A lack of a robust Business Continuity Plan (BCP) and interdependency between supplier and client that create comfort zones that presents the “risk” in finding the next disruption
- Other important business priorities prevent adequate staffing to develop a sourcing strategy.
The only one of these reasons that remotely seems acceptable is the last one – it implies a choice that every business should make – assign constrained resources to the highest business priorities.
But it is an absolute must for a procurement leader to provide the business with sound rational in order to make the proper priority choice. Remaining mute on commercial rational for a change in course while the operation advocates for staying as is or allowing Evergreen contract renewals means forgoing an opportunity for your company to gain competitive advantage.
To avoid complacency, stay connected to the industry and to peer companies and share your experience. Here are some ideas how:
- Establish a lasting network with buyers or service leaders who have a similar commercial framework or supplier.
- Perhaps you did some benchmarking with various companies when you began your outsourcing journey, check back in with these contacts on some consistent basis to share best practices or learnings.
- Take advantage of Client Advisory panels that your Service Partner has created or ask for them to be established to stimulate innovation and Service supplier feedback.
- Set up industry news feeds to stay abreast of developments in the field and check your supplier delivery against what you see offered to new clients.
Here are a few examples of situations at P&G where Procurement Leaders were able to change course despite a lot of “operational headwind”:
Faced with renewing an agreement that had long since gone sour, Geert took time to really listen to the operation and read between the lines of scorecards and monthly reports. He resolutely followed a sourcing process, investigated alternatives in the market place and made a case for change based on what the businesses clearly acknowledged were outages.
Using Market Data, he helped the team address the fact that the current supplier and commercial agreement were no longer effective and that alternatives were available. He illustrated the history of poor performance and customer issues and identified technical alternatives that changed the way these services were being performed at other companies. He addressed the cost of transition, which had typically been the rational for maintaining the status-quo, by including these details in his high level cost justification which he validated with the business finance leader.
He succeeded in helping the business see that they were not being good stewards by renewing mediocre Services Agreements and gained alignment to take action to put a better Service solution in place.
Geert is a Courageous Leader.
It’s the way it has always been done was no barrier for this Procurement Leader who saw the potential security threat and loss of competitive advantage by allowing Suppliers unfettered access to the corporate offices.
Vilas went against the trend of those who believed adjacency of the Service Supplier work force was necessary for operational speed. He backed up his concern with a link to recent security incidents in the news and data that demonstrated not only the increase in badges assigned to non-company employees but a pareto that showed the increase of those whose title included ‘sales’.
Armed with a proposal with solid rational, he set a meeting with the VP of Purchases and Security and made the case for change. He has since endured no end of criticism from those who are inconvenienced by the fact that they now have to escort their supplier guest.
His response: “How many of your suppliers allow you free access to their corporate headquarters?”
Vilas is a Courageous Leader.
It is very difficult to compare pricing and service levels for Facility Services. Different regions, different kinds of sites have difference expectations for their space. But this procurement leader saw such a difference in expectations from Manufacturing to General Office space, Ricardo felt compelled to raise the bar.
Ricardo developed an internal benchmark that compared service levels for facility services but also compared contract expectations across all sorts of Service Agreements in the company. He outlined the opportunities to change the behaviors and expectations of the Service organization and Service Provider to incent more innovation.
The Service organization did not see the Watermelon growing in their own backyard and did not see the immediate need to change. The Service Provider was slow to act on their own, despite signing more competitive contracts with new clients. So, Ricardo put a 2 year contract in place securing business continuity and obtained some additional value with new investments – after 2 previous contract periods of 5 years each, this sent a clear signal that things needed to change.
Ricardo is a Courageous Leader.
Where have you been faced with barriers to change to more competitive and valuable Service Agreements?
I would love to hear from you and learn from your experiences.
Please comment below and…