Let’s make it simple. You are in business, you have a mobile phone and you use it to make and receive business calls. So what I hear you say, well ... ever read the contract and I mean ALL of the fine print? Do you know what your obligations are when it comes to having and using that mobile phone? Probably not and you would not be alone. That’s because when we buy any product or service we are buying it from a real person and that person has usually said something compelling that supported our buying decision. However briefly we form a type of ‘relationship’ with that sales person that could last years or only 5 minutes; we ‘liked’ or ‘trusted’ the person we were dealing with and we tell ourselves that, we want/need/must have whatever the product or service is. The sale is made and money does not have to be exchanged at that stage.

Everyone in business is a supplier of and/or supplied goods and services. Let’s consider just a few. It could be your mobile phones, your office products, utility services (power, water, gas, waste etc) vehicles, cleaning, staff recruitment, consultancy, machinery, FMCG, manufacturing, pharmaceutical, engineering, technology, packaging, transport, some form of repairs and maintenance or your website design and support. What is important to remember is that for every category we align to in business or even personally we have formed certain expectations about the product or service such as receiving cost effective, reliable, flawless services or to be able to provide cost justified exceptional customer services? A great job secures revenue, keeps the boss happy, provides business efficiency, and saves money, perhaps even staff bonuses, job security or other benefits. Now ask yourself how commercially savvy are you when it comes to effectively managing your supplier performance? How do you know you are getting or giving the level of performance expected, the return on your investment you expect, the cost savings, the reduced downtime or whatever it is that you envisaged at the outset of the supplier/customer relationship?

Regardless of whether you are a small to medium business or a large multi-national, organisations, business owners and commercially savvy managers are conscious that recent economic times mean businesses are experiencing exponential growth in business risk and are increasingly conscious of their financial exposures. Businesses want more customers, more cost savings, business efficiency and low risk commercial engagements. This means we can NEVER go back to just thinking that our customers and suppliers will understand or will stand by us because they feel our pain too. Being blunt, they simply won’t. We are all in business to make money so the risk of not managing supplier performance or customer expectations is simply too risky to ignore. Did you know that for every supplier dollar you spend you have an additional hidden cost of at least 11% to 25% and that’s not counting your financial exposure of supplier non-performance? Reliance on a key supplier without defined performance expectations could put you out of business or at the very least reduce your client creditability and therefore reduce business revenue.

Effective supplier management transcends procurement, finance and legal responsibilities as we traditionally know these roles to be. Fundamentally, supplier performance management is a communication grey area within most organisations; the major discrepancies tend to be ineffective communication and visibility of the suppliers, a lack of defined engagement responsibilities and a lack of clarity that defines the performance expectation between the parties. Performance means not only what the supplier is expected to do for you but also what if any are your performance obligations to the supplier. It could be something as simple as defining your inward goods opening hours, negotiating a simple contract, having a contract checklist or agreement over payment terms such as 7 days, 14 days, 30th of the month or 20th of the month following invoice or something else all together. Assuming knowledge of expectation is unfortunately one of the biggest problems in managing our supplier performances.

Unfortunately, whilst many businesses are stuck trying to figure out if they are big enough or if they can do anything that will actually make a difference with their supplier performance management they continue to endure budget blowouts, confidence and supply issues, lack of contract awareness and are impacted by assumptions being made by themselves, their staff and their suppliers about what is expected in the performance of the product or services. In short the supplier performance is not aligned to business expectation.

It is not a matter of if, but when. Reducing your business risks TODAY or even knowing what they are so you can make an informed decision is now more than ever going to be the difference between the companies that excel and companies that explode.

Cathy has more than 20 years experience across a wide range of disciplines including Service Delivery, FMCG, IT, Banking and Telecommunications having worked with major New Zealand and dominant global organisations. Outsource management, cost saving and contract management strategies are areas she is both professionally and personally passionate about.

www.vendormanagement.co.nz