ADR International trains thousands of buyers and contract managers globally in negotiation skills.

This support is given through instructor led classroom training, online negotiation eLearning modules and team coaching where our procurement experts work together and negotiate alongside the client’s negotiating team.

This experience has provided ADR International with a unique insight into the most common mistakes made when negotiating with suppliers, and the impact of those mistakes on the organization’s financial and operational performance.

For example

• Failed savings opportunities
• Damaged supplier relationships
• Reduced quality from suppliers
• Demotivated suppliers

The top 3 mistakes that drive these sub-optimal results are:

1. Lack of adequate planning to strengthen the BATNA

Most negotiators fail to spend enough time planning. You must create and strengthen the best alternative to negotiated agreement (BATNA) through:

• Aligning negotiation objectives with your organization’s business requirements
• Consulting stakeholders who will be impacted by the negotiation
• Deciding your most desired outcome (MDO) and least acceptable agreement (LAA) (your walk-away point).
• Having a credible back-up if the discussions fail (BATNA).

2. Poor insight into the other negotiating party’s objectives

It is common to spend too much time assessing your own organization’s perspective, and not enough time thinking about the supplier’s point of view:

• How do they position you as a customer or potential customer?
• What are their objectives from this agreement and the wider commercial relationship?
• What are the supplier’s most desired outcome (MDO) and least acceptable agreement (LAA) (their walk-away point)

3. Underestimating the power of concession planning

Concessions are “trade-offs” or bargaining items that can be traded with the other negotiating party. Concessions by both parties allow the negotiation to progress.  Planning for concessions is vital to ensure that you secure an agreement closer to your MDO than the supplier’s MDO.  Negotiators need to plan their concession strategy so that:

• They have as many potential concessions as possible
• They always obtain a concession from the supplier of equal or greater value in exchange for your concession
• They are able to respond appropriately to the concessions made by the supplier

As procurement learning professionals, our team at ADR International are often asked by our corporate customers; “what kind of training will work for our team?”

It is a good question. International businesses invest significant resources on attracting and development talent. They want to know what training will yield the best outcome.

At ADR, we find the key to designing and developing a learning program for our corporate clients is to understand from them the learning outcomes required from the training.  Learning outcomes identify what the learner will know and be able to do by the end of a course or program.
Well-defined and articulated learning outcomes provide students with a clear purpose to focus their learning efforts and direct the choice of the skills assessment strategies, curriculum and learning modes, styles and communities.

At ADR, we find the key to designing and developing a learning program for our corporate clients is to understand from them the learning outcomes required from the training.  Learning outcomes identify what the learner will know and be able to do by the end of a course or program.  Well-defined and articulated learning outcomes provide students with a clear purpose to focus their learning efforts and direct the choice of the skills assessment strategies, curriculum and learning modes, styles and communities.

We will look at the key decisions involved in choosing the kind of learning that works.

1. Skills Assessment Strategy

It is efficient to ensure that the training provided actually matches the learning needs of the procurement team. Therefore, a skills assessment is a useful starting point to identify capability strengths and areas to be developed. The skills assessment may be a simple survey that asks learners about their perceived needs, or a more sophisticated rating. ADR’s Development Needs Analysis (DNA) skills assessment questionnaire using the organization’s own competency framework to build a tailored survey that ensures that skills gaps identified are based on the unique role proficiency level required, rather than a generic version.

Using global skills benchmarks, organizations can then set their own aspirations for where they want both the team and individuals to be in terms of skills strengths in 12 months and beyond.

Once the skills profile has been established (as-is and to-be), a fit-for-purpose curriculum can be designed.

2. Learning modes

Learning modes are the different methods that can be used to engage procurement professionals in the content of the curriculum. Procurement training often encompasses both technical and behavioral competencies which can be accessed through:

• Instructor-led online learning (e.g. distance-led webinars)
• Instructor-led classroom learning
• e-Learning, typically self-paced modules of interactive content
• Self-directed learning (reading, networking, research)
• On the job learning (often involving assignments, or coaching from an expert

In a blended learning program, a mixture of all of these modes may be available to the procurement professional depending on their personal development needs. They all have their own merits and challenges, with associated time / cost implications.

A particularly effective way to offer the modes is through a learning academy structure, which offers recognition and / or accreditation to the learner as they progress through a structured program that is suited to their experience level.

3. Learning curriculum

A learning curriculum is a program of study involving different topics or competencies. Procurement teams often have multiple curriculum offerings, depending on the skills profile of the department, or affiliations with procurement and supply institutes.

The learning curriculum may include a variety of different topics and times for learning including pre-and post-course work and formal learning (such as classroom) versus informal learning (such as attending a trade fair).

