Solid business relationships are the foundation for long-term growth and success. This is just as true for public sector procurement as the private sector. One could argue that it’s more important given the need for trust, transparency, compliance, collaboration, and innovation in public services.
Good supplier relationships, especially with key suppliers, have many benefits for buyers. We’re going to explore these benefits and best practices for establishing strong relationships with your suppliers and supply chain.
Transparency and Open Communication in Procurement
Ethical supply chains are becoming non-negotiable in public procurement. The government can’t be associated, however indirectly, with businesses that have unethical labour practices and perhaps even engage in modern slavery. Even if the engagement is unwitting, the damage to the government’s standing is done.
This is one of the reasons the government places so much emphasis on transparency in the new Procurement Act 2023.
How to Ensure Transparency in Supplier Relationships
Here are three steps you can take to establish transparency from the get-go:
1) Set transparency requirements
Make it clear to suppliers what you expect from their services. For example, one of the requirements stipulated in the contract is the use of renewable energy in manufacturing and production. You can check in occasionally to ensure suppliers maintain quality standards and performance.
2) Use tracking and monitoring systems
These are essentially supplier performance management systems that enable you to monitor them and identify potential risks that are addressed immediately.
Note: Suppliers must know you use monitoring systems. If you don’t tell them and they find out, that’s trust ripped to shreds.
3) Define expectations
You and your suppliers must thrash out the details of delivery. Set clear Key Performance Indicators (KPIs) and other performance metrics. Map out delivery schedules and milestones. Agree on quality standards – ISO 9001 – and the methods used to measure supplier performance, quality, and progress.
This is the best way to keep your goals aligned, reduce confusion and misunderstandings, and facilitate continuous improvement.
How to Ensure Open Communication in Supplier Relationships
Relationships are impossible to maintain without open communication. If you want to build successful relationships with your suppliers you must encourage communication to ensure expectations are managed, requirements understood, and feedback taken in the spirit with which it was intended.
Many eSourcing platforms facilitate transparent communication among all stakeholders in a contract so that everyone is literally on the same page. That means suppliers can inform buyers of a potential delay in manufacturing and they can collaborate to mitigate or avoid the risk completely.
It’s a good idea to set some ground rules; for example, all communication will be via the eSourcing platform, progress meetings will take place fortnightly (barring special circumstances), or message boards must be checked once a day in the afternoon.
Contract Expectations & Supplier Performance Management
We had a brief look at contract expectations above. We’ll go into a bit more detail now.
Buyers and suppliers want to optimise the benefits of the contract, but not to the detriment of the other. Negotiation at this point is a good way to ensure terms, conditions, requirements, and expectations are reasonable and fair.
One of the most important reasons to negotiate fair and mutually beneficial contracts is the role it plays in building long-term relationships. You’re not going to cultivate healthy relationships if you’re out to get the best and forget the rest. You and your suppliers must operate on a basis of mutual respect, trust, and collaboration.
Poor supplier performance has a negative impact on overall business outcomes, making it crucial to address performance issues systematically. Not only does this do your burgeoning relationships the world of good, but it also goes a long way towards risk identification and management. Transparency and open communication are important here because they encourage both parties to reveal potential problems, so they can work on risk mitigation solutions together.
Regular Performance Assessments are a Must
Regular performance reviews are part and parcel of procurement, and evaluating and monitoring the supplier’s performance is crucial for supply chain efficiency. Suppliers must know what they’re aiming for performance-wise and buyers must be sure that suppliers have delivered.
Even though you set requirements and expectations during the contract award period, it helps to provide rewards or incentives to keep performance standards high. A word of praise or appreciation for a job well done is fine here and there, but a performance bonus (as agreed upon in the contract) is a far greater motivator.
It doesn’t work both ways; unless performance is consistently shocking there shouldn’t be any penalties for a couple of missed Key Performance Indicators. In fact, these are opportunities to use constructive feedback for continuous improvement and development.
eSourcing Platforms & Supplier Management
eSourcing platforms are becoming increasingly advanced with services that simplify, streamline, and enhance procurement processes. For example, Delta eSourcing’s platform includes market analytics, tender management, and supplier management.
