Relationships Do Affect Sourcing Decisions

Regardless of who is involved in the process of selecting a supplier, an impartial and fair process is what matters most.

The creation of robust relationships is an intrinsic element of conducting business in the supplier management field. To build strong alliances there must be a foundation of trust and respect. Preservation of supplier confidence and trust is strengthened through a sound sourcing process.

All potential suppliers must believe that they have a bona fide opportunity to win the bid, even if the incumbent has already established relationships inside the company. Complications can occur when procurement personnel have existing friendships with the suppliers involved in the sourcing event.

One of procurement’s primary roles is to establish decision criteria that achieve an equitable supplier selection process. A balanced decision process should determine which supplier relationship will have the best impact on the business.

Most companies have established conduct policies involving the ethical standards of supplier interaction that clearly delineate conflicts of interest. ISM’s first principle of supply management states that one must “avoid the intent and appearance of unethical or compromising practice in relationships, activities, and communications.” Even if you are the only person who knows of the potential for conflict, but you must take precautionary actions to avoid it.

Situations may arise in which a close friend of an employee works for a supplier participating in the bid. Several specific steps can help you remain impartial if your friend works for a supplier.

If you are a part of the sourcing event, it is essential to recuse yourself from the selection process. Additionally, the person leading the event needs to know about the relationship with your friend. Finally, if your friend asks you specifics about the bid, you need to state clearly how important it is to remain outside of the process entirely.

If your friend’s job is at stake, remaining unbiased can be extremely complicated. You may feel pressured to sustain your relationship by providing information about pricing or a chance for your friend’s company to re-bid. By trying to help your friend, you may actually jeopardize your own credibility, compromise your company’s ethical standards, and put your own position at risk. No matter how strong the temptation, the requirements of the business take precedence.

Because most companies run sourcing events regularly, managing an impartial process is essential to maintaining credibility with all of the prospective suppliers. Sourcing events involve several companies and individuals. The supplier selection process must transcend any single individual’s role. As Mr. Spock told Captain Kirk in Star Trek 2, “The needs of the many outweigh the needs of the few.”

ciao…mam

Michael A Massetti is a high technology supply chain executive who has managed procurement, quality, supply chain planning, customer operations, distribution/logistics, operations engineering, and more.

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So, you really enjoy being a supply chain professional? Part 3

Supplier Management – Isn’t It Fun to Manage Suppliers?

Let’s face it supply chain is a fascinating and pressure-filled field. As we discussed in part 2, without demand there is no need for supply. Similarly, without supply, there’s no need for suppliers. If it weren’t for all the trials and tribulations of working with suppliers, procurement professionals would lead such a boring life. Don’t you wonder sometimes how and why you got into this field?

This third article will look at the fun that is managing and working with suppliers – from the transactional vendors all the way up through strategic partners. Future story lines will include inventory, supply chain risk, logistics, and managing numbers.

Suppliers who insist on telling you how strategic they are, aren’t.

Supplier Management Pyramid

As buying evolved to purchasing, which then evolved to procurement which further evolved to sourcing, the organizational concept expanded accordingly. The tactics of buying grew into the discipline of managing supply and suppliers.

The development of supplier relationship management accompanied the stratification of the supply base into a number of different hierarchal models. The most tactical suppliers are fundamentally transactional and have the lowest level of relationship management. This highest are the most strategic with the largest and most critical spend allocation and the deepest relationships. There are way more suppliers at the base than at the top.

Then why does it seem that the suppliers who are lower in your spending hierarchy insist on declaring themselves strategic to the procurement team? Based on non-scientific surveys of suppliers who evaluate themselves as “strategic” the triangle above would be inverted with hardly any in the lowest tier!

The question really is “who’s strategic to whom?”

A cornerstone of any supplier management program is transparency between both sides of the relationship. If your suppliers are not intimately aware of their status, the program might need some work.

Regardless, this does not guarantee that the supplier will not continue to view the relationship as strategic to them … it just may not be strategic to you.

 

If you or your suppliers consistently refer to “the contract… the relationship definitely needs some work.

Contract Icon

Anyone who has ever negotiated a long or difficult contract has experienced the absolute relief and joy when the agreement is signed and filed. Have you had this thought before? “I just hope that my tenure with this supplier expires before the agreement!”

Regardless, contracts are necessary (evils). Many companies require formal purchasing or supply agreements for specific spending thresholds. They are the foundation for managing the relationship, executing business, and dealing with exceptions – especially the unforeseen.

Nonetheless, the most hair-raising and deflating words that a purchasing professional can hear during the normal course of business is, “But, that’s not what the agreement says …” It gets even worse when similar comments permeate the daily conversations. Been there. It’s not fun.

Believe me, agreements are one facet of the total relationship. However, if you hear about the contract repeatedly, the relationship is dysfunctional. Fix it!

“If you had told me it was a competitive bid, I’d have come in with a lower price.

Dilbert Bid Lie

I’m sure we’ve all heard the cliché: the three most important things in purchasing are price, price, and price. A lower price, for sure.

RFI. RFP. RFQ. Auctions. E-Procurement. D&B. Altman Z-score.

There are myriad methods available to sourcing pros to evaluate and eventually select suppliers. Of course, the criteria include price, capability, capacity, relationship, number of sources, and more. No matter what, it’s always difficult to avoid price … or should we say PRICE?!

And, there’s nothing more upsetting during a bid process to have suppliers try to game you. Isn’t it frustrating to have to go back to a supplier, especially one you are already working with, and they tell you that they didn’t realize that price was important? Down right maddening!

Really? You didn’t know that your best bid was required? Makes you wonder. Cross that one off the list.

 

ciao…mam

Michael Massetti is a high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously. Thanks to my former colleague and partner in supply chain crime Alex Brown for his ideas.

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