Creating a win-win in sourcing and supplier relations

Commercial-Management
Sourcing isn’t a one size fits all

Maximising the benefits of new technology, getting better value out of supplier relationships and driving down supply chain costs are key priorities for all organisations as they seek to evolve new and more innovative business models. But many organisations lack a clear strategy and suitably qualified resources for achieving these objectives, particularly when it comes to the procurement and ongoing supplier management of large scale IT related investments, such as those associated with a complex business change programme or strategic outsourcing initiative.

When it comes to a procurement process, setting clear objectives, having a well-defined scope of requirements and a resilient business case backed by stakeholders who are fully aligned and empowered, are obvious pre-requisites at the outset. In reality, it’s not unusual to see any one (or more) of these undercooked or missing in the procurement approach taken by many organisations and this risks derailing the downstream process.

Driving behaviour that delivers the outcomes you need

Even with all the pre-requisites in place, finding the right supplier isn’t just about identifying products and services that appear to meet your business needs for the best price. It’s about choosing an organisation with whom you can build a long term working relationship. A relationship based upon mutual trust and respect that delivers value to both parties. And when you consider that, for most companies, almost two-thirds of turnover is spent externally, the potential benefits of a greater strategic focus on supplier selection become even more compelling.

Once you have chosen your supplier, it’s essential that time is taken to ensure that you have the right contract in place. Clearly, every agreement needs to be solid when it comes to legal issues and compliance, but contracts are more than just static, legal instruments. Many organisations get into trouble because they focus on the legal aspects of the contracts they are putting in place and forget the common-sense practical aspects that will make the transaction work in practice. A well-defined contract that balances your commercial and legal priorities and motivates your supplier to deliver best value, is fundamental for the successful delivery of any project or programme.

One major UK plc we worked with had taken a decision to outsource its core business systems in order to reduce operational costs and enable the flexibility required by the business for it to react to changing market conditions. Faced with complexity they had never previously encountered and formidable supply-side capability, the client approached DAV for help. We provided the leadership and experience to shape and manage the end-to-end sourcing programme, enabling the client to sign a contract for the largest outsourcing deal done in the UK at that time (£1.5bn) and see the business positioned to tackle the challenge of its future growth targets.

The battleground for competitive edge is expanding

Today, there is a new dimension to supplier relationships. Market conditions are forcing organisations to find more ways of improving their competitiveness and many are becoming increasingly aware of the impact that suppliers have on their own performance. Extending influence over external service providers represents a significant challenge for most organisations, but with increased levels of outsourcing driving a greater dependency on those providers and a management imperative to get more ‘bottom line’ value from all sources, it’s vital to achieve this. Where there’s any underperformance it must be quickly identified. Is it a people or cultural issue? Is the commercial vehicle you have in place not driving the right behaviour? Are your supplier performance metrics underpowered or non-existent? Are the supplier’s goals not in tune with yours? Is it something you could be doing better within your own team? Whatever the cause, early diagnosis and corrective action will deliver significant benefits to the business.

The pace of business change and increasing complexity in global markets is also compelling businesses to challenge and renegotiate ‘in-flight’ commercial agreements, previously considered sacrosanct, in order to reduce their costs and drive greater value from the supplier’s ability to innovate through developments in their business model. It’s a delicate balance for all parties concerned and one that requires an eclectic range of skills and experience to get to an agreement that works for everyone. We find that a more collaborative approach with suppliers works best in this scenario, enabling the parties to work in a ‘solution-oriented’ manner, around a common understanding of what each other needs to achieve.

Helping performance improvements flow to your bottom line

Whatever your requirements, we provide a range of scalable pre and post contract services, designed to ensure that your business can take full advantage of the benefits that strong sourcing and relationship management can deliver. We’ve worked across a wide range of industry sectors and on all sides of the negotiating table so you’ll get a rounded perspective. And because we’re independent, the support we provide throughout this process has only one objective in mind – to ensure you get best value out of your supplier relationships.

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