Articles
Three Ways to Inspire Value From Suppliers
By Ray Dunn
2/8/2007
As facility executives and managers take on more strategically complex and challenging roles, the greater the need to delegate the tactical, operational side of the business. With company staff getting leaner, suppliers have great opportunities to step up to the plate to go beyond the transactional sale and become an operational support partner. But is it happening? Apparently not.
More than 87 percent of companies in a 2004 survey said their supply contracts did not realize their anticipated value. The survey was conducted by the International Association for Contract and Commercial Management and Vantage Partners, a Boston-based supply chain management consulting company. So why is there so much dissatisfaction?
Although the natural reaction might be to write tighter agreements, the real heart of the problem often lies beyond the scope of contract language. Charles Talocka, assistant vice president, facilities, Chubb Group of Insurance Companies, notes that “great value comes from suppliers whose companies have built the right organizational foundation and follow quality principles, which means to continue looking at improving their operations end-to-end.”
Without the proper structure, Talocka believes that getting value out of supply contracts becomes very difficult. So what are practical ways that a facility executive can ensure the right structure for value delivery? Here are three ways.
After the Sale: Account Management Structure
A decade ago, most product sales were transactions only, meaning that the relationship was based on buying the best product for the cheapest price. Service was limited to delivery and warranty information. Today, suppliers who provide real value assume more of the day-to-day operations of their account with the customer. To do this requires a radical reorganization from the old way of thinking.
For one thing, the emphasis has shifted from sales to service management. This has created a new role for account facilitators whose job is to manage the account day-to-day. In some companies, they fit into a larger multi-level management team that mirrors the customer’s, and may include not only procurement or purchasing, but IT, accounting, logistics and any other area that touches the account. These supplier teams are able to talk directly to their counterparts to problem-solve when the need arises.
Also, unlike in the past, suppliers who deliver value today avoid confusion and the redundancy of “silo” thinking. Silo thinking is where business units don’t share information with each other or work collaboratively to service an account. In the emerging new service structures, a strategic manager is responsible and ultimately accountable for the account worldwide, regardless of how many facilities are involved. This requires a manager who understands the big picture, but at the same time, can ensure that there is individualized local support at each customer location backed by a network of logistics. “What this also entails,” said Talocka, “is the ability to make the service adaptable, flexible and scalable.”
According to Talocka, this ranges from giving a supplier total responsibility from the time of purchase through installation and service in some locations, while in other locations providing basic logistical support only. Flexibility has become a valuable service.
Technology Backbone: Contract Management
Unfortunately, even the most dedicated suppliers can’t deliver the value needed by their customers unless they have the software technology to back it up--particularly in reporting and billing. Unless they have the technology in place, suppliers often run up huge labor costs trying to duplicate sophisticated software services by hand processing. This leads to one of the major complaints uncovered in the survey—higher costs than expected, especially in reporting and billing. It starts with a common operating platform, so reporting can be consistent and cover the entire customer enterprise.
Of course none of this makes any difference if it doesn’t make the facility executive’s job easier. “One of the things we look for,” said Jeannie Pumphrey, senior vice president, supply chain management at Bank of America, “is how a supplier can focus on the essential ‘critical to quality’ factors through metrics and reporting.”
Metrics and Reporting
Successful communication requires timely reporting, and knowing what to report, which is more complicated than it sounds. “Facility managers need the critical facts,” said Pumphrey. “We don’t have time to shift through a lot of paperwork. I want to see the top line—the dashboard metrics—then I can make an informed decision if I need to see more.”
Metrics vary by industry, but metrics common to most industries include:
• Real-time purchasing history across the global enterprise as one report
• Productivity savings
• Cost reductions including annuity and volume discounts
• Environmental impact of purchases
• Diversity contracts (including minority and women-owned enterprises)
• On-time deliveries
• Warranty claims
Invoicing
Combined invoicing is one of the biggest ways to deliver value to a customer. This means that ordering, manufacturing, shipping, reporting and invoicing are tied together. According to Pumphrey, each invoice can require on average between $25 to $70 of company time to validate, process and send out payment. When suppliers send out separate invoices for jobs performed at each business unit, or company location, this can amount to 10 or 20 invoices or more per month for the customer to process—costing thousands of dollars. Even when a supplier attempts to combine multiple invoices into one by doing it manually, the problem, Pumphrey notes, is that there is no electronic track record—if a question arises, it will take time to sort through files to find the answer.