The best way to establish an appropriate curriculum is to conduct a skills assessment to identify the learning needs of the procurement team. This will highlight strengths and development needs of the learners, enabling each person to have a personalized learning journey that focuses on specific parts of the curriculum that matches their learning needs.

4. Learning styles

A learning curriculum is a program of study involving different topics or competencies. Procurement teams often have multiple curriculum offerings, depending on the skills profile of the department, or affiliations with procurement and supply institutes.

Learning professionals often refer to individuals learning through visual, auditory or kinesthetic (tactile) means. They may refer to different teaching resources including lecture, video, hands-on exercises, games or role play to support these preferences.

Whilst learners may favor one of these means, typically a mix of resources supports most learning.

During instructor-led courses, there is the most opportunity to have a facilitated approach to:

• Learning by listening
• Learning by sharing
• Learning by doing
• Learning by teaching

However, online resources and social media can support some elements of these. The only challenge to this route is that the content may not be approved by the organization in terms of its content or message.

5. Learning communities

Learning with others is typically under-utilized by international procurement teams. Most professionals spend inadequate time on skills development through brainstorming with colleagues, sharing experiences, and discussing lessons learned. Learning forums such lunch-and-learn sessions or peer to peer reviews can be useful self-directed training.

Procurement leaders are often concerned about the mix of learners in a class. The logistics of running a classroom course may result in a mix of experiences, roles or functions. Typically, that is something to be welcomed, as sticking with one’s own immediate peers and stagnate thinking. Creative and strategic thinking is typically borne of coming together with people with different perspectives.

Conclusion

So how does this discussion help to determine what is the right kind of learning for procurement professionals based on defined outcomes?

The reality is there is no single model that will define the “right” route for an individual or team. All of the above considerations are relevant when debating the choices available, as well as the scale and scope of the content to be covered in the learning.

Most importantly, the organizational learning journey should be driven by:

• the learning outcomes required
• the expected timescales for change
• the current skills profile of the team

This will help to set realistic and targeted outcome expectations for the learners themselves. And ultimately, individuals must be supported by being given actions that are required of them – both as part of the learning, and after the learning.

Here at ADR International, our team of procurement experts are currently working with supply chain professionals from more than 30 countries. Many of these are European and Asian buyers at various stages in their career who are taking part in continuous professional development.

In this article, we will explore the observations of our consultants, in their role as instructors, about European and Asian procurement learning.

We will discuss:

1. Highlights of European and Asian procurement learning trends
2. The types of learning used by procurement professionals
3. Reasons for selecting learning mode
4. Which learning mode is most effective for these learners and why

1. Highlights of European and Asian procurement trends

• “Blended” learning is the use of a mixture of training deliver modes. Blended learning is common in Europe, instructor-led classroom training is prevalent in Asia
• Corporate accreditations are becoming more popular in Europe, Asian learners favor university or institute accredited programs
• For digital learning, self-directed eLearning is well utilized in Europe but Asian audiences prefer instructor-led online courses
• Individually-driven learning like reading and attending seminars of personal interest is common in Europe. Manager-directed education is more typical in Asia

2. The types of learning used by procurement professionals

The main types of procurement learning in use in both Europe and Asia are:

a. Instructor-led classroom training
b. Instructor-led online training
c. Self-paced eLearning
d. Self-directed learning
a. Instructor-led classroom training is typically made up of structured sessions, to a pre-agreed agenda, involving a mixture of lecture, discussion and individual or group exercises

• In both Europe and Asia, the program is often structured over 12 or more months
• Both regions typically manage the courses in small groups of around 12 to 16 learners per class
• ADR’s course feedback typically shows that learners value the interaction, discussion and having an expert tutor on hand to facilitate the discussion of real-life experiences

The main features and differences across the 2 regions for instructor-led classroom training are:

b. Instructor-led online training is a computer-based learning session where individuals or groups are taught by a tutor using resources visible to them on their device’s screen using specialist software

• Often held as webinar events, up to 120 minutes in duration
• Typically single-topic courses for “bite-size” learning
• Virtual classroom software or online meeting tools such as Webex provide a platform for interactivity
• Distance learning is a good format for teams who are geographically dispersed
• ADR’s course feedback typically shows that learners value the fact that they can take part from their desks, travel time and cost is avoided, and that bite-size learning is easy to digest

The main differences across the 2 regions for instructor-led online training are:

c. Self-paced eLearning is individually-led, self-paced, computer-based learning

• Topic-specific modules, usually linked to an organization’s competency profile
• eLearning modules / courses are often up to 2 hours in duration and include interactivity such as quizzes
• eLearning course completions, test scores and individual progress is often recorded on an organization’s learning management system (LMS). The LMS is often an enterprise-wide tool used for Human Resources and Training management