Its Supply Chain Management System provides a central hub where suppliers can register and manage their details. Buyers can access suppliers’ profiles and add suitable candidates to a supplier list.
The system allows buyers to create an unlimited number of supplier lists and manage framework lists. One of the primary benefits is the real-time update feature that ensures any changes suppliers make to their profiles are immediately reflected in the list.
eSourcing Platforms & Compliance
Compliance is a serious matter in public procurement. Both suppliers and buyers have internal and external regulations to comply with. Internal compliance refers to regulations and policies contained within the contract. External compliance refers to regulations and legislation on an industry and national level; for example, industry quality control standards and regulations for ethical labour practices, data privacy, and sustainability.
eSourcing platforms help to manage supplier compliance by:
Storing supplier data in a central location, including insurance and legal documents. Supply chain management platforms are designed to support this service through customisable, user-friendly dashboards that can generate compliance reports for suppliers and sub-suppliers (tier one and two). Some platforms also set alerts for compliance issues, like certification expiration.
Benefits of Long-Term Supplier Relationship Management
Relationships go up and relationships go down. Long-term relationships weather all sorts of storms because the benefits are worth it.
Cost savings: When there’s a good history between buyers and suppliers, suppliers often provide special rates, discounts, or reduced costs.
There’s more. Regular suppliers know your needs and how to meet them. If you must replace suppliers, you’re looking at the costs for running a whole new tender exercise. There are also costs associated with onboarding and training, not to mention getting to grips with new negotiators and negotiating techniques.
Efficiency: When you have long-term relationships, you know what makes each other tick. There is familiarity and an established contract delivery process that works for everyone concerned. It’s also easy to keep mutual goals aligned because practice has taught you what works and what doesn’t. Information sharing and collaboration are almost second nature.
Collaboration and innovation: Close working relationships often facilitate a culture of collaboration and innovation. Buyers and suppliers feed off each other’s ideas, which can lead to increased efficiency in products, services, and business operations.
How To Resolve Supplier Disputes
No relationship is perfect. There are always going to be differences of opinion, squabbles, misunderstandings, etc. In fact, each stage of the procurement process has unique challenges that can escalate to disputes.
Here are some tips to resolve disputes without long-term damage
1) Resolve disputes as they arise.
Deal with disputes as quickly, efficiently, and fairly as possible. Don’t wait for disputes to become legal issues. Use your communication channels and embrace transparency and respect while you get to the bottom of the problem and then collaborate on solutions.
2) Don’t let them fester.
Avoiding disputes or pretending they’re not there or aren’t as bad as they seem won’t get you anywhere – except maybe back to the beginning of a new tender process. Letting disputes fester is particularly risky for public sector buyers because they have the government’s integrity and reputation to consider.
A simple misstep can be headline news if you’re not careful.
3) Determine the root cause.
Sometimes what appears to be the problem is just a symptom of a greater underlying issue. If you want to settle the dispute, you must dig deep.
4) Communicate. Communicate. Communicate
Communicate calmly and respectfully. Getting angry, frustrated, or annoyed will make the situation worse. Keep a record of all interactions so that the whole resolution process is documented. This will serve as a reference for the future and evidence if the situation really goes belly up.
5) Negotiate
Playing the blame game will derail your resolution process. If it looks like you won’t reach a compromise or you’re not sure of your negotiation skills, consider professional mediation or arbitration.
eSourcing Platforms Play a Role in Conflict Resolution
eSourcing platforms are well-structured to assist in conflict resolution. The document recording and storage facilities ensure that proof of the process is kept safe and tamper-free. The contract and all previous communication are also stored, so it’s easy to go back and check details.
Communication channels facilitate transparency, so there is no fudging of details or hiding your head in the sand.
Delta eSourcing provides a platform that enables buyers to manage all aspects of supplier relationships, from starting out to resolving disputes. Contact us to find out more about our supplier management system or book a free demo to see the benefits for yourself.
