Category Archives: Supplier Management

Sometimes the Cantankerous Supplier is Right!

Even if they are too late with respect to demonstrating their correctness.

But let’s back up. Recently, on the Purchasing Certification Blog, Charles penned a great post on “the real reason buyers don’t want to give suppliers feedback”, which, in his words, were

BECAUSE WE DON’T WANT TO PUT UP WITH THIS CRAP!

where the crap in question was the salesperson effectively saying, with their incessant badgering that no other company can produce the same product of the same quality at the same price with the same service, that you are stupid. You don’t know how to make a good decision and you don’t know how to evaluate prospective suppliers.

As Charles’ points out, it happens all too often, and most of the time, the supplier is full of crap. But sometimes the supplier isn’t — and this is often true in custom manufacturing and services. I see it in IT all the time. The buyer doesn’t really understand what’s involved in building or customizing a piece of enterprise software or system and goes with one of the low bids and ends up getting a stinking pile of crap that not only costs 50% more due to project and budget overruns, but is delivered full of bugs, doesn’t include 20% of the originally specified functionality, and takes three times as much manpower to support as it should. In the end, by the time all of the extra service and support costs are factored in, it costs three times as much as the high bid from the one firm that really understood what it was doing. The same is true in custom manufacturing. There are some corners that can’t be cut, and accepting a bid that does so leads to long term cost ramifications.

However, the supplier should still back off once the buyer has made an award decision, even if it is the wrong one. Because it is not the buyer who made the stupid decision, but the supplier. If the supplier truly had a better product of a better quality at a better price and service level, then the supplier should have taken the time to provide the buyer with the education she needed to understand that when the supplier had the opportunity. Instead of chest thumping about how great they are and how they are so much better than the competition, the supplier shouldn’t have even tried to sell at all. They should have said “we know we can meet your needs better than any of our competitors, but that’s not important. What’s important is that you understand why we can do that. For you to truly understand how we are better, you need to understand what the major drivers of cost, quality, and service are around this product. So we’re going to help you with that.” And if they truly were the best solution, then the buyer should be able to see that and choose them. (And if they truly were the best solution and the buyer didn’t see it, is that a buyer the supplier really wants to be working with?)

And regardless of whether or not the supplier has the best solution or not, once the buyer makes her decision, the supplier has to back off, and this is the only appropriate response from the supplier.

“We’re very sorry to hear that you chose someone else. We still believe we could provide you the best overall value with respect to your needs and would appreciate the opportunity to try again at the appropriate time. Could you let us know when you expect to be going out to market again for this product so we can contact you again at the appropriate time to request the RFP? Also, if your chosen supplier proves unable to meet all of your needs, please feel free to reach out to us at any time. Thank you again for the opportunity and we hope to have another opportunity to compete for your business again in the future.”

Anything more and the buyer has every right to blacklist the supplier.

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Supplier Audits Must Be Surprise To Be Effective

As per this recent article in CPO Agenda by Meryl Bushell on why “ethical audits aren’t the final word on supplier standards”, in the past few years, audits have been shown to be ineffective for workers and also to be increasingly affected by fraud, double bookkeeping and coaching for workers so that they give “the right answer”.

If a supplier who knowingly violates common standards on child labour, health, safety, and hygiene, working hours, and wages (among other things) knows that they are going to be audited on a given day, they are going to be prepared. They’ll send the child labour home. They’ll reduce the work force on that day to “safe” numbers (which is whatever number they have enough “show” protective equipment for and / or whatever number fits in the factory without overcrowding). They’ll make sure to give the staff that will be present that day some “time off” the previous two days (i.e. they’ll only work them 8 hours instead of 16) so they don’t look dog dead tired. And they’ll fix all the books so that everyone makes a “living wage”.

But if you show up unannounced, you’ll see how things really run. You’ll see whether or not they (regularly) use child labour. (In some situations, child labour is okay. We let our children work part time at McDonalds when they turn 13. If they only employ children part time for light work in safe situations, in struggling economies, that’s a good thing because it boosts the family income, teaches them responsibility, and gives them a better quality of life. But if they work the child labour 80 hours a week in the mines or on the shop floor, that’s a different story. In this situation, they should all get life in work-camp prison doing the same job.) You’ll also see how “safe” working conditions really are and whether or not their people are not overworked simply by counting the number of employees with bags under their eyes and lifeless faces. (And if you get to the office fast enough, you might even catch them with the real books on the table!)