The main differences across the 2 regions for eLearning training are:

d. Self-directed learning is any form of formal or informal learning that is typically instigated and managed by the learner themselves. Examples include:

• Attendance at seminars or industry events
• Mobile learning (just-in-time information or insights accessed at a specific time of need)
• Reading on a specific concept
• Industry, supplier or category research
• Role-playing behaviors in preparation for a human interaction e.g. negotiation
• Peer review / challenge
• Experience sharing / telling others about your knowledge or project
• Lessons learned discussions
• Learning by teaching

The main differences across the 2 regions for self-directed learning:

3. Reasons for selecting the learning mode

In ADR’s experience, organizations and individual procurement learners cite multiple reasons for selecting the method of learning.

4. Which learning mode is most effective for these learners and why

It is often the organization that makes choices about learning mode on behalf of their teams. These decisions are driven by budget, availability of learning and people development strategies across the business. The organization must also consider what approach will yield the best outcome in terms of business benefit and employee satisfaction.

In Europe, blended learning is a popular form with a mixture of learning modes depending on location, learner preferences, budget and topic. Some of the reasons blended learning may be effective in Europe are:

• Individual learners may expect to manage their own personal development over their careers
• Learners enjoy collaborating with peers to discuss and solve procurement challenges
• Learners like a wide variety of choice, to suit individual learning style
• The learning is often part of a structured program, resulting qualification or accreditation
• Millennial learners expect a digital offering

In Asia, instructor-led classroom training is a popular form with a mixture of lecture, group discussion, break-out exercises and role play. Some of the reasons classroom learning may be more effective in Asia are:

• Individual learners may expect their managers to identify the learning that is required
• Good sponsorship and support of the training from senior leaders in this region
• Due to regional culture and school education style, a facilitated approach is preferred
• Learners value institute or university qualifications and would rather travel to learn than receive online learning
• Learners appreciate access to an expert tutor, to whom they can pose questions related to their own procurement challenges

Conclusion

Procurement professionals face common challenges regardless of their physical location, including shifting market dynamics and variability in supplier performance.

However, our ADR tutor team observe that European and Asian Procurement professionals and their managers do approach learning and development in different ways, to suit their culture and needs.

For the global procurement leader, this is a reminder to avoid a “one size fits all” approach when it comes to learning. One must take into account the learning needs, business needs and how learners learn best.

ADR’s Development Needs Analysis skills assessment shows that the biggest skills gap in procurement professionals globally is supplier cost analysis.

This article explains how this skills insight links to recent events at Carillion.

What is is required to ensure the suppliers we select are stable?

There has been much media commentary this week about the failure of the 2nd largest construction firm in the UK, Carillion. Much of this has focused on the government purchasing team who selected Carillion. Some have criticized the buyers’ lack of rigor in the supplier selection process that allowed Carillion to be chosen as a vendor despite them not having the financial strength to support the investment.

However, most major organizations have the appropriate processes and procedures to ensure prospective suppliers are evaluated in a manner that is appropriate to the scope and scale of the project that they are being considered for. Such processes include:

1. Evaluation against customer technical requirements

The extent to which the suppliers’ proposals meet the specification / statement of work.

2. Evaluation against customer business requirements

A review of the extent to which the suppliers’ proposals meet the business requirements of the buyer in terms of availability, service, quality, cost and legal / corporate social responsibly.

3. Evaluation against customer budget requirements

A review of the suppliers’ proposed prices and actual input costs.

4. Evaluation against customer financial sustainability requirements

A review of the suppliers’ financial performance is done for risk management purposes (does the supplier have adequate cash, liquidity and solvency to initiate and sustain the work?) It is also done to seek opportunities for improvement (does the supplier have profit in line with the industry norm, does it manage its operation efficiently, according to the financial data?)

5. Evaluation against customer business values

Many organizations also attempt to assess whether their suppliers meet their business values that could include areas such as social impact, ethical behavior or problem-solving practices.

Given these well-established processes that help ensure that the suppliers we select meet our needs now and in the longer term, why does supplier evaluation and selection often go so wrong? How can it result in a supplier being selected that subsequently cannot perform according to your needs and the contractual agreement?

With over 30,000 online evaluations ADR’s online skills assessment tool has shown that while tender procedures are often applied well, what is often lacking is the right cost analysis skills to support supplier evaluation and selection.

What cost analysis skills are required to support reliable supplier selection?

