Supply Chain – Managing Stakeholders and Vendors

Introduction

You, like many of your supply chain/procurement brothers and sisters in the United States, and probably around the world, have dealt with stakeholders in your organization getting cozy with the vendors you purchase from. This coziness leads to shady sole source justifications, or that vendor always being the preferred vendor even if they aren’t the low bid or the best service level.

What’s happened?

Your vendors are selling your stakeholders, and your stakeholders are helping them out, usually by jumping at the latest shiny thing the vendor has to offer. Sometimes there’s even some tit-for-tat deals. Other times, your stakeholders, or even your very own supply chain organization, have become comfortable with the “demon they know” as opposed to the one they don’t.

In this post we will take managing your stakeholders and your vendors, and the many challenges that come with that.

Stakeholders and Vendors

I’d like to start off by saying that your organization and your vendors have a good working relationship is not a bad thing. It’s a great thing! It helps both the company and the vendor communicate candidly with one another about what’s going on in both of their organizations and their respective markets, and how the two are interacting with one another. A great working relationship with your vendor can ensure that any problems that come up are handled quickly and efficiently, and that both parties are kept generally happy.

A good working relationship can be an open door to work with the vendor’s key decision makers. Have you ever had a problem with your salesman, and a quick talk with the supplier’s head manager seems to smooth everything over? It can also ensure that head manager understands the importance of your account, how much you appreciate them, and keeps them updated on their own company’s performance. A quick word about a supplier’s lagging performance and, generally, that head manager or corporate office is digging into his people to shape up.

There’s a flip side to all of this, of course. Such a working relationship can also be open door for vendor to subvert you and your supply chain/procurement department. The worst case scenario happens, and one of your offices demands that you buy Product Z from Vendor C. No formal request for quote process. No negotiations. No pitting the vendor off against others. Their Division Manager or Director comes to tell you that, yes, you are buying Product Z, despite your protests to the vendor’s quotation and the fact that other suppliers could provide a similar product for less.

The vendor marketed “the latest shiny thing” and sold your stakeholder(s) on it.

But how do you prevent this?

Managing Stakeholders

There are several ways that your supply chain organization, and the company has a whole, can manage internal stakeholders.

Written policies go a long way to prevent the kind of supplier subversion so many buyers and contract specialists despise. Things like “single point of contact for RFPs/RFQs” and “formal bidding process requirements” can stop  over-zealous project managers in their tracks. Having a review process/team that vets the business need and budgetary requirements can also help this.

Of course with policies comes the need to communicate said polices. In his book “Leading Change”, John Kotter states that the change agent must communicate the change vision (Kotter, 1996). Whether your polices are part of a change, or have been part of the organization’s policies for years, the supply chain organization, along with upper management, must constantly communicate these policies. Kotter provides an excellent framework: keep it simple; utilizing metaphor, analogy, and example; multiple forums; repetition; leadership by example; explanation of seeming inconsistencies; and give-and-take (Kotter, 1996, p. 90).

Along with this communication comes relationship building. You cannot have your supply chain/procurement organization sit secluded from the rest of the company. Constant interaction with your regular stakeholders, their management, and upper management helps build that open communication and flow of ideas so that written policies, new and old, are repeated regularly and don’t blindside people.

And any good policy needs enforcement. You can have HR include as much written policy on procurement activities and contracts as you want. It is for nothing if no one in the organization with the power to do so doesn’t enforce it. If that’s the case, your policies are nothing but a paper tiger. But, if senior management gets the directors and their staff to toe the line on theses policies, then such policies have teeth and those who break them can be dealt with. It’s not nice to think about, but those that break the rules, some that could hurt your company, must be dealt with.

Managing Vendors

Stakeholders aren’t the only ones that need managing. Your suppliers and contractors have to be watched, too.

First and foremost don’t give out an organizational chart of your company. Sure there are those websites that promise “the most accurate organizational charts for companies across the United States.” In my experience those websites are five to ten years behind, and you want to keep them that way. Giving a supplier an organizational chart is like giving the opposing team in football a list of all of your plays. Suddenly they know the vice president of the group that deals with the project they are bidding for and will work to bend his ear towards their cause. Such influence can hurt negotiations with them, or even other vendors.