In addition, as Meryl recommends, you should also make sure that the surprise audit includes a detailed forensic assessment and unsupervised off-site interviews with random workers. This type of audit can quickly reveal a range of serious problems including child labour, below-minimum wages, faked records and protective equipment provide only during audits even when the standard on-site audit reveals only minor issues.

Now it’s true that regular surprise audits can pose quite a resource strain on your suppliers, and a financial strain on the suppliers that aren’t committing ethical atrocities in particular, and that your average supplier shouldn’t be subjected to more than a couple of surprise audits each year, but this problem is easily rectified if you cooperate with other major customers of the supplier and hire a reputable third-party that specializes in ethical audits to perform the extended surprise audits (with forensics and off-site interviews) on your behalf. This way, the supplier knows that they won’t be overburdened with too many resource and productivity draining audits, without knowing when the semi-annual audits will actually happen. It’s a win for everyone.

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Unscrupulous Supplier Reverse Auction Tactics

Are you prepared for them?

The best part of a recent ChainLink Research piece on “Contract Management: Negotiating, Creating, and Monitoring Compliance” was actually the sidebar on supplier reverse auction tactics that presented some of the less-than-scrupulous strategies sophisticated suppliers will employ in an attempt to win, or deflect, your business. If you are not prepared for them, they could derail your event. They include:

  • bidding to purposely come in second with less aggressive price, counting on advantages in non-price areas
  • bidding low on the auction in an attempt to capitalize on lock-in to sell un-auctioned related services and materials at high margins
  • “Sniping” in “hard-ending” auctions
  • Deliberately no-bidding auctions when they calculate it is not in their interest to participate

So what can you do?

  • if you are using a total weighting, be very careful in your weighting of non-price factors and indicate, up-front, that there will be significant (and serious) financial penalties (which must be enforced) for not adhering to any promises on lead-time/delivery time, defect rate, or quality (or other relevant factors)
  • make sure you also bid out all related and associated services
  • don’t do hard-ends — always do short extensions
  • create a policy that suppliers who do not bid do not get business, period

While some suppliers might still attempt to ply their dirty tricks even if you take these steps, once they see what it costs them, they’ll stop. Or you’ll get better suppliers. Either way, you win.

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Supplier Partnerships

Today’s post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the supply management best seller Straight to the Bottom Line.

A supplier representative visits your offices and begins to talk about “the partnership” between your two firms. You hadn’t realized the relationship was that comprehensive, so you ask him to describe the exact nature of this partnership. Chances are that the answer you receive will be rather wordy and nonspecific, about what you would expect from a “glad-handing salesperson.”

“Partnership” is one of the most overused and misused terms in the world of business. When I was a CPO, we dealt with this phenomenon by taking two steps:

(1) our Procurement Council developed a written definition of what we meant by the term “supplier partnership”

(2) once we had that definition, we decided how to put it to good use to improve both our internal and our external processes

If you’ve never done the exercise of developing your own written definition of supplier partnerships, I would encourage you to do so. It has several benefits. It will help you organize your ideas about this important subject. Also, you can create a common understanding within your company regarding what the partnership term means and how it should fit into your overall supplier selection and management process. And finally, it can serve as an excellent point of discussion with your suppliers — especially those who say they want to become your partner.

We did this in my corporate career as a CPO, with real benefits. We went so far as to print our short definition of supplier partnerships on the back of our business cards. When meeting a supplier for the first time, we pointed out the definition on the back of the cards and used this as a launching point for a discussion that often proved to be very meaningful.

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Thanks, Bob!

Ecovadis: Ecovating the Globe

When we introduced you to Ecovadis back in 2008, we pointed out how this European start-up was building a sustainability solution for evaluating and monitoring suppliers in a manner that would help companies meet and exceed the emerging green and sustainability regulatory requirements. Fully compliant with GRI G3 (Global Reporting Initiative) standards and the ISO 26000 CSR Guidance with their solution that tracks metrics across 23 green/sustainable criteria for the 150 procurement categories they support, it provides a very extensive CSR scoring mechanism across environmental, social, ethical, and supply chain issues.