1. Collecting the right cost analysis data

Every supplier proposal should include a breakdown of the actual input costs that the supplier will invest in order to implement and manage their solution. This includes:

• Direct and Indirect Labor: Wages and social costs of the number of people with the varying qualifications and skills required to perform the work. Indirect labor refers to the people performing services that are required for the project to be effected, but are not directly working on it.
• Materials: Actual prices paid for the quantities of bought-in materials, consumables, tools, supporting equipment.
• Overheads: The premises required to perform the work, and the premises of people, equipment and items that support the work. In addition, software and other enablers like licenses and maintenance to support the work. Finally come overheads, which are business costs like rent, tax and energy. Overhead costs are allocated proportionately across all the suppliers’ customers.

2. Analyzing cost analysis data

Analysis goes wrong when the correct information is:

• Uncollected – either because suppliers haven’t been asked, or asked for the right thing. Or suppliers refuse to provide the data, and this is tolerated.
• Untested – the information is given to buyers but there is no sensitivity analysis to determine what would happen if any of the conditions changed from the time of contracting to later in the agreement life. For example, market environment, currency, volume of work, political change could all impact the input costs of the supplier.
• Unchallenged – the information is given to buyers but it is not questioned. In particular, there is a lack of interrogation of the source of funding for supplier investment, inadequate review of the efficacy of the suppliers’ own procurement approach, and a failure to question the assumptions behind the costs.
• Unsustainable – the supplier has put forward a solution that will win them work but it is not possible to maintain the agreement without additional funding. They may attempt to get this money from buyers in the form of a price increase later on in the agreement life.
• Invalidated – the information is given to buyers, who fail to check its veracity. The data can be checked a variety of ways including using third party sources, site visits, and benchmarking.

3. Creating a business continuity plan

Business continuity planning involves creating options for if the supplier does not fulfil their contract through interrupted or ceased operation, unavailable or late goods or services or any other form of performance failure. To address this, the buyer should prepare the following:

a. Account cost plan

Buyers should expect that all prospective supplier bids include an account plan that details the financial investment at all stages of the proposed contract. This may include recruitment and training costs, ongoing maintenance costs, costs to replace equipment that is end-of-life, and plans to mitigate adverse cost conditions in the market. The implications to the buyer should be clear, for example the associated support and resourcing costs that the buyer will have to pay for as part of their internal business costs. This demonstrates that suppliers are considering the whole life cost of a proposal, not just the element that relates to their part of the supply chain.

b. Risk plan

Buyers should create business continuity plans with the help of their prospective suppliers. This is a plan that details what will happen in the event of supplier failure for any reason, to ensure that the operation is maintained. Typically this is included in a sourcing strategy and could include options such as additional qualified sources or temporary insourcing.

c. Forecast

Buyers should also concern themselves with the customer / service user side of the project, if the purchase is being used for external stakeholders rather maintenance, repair and operations (MRO) items for internal use. Suppliers need good visibility of upcoming requirements, volumes and changing needs. This helps them to plan their business, resourcing and procurement plan. Buyers who are able to give suppliers stable forecast information help their suppliers to give cost and financial data that is reliable, with suitable caveats included.

d. Supplier Performance management plan

Buyers and suppliers work together throughout the bid and contracting stage to jointly develop performance measures that will do several things:

1. Provide an early warning system, to ensure rapid detection and mitigation of risk elements. Such a system would highlight incidences such as suppliers extending their payment terms to their own supply chain (which is often an indication of cash flow difficulties).
2. Give an indicator of whether current performance is on track to deliver the future performance required (hence, key performance indicators, or KPIs).
3. Ensure the buyer is getting earned value. In other words, the supplier is doing what they promised to do, at the cost levels that were agreed.
4. Be adaptable in the event of variation in requirements, market conditions or input costs.
5. Motivate both buyers and suppliers to feel committed to achieving continued good performance.

Conclusion

Effective supplier selection and management requires an expert understanding of price and cost analysis combined with a robust supplier evaluation process. Organizations that train and develop their procurement people and business stakeholders in understanding price and cost will be more effective in supplier management, and are more likely to deliver sustainable, reliable supply agreements.

Introduction

The recently published DHL Research Brief entitled “The Supply Chain Talent Shortage” outlined a supply chain human resource crisis where “demand for supply chain professionals exceeds supply by a ratio of six to one”.  DHL surveyed 350 Logistics and Supply Chain professionals globally and discovered that changing job requirements is one of the main reasons that there is a lack of people to perform procurement, logistics and supply roles.  This was further explained as too few people with the right balance of professional / leadership skills and technical skills.

The Importance of Balanced Leadership and Technical Skills

ADR’s perspective fully supports this conclusion, based on our experience and research as an international procurement consulting firm.  Using ADR’s Procurement Skills Assessment Tool, Development Needs Analysis (ADR DNA), we can demonstrate the gap between technical and professional capability today.

ADR DNA has been in use since 2003.  Since then, over 20,000 capability assessments have been completed by procurement and supply chain professionals globally.

