Earlier this month, the BIFM and its Procurement Special Interest Group produced a guidance note for facilities managers, outlining the key factors in a successful supply chain relationship. This is an extract from the guide, which is available online.
26 January 2015
Selecting a supplier of goods and services can be a complicated and costly process that should be carefully prepared and executed in order to engage the most appropriate provider.
It is however, only part of the story. Once the contract has been awarded or the order placed, it is essential to establish a mutually beneficial working relationship between the supplier and customer in order to successfully deliver the service or goods.
When discussing supply management there are two main terms used: supply chain management (SCM) and supplier relationship management (SRM). The differences between the two are outlined below.
1. SCM is described by the Chartered Institute of Procurement and Supply (CIPS) as the mechanics of the supply chain itself, defining how the goods and services are produced or delivered. The emphasis is on the management of relationships and the flow of the goods and services. Value is created within this area through the formation of a competitive workspace, with a drive to maximise supply and demand. Performance measurement is a part of SCM.
2. SRM is concerned with the management of the supplier relationship. CIPS explains that this "involves managing the interfaces between organisations supplying goods and/or services to an organisation in order to maximise their value". It is about building relationships.
Why is it necessary?
Purchasing the goods or services is just the start of a procurement process, which in many cases receives most of the focus. The success of the process, however, can only be judged by how well the service or goods meets the requirements of the stakeholders.
A continuous process on award of contract should be to clarify expectations, which will assist with developing the service or products. Agreeing service level agreements (SLAs) and key performance indicators (KPIs) between the two parties is part of SCM, however, establishing the nature of the relationship may be an important part of this.
Establishing clear and robust terms and conditions of contract is a key element of SCM, which will have a bearing on the management of the supplier relationship. The contract between supplier and customer should specify how the relationship will be managed. For example, dispute resolution procedures, exit strategies and ownership of intellectual property rights should be explained.
Two-way information flow: The customer must ensure that the supplier has all of the information necessary for delivering the service or goods. The supplier must inform the customer of any internal issues that could affect the supply of goods and services. This could be related to resources or materials, but it is important that the customer is aware of any potential risks to the delivery of goods or services in advance.
Mutual tolerance: Both parties need to be tolerant of any changes that may be necessary to the initial agreement and be prepared to adapt in order to fulfil the contract. There should be a shared interest and benefit, although in most cases the customer will be driving the service requirements. If supplier and customer are both mutually supportive of the occasional problem, then there is likely to be a better outcome in the long term.
Multiple points of contact: A multi-tiered approach is desirable for creating a close working relationship. Multiple points of contact between the supplier's and customer's organisation will facilitate open dialogue at different levels, which binds the two organisations together. The nature of the communication may vary between each person-to-person relationship, combining formal and informal approaches. This produces a more holistic view of the delivery of the services or goods, removing any bias or personality clashes.
Joint learning: The supplier and customer should be able to share their views on the problem and put forward suggestions for remedying in an honest and non-judgemental way. This builds cognitive trust and encourages risk-taking and innovation. Learning from mistakes is a valuable way of creating service improvements and both organisations should work together to do this. Taking an interest in what the supplier is doing and showing appreciation will encourage a positive response from the supplier, who will be motivated to exceed expectations.
Sharing success: It is important that both suppliers and customers believe they will be more successful working together rather than separately. Removing the need for opportunistic behaviour, with one party exploiting the other to gain an advantage is necessary to create the environment described in the previous points. A mechanism for sharing success should be agreed in advance, which will encourage cooperation and supports transparency and trust. A fair and open system for assessing the success of the delivery will need to be established in order to agree a risk and reward structure. If both parties share an equal responsibility and desire to make the relationship successful then this will be evident in the service or product being delivered.
The full guidance note is available at www.bifm.org.uk/supplychain
Further information on the Procurement SIG can be found at www.bifm.org.uk/procurement
For more advice from the BIFM, visit www.bifm.org.uk/knowledge