Back in 2008, all they had on the technology side was the core supplier assessment module for the buyer — which was built around a “dashboard” that provided a snapshot rating of a supplier on each of the key categories with drill down ability into the scorecards for each rating, cross-industry benchmarking, and integrated news feeds (with human reviewed articles, relevant legislation, etc.), and a supplier portal — which allowed the supplier to log in, answer questions, provide relevant data, and see their scorecard. On the services side, they had the ability to arrange and verify audits on your behalf, scan and classify relevant documents automatically, and support suppliers in five languages even though the platform only supported English and French. And when SI last covered them, they had only three public customers.

Flash-forward to 2010, and they have made considerable progress on the technology, services, and customer front. On the technology front, they have made significant updates to the core supplier assessment platform (the newest of which are in beta testing now and will be in general release at the end of the quarter / start of next quarter), released an audit module, released a new risk analysis module, and improved the multi-lingual capabilities of the platform. On the services side, their partnership with SGS, the largest certification company with over 1500 auditors certified in CSR auditing, allows them to do 2nd party audits on your behalf on your suppliers anywhere in the world and they have added a few more languages to their back office. On the customer front, they have increased their customer base tenfold, with 30 public customers that include 10 companies in the Global 500 who are in the top 10 in their vertical (including the largest construction company, the second and third largest insurance companies, the third largest building materials company and the third largest industrial manufacturer), with a few more big names to be announced soon. These customers represent over 2,500 users that collectively track CSR data on over 4,000 companies across 40,000 sites in 80 different countries with a 94% adoption rate among suppliers.

The upgrades to the core supplier assessment module include an improved UI, feedback capability within scorecards, guidance for buyers and suppliers on how to improve ratings and the most critical weaknesses that need to be tackled, and a new corrective action plan capability for suppliers to allow them to propose corrective action plans and collaborate with buyers on their design and implementation. The guidance highlights key issues across each of the 23 categories, primary weaknesses, (upcoming) regulations and initiatives of import, policy recommendations, and proposed actions.

The Risk Analysis module, designed to allow all users to perform a quick check of the potential CSR risks associated with a specific supplier profile, and identify those suppliers which should be subject to a formal assessment or audit, is pretty simple, but it’s a great start considering that most organizations don’t have any tools at all. (Plus, you can’t automate risk analysis — this will always require human interaction. Software is not intelligent and can’t identify unknown threats — only humans can.) Basically, the user fills out a (proposed) usage profile (direct or indirect, country, turnover, categories, branding, influence, etc.) which can be uploaded from an Excel file, the system extracts the CSR profile of the supplier and all of the related data, and an automated analysis engine determines the primary potential risks, the probable degree of supplier CSR risk relative to buyer CSR exposure on a nine-by-nine grid (which goes from low to high as you progress from the lower left [green] zone to the upper right [red] zone), and the action you should take (which is either no action, assessment, or full audit). While not perfect, it will quickly identify the majority of the company’s riskiest suppliers, which is where the company should start its risk management efforts.

The real value in their solution to procurement is in the massive cost savings it enables. CSR is important, but we all know that North America tends to follow the mantra of Gordon Gekko and that, unfortunately, when times get tough, the mighty dollar trumps everything else. Companies like to feel good, but they like to profit more. These days, profits come not from sales (which are sluggish), but from savings that come from cost reductions and risk avoidance. Ecovadis’ platform assists you on both accounts. Without the platform, buyers are wasting a lot of time and money chasing suppliers, who are fatigued from answering the same damn survey over and over again, for data, analyzing that data, and shelling out for expensive benchmarks from high priced consultants to put that data into relative light — data that might be suspect to begin with. Similarly, suppliers are wasting time cutting and pasting data instead of providing the buyer with the products and services the buyer needs, which drives up costs for both parties, and not even getting any decent feedback in return that they could use to improve their operations. But with the centralized sustainability marketplace Ecovadis provides, suppliers only have to answer a question once, they only have to suffer a time-consuming and costly audit once, and they get a scorecard which not only rates their performance, but benchmarks them against their peers and identifies areas for improvement. Buyers get up-to-date reliable data and actionable scorecards which they can use to leverage suppliers and make better decisions. Everyone wins. Plus, if the buyer has a SPM tool (like that offered by Ariba, Aravo, Hiperos, SAP, etc.), Ecovadis’ can plug their platform into the tool and greatly simplify the CSR SIM that the buyer would likely have to do manually.

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