One of our main findings is a sharp division in the capability strengths for technical skills versus professional / leadership skills.  Typically, technical skills score higher, as this table illustrates.

Table 1:  Average Technical and Leadership Skills Results (2010-2017)

(*100% represents best practice exemplar in the capability group.)

Organizations that take part in the ADR DNA skills assessment survey set their own aspirations for the percentage score for each capability (“target”). These targets are typically a minimum of 40% for entry-level roles, 60% for professional roles and 80% for management roles. The data trend therefore shows a significant shortfall in the expected results for leadership skills.  The exact leadership capabilities that are surveyed vary, because ADR DNA is a customized survey for each organization.  But the most popular topics surveyed are shown in table 2.

Table 2:  Top Skills Surveyed in ADR’s Development Needs Analysis (ADR DNA) Skills Assessment Tool

Clearly, there is work to be done to ensure that the leadership skills in procurement and supply are as good as, if not better, than the technical skills.  The symptoms of this unbalanced skills mix are:

• Procurement and Supply professionals ineffective in influencing business stakeholders and executives
• Stalled career pathways, because individuals do not have the right skills to lead
• Poor supplier management approaches, resulting in unmotivated suppliers and low value delivered back to the business

The first two points are evidenced by the DHL survey.  DHL found that nearly 70 percent of survey respondents listed “perceived lack of opportunity for career growth” and “perceived status of supply chain as a professional” as reasons that staff failed to stay in the procurement, supply and logistics profession over the long term.

As for supplier management, many organizations are currently putting a strong focus on this skill, recognizing that being a customer of choice for your suppliers is a source of competitive advantage.

The balance of leadership skills and technical skills is key to supplier management success.  For example, Coventry Building Society, a UK-based financial services firm, recently won a Princess Royal Training Award for its Supplier Management Training Program that integrated both skill sets for learners in procurement and functional roles.  The outcomes are robust business continuity planning using common commercial skills.  These skills include technical frameworks as well as leadership skills such as relationship-building and influence.

Procurement and Supply Chain Talent Enablers

Given this skills landscape for the procurement and supply chain profession, the next section outlines the 3 enablers that help organizations to boost both technical and leadership skills in their teams:

1. A Procurement and Supply Chain competency framework
2. An organizational accreditation program or external certification
3. Integration of the technical and leadership skills in the learning program.

One must-have enabler of talent management is a procurement and supply chain competency framework.  This is a definition of the required competencies, how they can be evidenced and what proficiency level is expected for every role in the department.  This should have clear linkages back to the business needs, so the organization understands why these are the critical skills and skills targets.

As BCG state in their 2015 article “The Global Leadership and Talent Index”, organizations “need to put in place a leadership model that clearly articulates the competencies that their leaders should demonstrate”.  And for those “talent laggards” who still have a journey to becoming best in class at people development, they should “embed the desired leadership competencies into recruiting, performance management, and reward systems and establish structured training and development programs to develop those competencies”.

A second key enabler of talent management is a learning pathway that offers value and progression to the learner.  An organizational accreditation program or external certification typically involves the learner taking progressing through assessed formal and informal learning that is closely related to their job role.  In ADR’s experience, these yield the best results when line managers are fully involved in coaching and monitoring the on-the-job learning element, with structured tools to help guide their staff members’ efforts.

A third essential element of procurement and supply talent management is the integration of the technical and leadership skills in the learning program.  Organizations that recognize that the procurement and supply skillset is a holistic blend of all capabilities offer training that links the two.  For example, technical skills training that incorporate experiential elements such as role play and creative thinking that is relevant to current job challenges.

Conclusion

Procurement and supply continues to have a challenge when it comes to how it is perceived by suppliers, business stakeholders and prospective recruits.  This is further exacerbated by the fear that artificial intelligence may make the job defunct.  Now is the time for procurement and supply leaders to address the talent crisis and demonstrate the value that human skills bring to the role, such as empathy, mediation and facilitating creative solutions.

Supplier performance measures are a tool to determine whether your supplier is doing their work as expected. What is expected of the supplier should be as described in the supply contract or statement of work, specification, service level agreement or KPIs – or a mixture of some of these.

There are many tools to assist in measurement of supplier performance. Some are paper-based checklists, many are digitally enabled. Electronic performance measurement helps to set consistent measures for suppliers in similar categories or projects. This article will explore the benefits and disadvantages of standardized measures across different suppliers.

Before exploring this, we will provide an overview of supplier performance measures and their purpose.

Measurements for suppliers of goods and services

Supplier performance measures may have different considerations depending on whether we are buying goods or services. However, they typically address similar areas, which are important for the performance of the overall organization and its stakeholders. The table below includes some examples.