Next, only put supply chain points of contact on RFPs/RFQs. Force the suppliers to only go through you for any and all communication. This can get tiresome, and your project managers and other stakeholders will get sick of it. But it keeps the suppliers from applying undue influence on the decision makers. If everything goes through you, all information from all bidders are given equal consideration, and information returned to them is consistent, as opposed to a stakeholder playing favorites with what information is given to which supplier.

There will be instances where the vendors already have key points of contact in your organization. Many times it’s just part of the business you do. Just ensure your stakeholders refer vendors back to the supply chain organization, and not make any decisions, written or verbal, without first communicating what’s going on with you first. (This goes back to that whole written policies and managing stakeholders thing.)

Upper/Management Support

I cannot stress the importance of having key Directors, Division Managers, VPs, and board members on board policies and the need to distance themselves as much as possible from vendors. Having a VP that gets a call from the VP of the supplier organization telling them no, and routing them back to you speaks volumes, makes your job easier, and the supplier’s job harder – especially if that supplier is a bidder on a RFP/RFQ.

Back to communication, make sure that the supply chain organization and the higher ups are on the same page. I find it’s better to over communicate a little as opposed to under communicate. The more they know, the more informed decisions vice presidents and boards can make in favor of the company. It also ensures they are brushed up on the latest policies and support them. If they don’t support them, such communication can facilitate working out what their issues are, and addressing them before that VP becomes a liability to your, and the company’s, efforts.

In “Leading Change” John Kotter states that you need to create a guiding coalition for your change initiative, and the key de jure and de facto decision makers within the organization are key to that whether policies and initiatives are just being rolled out or have been out there for decades (Kotter, 1996).

What If You Get Derailed?

At some point in your career you will get derailed from everything you are trying to do to effectively and responsibly manage your supply chain/procurement department/group. A bidder snags the right ear in your organization and gets them on board with their offering. Someone in your company is absolute poison to any cost savings initiatives, but no one will fire them. So what do you do?

Communicate it.

First to the stakeholder: – what happened, how it affects the organization as a whole, and why it’s a risk to the organization.

They just bought offer A without consulting anybody and signed the supplier’s very stringent, disadvantageous terms and conditions? Express to them how they hurt the budget of the whole company, and how if the company decides they don’t like the offering anymore there could be even more money lost, or how it could lead to legal proceedings.

Document it.

Document it for your own records to cover your own skin, and as a lessons learned. Having documentation can keep you out of legal trouble. It can also serve as a guide for others in your company, new and old, if organized, published, and distributed properly.

Take it to upper management – yours and theirs.

Yours so that your higher ups know what’s going on and what you did to try to stop it.

Theirs for the very same reason. And, of course, it’s about covering your own skin as much as it’s about helping the company.

Sometimes, though, there’s nothing you can do. The stakeholder has more political clout than you, or the project is a “company initiative” and no amount of argument, numbers, kicking, or screaming will change it. That $12 million was a rip off? Well it’s gone now, and the board and VPs all approved it. (I have run into the “company initiative” issue a lot lately in the organization I work for, and it’s frustrating because I know we could get better pricing, but those at the top say “jump”, and we jump and ask how high later.)

Sometimes you can’t win. Don’t get down. Document it. And work harder on the next project next time.

Conclusion

Managing your stakeholder and your vendors is just as important as managing the master purchase agreements and contracts that keep your company running. Communication with those within your organization and those within the suppliers’ organizations goes a long way in deconflicting a lot of issues, but sometimes things get derailed and your company loses out.

Remember to keep building those good working relationships, consistent, regular communication, and to keep working your hardest to ensure that you are getting the best pricing and service for your company. You may not always win, but when you do it will be noticed and appreciated.

 

Sources

“Leading Change”, John P. Kotter, Harvard Business Press, Brighton, MA, 1996.

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