Instant access: Ordering/Tracking
An integrated technology system is also critical for ordering and tracking. Web-based contract management allows 24/7 access which is essential given the travel schedule of facility executives globally. “I think a supplier can deliver value if I can log in to the Web site and get an answer no matter what time it is in the U.S.,” said Talocka. “When you do business globally, business hours are 24/7.”
Risk management tracking
The events of the past five years ranging from 9/11 to corporate accounting scandals have elevated the importance of how suppliers manage risk. Sarbanes-Oxley, known as SOX, reporting requires companies not only to report on their internal financial controls, but to vouch for the controls of their suppliers. According to a 2004 report by Deloitte, an accounting firm, the inability to evaluate and test controls of processes outside the company—through outsourcing and contract suppliers—constitutes one of the biggest threats to compliance.
Suppliers, like their customers, are also required to track and report for the U.S. Patriot Act. This requires that suppliers be able to verify that employees are not lending support, knowingly or not, to terrorist organizations. Without a sophisticated software technology to report and store, compliance is impossible.
Corporate culture fits
Delivering good value is still based, as it always has been, on the relationship between customer and supplier, and their expectations of one another. Yet the process by which both work through these expectations over the course of the contract is one of the most neglected aspects, perhaps because it requires some frank, sometimes difficult conversations. How do the organizations deal with problems as they arise? By having a process in place for regular conversations, organizations can create a neutral space to discuss problems and learn together how to handle collaborative problem solving.
Communications: Reviews to Rollouts
The reporting process from supplier to customer can be the foundation for problem-solving. First, regular face-to-face quarterly reviews are a good place to start. Building time into the meeting agenda for discussion of problems creates an opportunity for each organization to learn how the other reacts to and approaches problems.
Rather than sitting passively as problems come up, this is an opportunity for both sides to let the other know their concerns, their interests and expectations based on real life situations. Customers report that the quarterly sessions, though sometimes requiring difficult conversations, have been the glue that holds the relationship together.
Another essential tool is an organized, regular communications program to key internal customers—stakeholders. A contract rollout implementation is a good way to take advantage of the momentum and should be a regular service of suppliers. A contract rollout is an electronic and hardcopy account toolkit that should include all the important information, accessible at a moment’s notice. Typically, it includes: the global account executive who is the point of contact, with 24/7 reachable numbers and e-mails; the account facilitators who will manage the day-to-day operations of the account; a list of local account executive contacts (so each local area has its own go-to person); an abstract that spells out the scope of the contract and key elements, geographic and business units applicable to the contract, as well as the length of service; and, of course, a list of services and products covered under the contract, and warranty process information.
Customers who have used these rollout kits report that by posting them on their internal Web sites, or using a password-protected Web site provided by their supplier, have paid off by becoming a central information point for their staff, while saving time and frustration in searching paper files for the information.
Quality
Threaded throughout the supplier-customer relationship is the expectation of quality performance. This is a somewhat murky term these days since all suppliers claim to have top quality products and service.
According to Pumphrey, quality is a process not a data point. “Value in terms of saving money through improved performance, increased productivity, peace of mind that everything is working the way it should—whatever a company puts a premium on—starts with looking at the entire service process end-to-end.” Pumphrey said that often a small change can deliver tremendous value back to the bottom line. Whether it’s reducing the time it takes to complete a job, better communications, fewer mistakes—it all brings money back to the bottom line.
A quality approach starts with a passion to understand and align with the business goals of a customer’s organization. It also means learning what the essential areas are that are “critical to quality” (CTQ) in the customer’s organization. One of the reasons for value failure, according to the Vantage survey mentioned previously, is that customers and their suppliers disconnect on what is important.
Global and CSR
Another area of disconnect is on the level of service expected and delivered. For example, many companies are operating on a global level, or will soon. Suppliers who don’t have operations on the ground in key global areas will not be able to adequately service the customer. For product manufacturers, this means manufacturing in the region, with service delivered by local experts.
The same is true of corporate social responsibility programs, which also have become a key differentiator among suppliers. “We’ve gone way beyond mission statements,” said Pumphrey. “Today corporate social responsibility needs to be part of the supply organization’s DNA.”
Common questions asked of suppliers these days include: how many minority and women-owned businesses do you contract with? Are your environmental claims verified by a third party? Are your internal accounting controls verified by a third party?
“With the speed and complexity of business these days,” said Pumphrey, “CSR metrics are a form of risk management—they ensure that there are no surprises.”
It all comes down to process, people and platforms—as part of a 360-degree connection. People provide their best value when the processes are in place, and processes depend on sophisticated technology platforms to run smoothly, so that people can do their best.
Source: Facilities Management Journal
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