Table 1: Examples of measures of supplier performance

How should supplier performance measures be created?

Each measurement area is influenced by the business needs.  These needs reflect the requirements of the stakeholder / end user, or address specific project requirements.  In addition, the measurement area should also address the needs of the organization (for example, there may be an organization-wide requirement to improve working capital or corporate and social responsibility performance.

It is important that supplier performance measures are SMART:

• Specific
• Measurable
• Achievable
• Realistic
• Time-based

In addition, supplier performance measures should:

• be few in number (perhaps 4 or 5 critical-to-quality areas)
• not require excessive resource to manage
• motivate the supplier to meet and exceed targets

Table 2:  Examples of how supplier performance measures are created

How are supplier performance measures monitored on a daily basis?

It could be the responsibility of the supplier, the buying organization’s Procurement Department or their business stakeholders to monitor how suppliers are performing against these goals.  Often, it is a joint effort because there may be commercial consequences of the supplier performing well or poorly.  For example:

• Good supplier performance may trigger a bonus, or increased workload or a recognition incentive.
• Poor supplier performance may result in application of contractual remedies such as liquidated damages or other sanctions such as the supplier not being considered for additional projects for a period of time.

Often, periodic reviews of performance take place quarterly or annually, in addition to more routine corrective action planning.  This helps to track trends and decide if targets should be adjusted or stretched based on previous performance or changing business needs.

Should supplier performance measurement be standardized?

Having consistent measures across similar suppliers / categories or across a project has advantages and disadvantages:

The advantages of standardized supplier performance measures:

• It enables performance standard measures, but supplier-specific targets
• It helps to compare suppliers against each other, creates aspirations and cross-fertilization of good practice
• It helps to compare performance against supplier price, cost and external benchmarks
• Suppliers may perceive this consistency as equitable
• Ease of reporting within organizational systems or tools

The disadvantages of standardized supplier performance measures:

• You may wish any incentives or sanctions to be targeted to what motivates that particular supplier
  – For example, where you have flexibility to adjust payment terms to reward a small or medium-sized business or provide an award to an organization that relies on public relations successes to win new work
• Suppliers may be more committed to targets if they can contribute to the design of the performance measures or incentive scheme
  – For example, you might wish to become a customer of choice for some important vendors and want them to feel empowered to strive for goals that help them too
• The measures and targets may be specific to your supplier development goals for specific vendors, to reflect their specific capabilities
  – For example, you may wish a supplier to grow their capability or capacity to match your own organization’s requirements if they have the resources and aspiration to support you

Where the organization is utilizing digital tools to help gain a universal picture of supplier performance across a wide range of categories, projects or geographies, it can certainly be helpful to provide decision-makers with the facts they need to inform category, supplier and business strategies.  However, having some flexibility within that regime is helpful to demonstrate to suppliers, customers and stakeholders that measurement is driven by their interests primarily rather than reporting for its own sake.

Most supplier relationships start with good intentions on all sides for a productive engagement that will deliver good outcomes. Yet some supplier relationships, whether contracted formally or not, do not proceed successfully. Difficulties regarding performance, commercial or other issues, can start before the work has even begun.  Or they may emerge after many years of effective partnership.

Occasionally, the buying organization does not wish to work with some suppliers any more, even when they have strategic importance to their organization.

At ADR International, our global team has noticed that increasingly organizations are assigning a “do not use” status to certain suppliers.  In some cases this is a “word of mouth” recommendation and in others it’s a formal “blacklisted” or “banned” classification in organizational systems, such as supplier information portals.  This depends on the reason for the classification.

Typical reasons suppliers get banned from future use by buying organizations:

• Severe financial instability of the supplier
• Chronic poor performance of the supplier
• Failure to meet the buying organization’s corporate and social responsibility standards or misaligned business practices (especially in terms of values or ethics)
• Association with the supplier exposes the buying organization to risk of profit reduction or reputational damage
• Formal supplier rationalization program

Before deciding on such a “ban”, there is often an extended consultation between the buying organization’s end users, budget holders, specification-owners and other stakeholders who are involved in the supplier relationship.

Before a “supplier ban”, the following conditions often exist:

• The concerns are felt universally by internal stakeholders or by key opinion leaders
• There is evidence of a violation of organizational standards
• The situation is considered unresolvable

However, even when such conditions prevail, there may be reasons why the buying organization decides against a supplier “ban” even when the relationship is troubled.

Reasons to avoid a “blacklisted” supplier classification in some challenging relationships:

• Reciprocal relationships (the supplier is also an important customer to the organization)
• Customer direction (the supplier has been nominated by the end customer of the organization)
• The supplier is a government monopoly
• Market, capacity or capability constraints restrict the buying organization from switching source(s) or will limit future competition
• Intellectual property constraints restrict the buying organization from switching source(s).
• High expense or risk of switching source(s)

Therefore, is it pragmatic to apply a “banned” status to suppliers?  Certainly it’s a decision that should carry health warning and requires objective and balanced judgement rather than being the result of an emotional outburst.

