Five Challenges We Must Address When ‘Hiring’ Our Suppliers

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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, is 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 stakeholders in a workshop to agree on 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).

Download our ebook, Managing Suppliers Like Staff, a game-changing guide to supplier performance management here. 

About Author

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Dr Stefan Gassner is a driven procurement leader with ten years’ experience in supply chain, procurement and commercial management, including internationally. Leading Grosvenor’s Procurement Practice, Stefan loves delivering tangible results and has worked for more then 70 of the biggest organisation in Australia to transform their procurement functions, deliver high stakes sourcing projects and implement performance management processes. During his PhD, Stefan developed a framework to support the decision as to what services should be kept inhouse and which ones are best outsourced, which has been published as a book in Germany. A visible expert, Stefan is regularly engaged to present at procurement conferences and seminars and regularly contributes to thought leadership pieces. Stefan loves a challenge and clients value his communication skills, stakeholder engagement and evidence-based approach to consulting.

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