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Why Supplier Relationships Go Bad
There has been a lot of focus in the past year on Supplier Relationship Management, and rightfully so. As the efforts of Strategic Sourcing initiatives begin producing diminishing returns, SRM is heralded by most to be the next step: focusing more on delivering value to the organization and developing relationships that can produce competitive advantages in the market. However, an SRM policy is only effective if the proper suppliers are in place, which is why it is routinely classified as the next step after strategic sourcing. There is little value in curating and managing relationships with suppliers that are not firmly aligned with your organization’s strategic goals.
As we have seen with some of our clients, and as you might possibly have seen, there are plenty of bad buyer-supplier relationships out there. Inconsistent pricing, poor service quality, frequent miscommunications, questionable deliverables – there are myriad things that can make a relationship “bad” between a supplier and buyer and a variety of bad supplier relationships. There is one thing that is consistent to them all, however, and that is that no one ever sets out to have a bad relationship from the start. No buyer wants their suppliers to dislike them, and no supplier wants to deliver bad service.
So where do bad relationships come from? Years and years of negligence and mistakes. Bad relationships do not appear, they are created. And here are some of the common ways they are made:
The Supplier Was The Wrong Choice From The Start
A house built on sand cannot stand. Every project, be it a construction project or a contract for office supplies, should have a solid foundation. If the initial market search does not identify all potential suppliers, if only three are identified just to fulfill an internal procurement policy, or (worst-case scenario) no supplier search is ever conducted, there is no guarantee that the best supplier has been identified. Only by identifying every supplier in the market space and vetting them to your specific requirements will you identify the best-fit supplier to your needs.
The Supplier Never Had A Grasp On Expectations
Needs and expected performance are typically communicated to suppliers through a Statement of Work (SoW). While they appear simple on the surface, these documents should never be taken lightly. Situations involving a “bad supplier”, however, often involve a bad SoW. A good SoW should always include a high level description of the work expected as well as detailed discussions on the project’s objective, scope, deliverables & expectations, assigned resources & roles, schedules & timelines, and expected service levels. Failure to define any of these fields leaves room for a misunderstanding between a buyer and supplier, and leaves the buyer without recourse should they wish to hold the SoW against the supplier.
The Supplier Was Never Managed
While SRM involves managing suppliers, that type of management is at a higher, partner-like level and reserved for those strategic partners whose goods and services are critical to an organization’s operation. Basic supplier management mainly involves performance monitoring – Are deliverables arriving on agreed-upon times and at agreed-upon prices? Are service levels where they are contractually obligated to be? – and communication with the supplier to rectify any gaps or issues.
This step is near-impossible if there is no contract, or the SoW issues from the previous section are present, but all suppliers should be managed to the extent the agreements and the SoW allow.
The Supplier Is Terrible
The fact of the matter is that a buyer can follow all proper procedures, identify a supplier that says all of the right things, structure a detailed and exacting agreement and SoW, and attempt to manage effectively, and still have a bad supplier relationship. Instances like this are rare, but can often mean the supplier is just a bad supplier. A poor-performing supplier that does not perform their obligations and refuses to communicate negatively affects the relationship, and often times the buyer’s fiscal standing, and leaves the buyer little recourse but to identify alternatives and plan an exit strategy.