A good practice checklist to consider before assigning a “banned” status to a supplier:

1. The first action, as always, is to check the portfolio position of the supplier and / or category / commodity.Where the supply market difficulty is “high”, the effort and time taken to resolve the challenge would typically be greater. This is because it is likely to be challenging to find a credible alternative source.
2. Ensure all important stakeholders have had the opportunity to input on the definition, impact and severity of the concern with the supplier.
3. Involve legal colleagues to determine the contractual implications and / or apply contractual remedies.
4. Check that the impact of the concern has been measured and objectively assessed. For example, is there evidence of increased claims from end customers, or an impact on quality, or impact on health and safety?
5. Document concerns using organizational tools such as a risks / issues register, corrective action planning, corporate security involvement and management escalation.
6. Evidence repeated attempts to improve the situation to show that the supplier has consistently failed to engage or improve within the agreed timescales.
7. Identify whether the relationship can and / or should be terminated, and the costs / risks involved.
8. Check that supplier senior management have been engaged and had the opportunity to provide a “their shoes” perspective.
9. Agree a business continuity plan with stakeholders, including an immediate back-up plan in the event of unexpected supply failure.
10. Apply the organizational guidelines regarding current and / or future use of suppliers.

Organizational guidelines may not stipulate a definitive communication that a supplier is now “banned”. But any supplier relationship that exposes the organization and its stakeholders to harm should be assessed immediately, regardless of the decision about how to classify the supplier.

As part of a recent consulting assignment, ADR were reviewing the average length of the supplier relationships with our client’s organization.  The organization had recently introduced a supplier relationship management (SRM) program.  The program used a governance framework that detailed the type and frequency of review meetings and performance evaluation based on supplier criticality.

Relationship length information was gathered through interviews with supplier relationship managers, spend analysis and the organization’s contracts database.

A summary is in the diagram below.

Duration (in years) of supplier relationships

There was a good deal of one-off, transactional and off-contract spend, which is represented by the high proportion of short-term relationships (less than 3 years).

What was interesting to discover was that that the relationship group least likely to have a formal contract in place were the long-terms supplier relationships (over 15 years).  Any written agreements were often on suppliers’ terms, or simply a memorandum of understanding.

The remaining groups had more use of contract types including framework agreements and standard purchase terms and conditions.  Why were these key suppliers not operating under the typical contractual arrangements?

Several reasons were mentioned for these long-term suppliers not necessarily having long term (or any) contracts:

• The purchase was for a leverage-type good or service, where any interruption in supply could be easily resolved by seeking a new supplier at short notice.
• The supplier lacked the necessary infrastructure to commit to an agreement (perhaps a lack of IT tools or inadequate compliance to the required insurances or quality controls).
• The purchase was relatively low value and not considered a priority for procurement attention.

But for many of these suppliers, long-term relationships had been chosen because the nature of the purchase was critical to the business, or there was a high risk / cost in switching sources.  This would support the importance of a legal agreement.

Some of the long-term supplier relationships had some similar characteristics:

• Specifications were often co-developed with suppliers.
• Co-developed specifications meant that business users expected to make full use of the solution before seeking alternative ideas.
• Suppliers reluctant to agree to the buyer’s terms, often after lengthy negotiations where delivery of the work had commenced prior to conclusion.

However, for some suppliers in this group, the low churn was attributed to other factors – preference by stakeholders, fear of change and a culture of long service in other supplier relationships.

The data indicated that the longer a relationship with a supplier was, the less likely that a formal agreement was in place.  This appears counter-intuitive, as you would imagine that these suppliers had been supporting the business for a long time because they were valued (and therefore a buyer might wish to secure them).

“What is the right length for a supplier relationship?” one stakeholder queried.

The answer to this question could be “It depends on when supplier relationship management was established”.

Why?  The evidence showed that many of the supplier relationships that were over 15 years in length were either consistently performing to the expectation (although seldom any better), or were chronically failing, but replacing the supplier involved pain and cost.  Long-term relationships were not a great source of additional value or innovation in this organization.

This was often attributable to the way in which the relationship had been previously managed.  None of these suppliers previously had any governance framework that allocated roles and tasks for supplier management such as regular performance reviews and target setting.  Where the supplier was non-critical, this made sense; any investment in supplier relationship management was unlikely to yield much benefit here.  But it did not make sense for those strategic or critical suppliers where the supply markets were difficult.  Here, it is essential to have a business continuity plan in the event of supplier performance failure.

In the new SRM environment, legacy suppliers were reluctant to engage in what was perceived as “unpaid work”, such as attendance at corporate supplier days.

As a contrast, the supplier relationships that had been more recently established and were also under contract had been actively managed since their inception.  These typically displayed predictable performance patterns and swift corrective actions where lapses had occurred.  Suppliers had been set clear performance expectations in terms of service delivery and relationship controls such as review meetings.

In this organization, at least, the message was clear:  The length of the relationship may be influenced by a range of factors including intellectual property management, market conditions and business continuity requirements.  However, relationships left to drift often leak value over their lifetime and set a precedent of neglect that can be challenging to redress.

Therefore, the right length for a supplier relationship is dependent on market conditions and business criticality.  But the right time to introduce SRM to the organization is now.

Before embarking on supplier relationship initiatives, most organizations try to segment their key suppliers. This helps to understand the type of relationships that currently exist, and what relationships would be most effective in delivering value.

During our training courses, we use ADR’s Portfolio Analysis model to support this analysis. We like this tool because rather than assigning suppliers a relationship classification based solely on spend value, it considers the (sometimes volatile) market conditions of the suppliers’ industry.

ADR’s Portfolio Analysis Model:

For IT contract managers, suppliers are often positioned in the “critical” or “strategic” quadrants, where the market can be challenging. This area is characterized by suppliers who have higher power relative to their customers, which they may or may not exploit for commercial advantage.  The “critical” or “strategic” positioning is due to the nature of technology hardware, software and services purchases, where (in the event of performance failure of the incumbent), supply choices after supplier selection can be greatly reduced, compared to the original sourcing options.

It may seem unusual to label suppliers as “critical” or “strategic” when there is a choice of suppliers that display competitive behavior.  The reason is that the effort and cost of switching suppliers can be considerable, due to the high investment required for the technology infrastructure.  Therefore, performance challenges are best resolved through problem-solving with the incumbent supplier, instead of replacing them.  There are advantages to long-term relationships with IT vendors, for example:

• After suppliers recover the cost of selling to their customers, they can invest an agreed sum into innovations that benefit the buyer (if the relationship is contract managed in this way).
• The suppliers learn much about the needs and constraints of their key customers.  This helps them to plan their product roadmap.
• Where the IT contract manager has agreed continuous improvement targets and rewards with the supplier, there is adequate time to implement such initiatives fully.

When ADR are working with procurement professionals, many IT managers report difficulties in the communicating effectively with IT vendors.  Such relationships are described in various ways during our training and consulting discussions.  Sometimes they are called one-sided (because of a perceived balance of power in favor of the supplier).  Often they are called acrimonious (often due to the long contracting process of complex IT agreements).  Usually, they are described as over-complicated (because of the “many to many” relationships between the customer’s IT project managers and supplier’s technical teams).  The most common IT contract manager complaint we hear at ADR is a lack of visibility of the historic and planned expenditure and total cost implications for the organization.

But the market landscape is shifting.  Typically, IT teams relied on technology or solutions requiring a fixed infrastructure.  Now, more organizations are moving to the cloud for their IT solutions, making use of the Software-as-a-Service (SaaS) model.  This means that the underlying technologies and platforms that support the software are not rigidly tied to the customer’s organization.  In the former model, there was high dependency on a few suppliers.  Customers often perceived the suppliers as complacent.  In the cloud environment, the stakeholder is theoretically free to switch solutions where another option would yield better value.  In practice, there could still be challenges in switching source (for example, changing processes, practices and messages to the user).  But the IT vendor recognizes that a “take it or leave it” attitude is ineffective, and this opens up a constructive dialogue with their customers.

The impact of cloud computing on the IT contract manager can be summarized in this SWOT analysis:

SWOT analysis of the impact of cloud computing for IT contract managers:

So how could the IT contract manager respond to this environment, to optimize the current and planned IT spend in their organization? These tips may help:

• Understand the global relationship with each vendor in terms of spend, stakeholders, projects and their associated lifetime costs.  Then, ensure there is an IT contract manager responsible for coordinating the management of the master services agreement, project bids, approvals and performance across the organization.
• Determine the gaps to an effective working relationship.  ADR’s Supplier Relationship Needs Analysis tool is a 360 degree feedback model for supplier evaluation, addressing factors like trust and attitude.  Such tools avoid a subjective assessment approach.
• Link suppliers’ likelihood of winning new projects to measured success in current assignments.  This will keep suppliers constantly motivated to perform, innovate and learn about your needs.
• Don’t neglect the sustainability agenda.  Even with the Software-as-a-Service (SaaS) model, there are still physical purchases and movements in the supply chain.  The customer should consider how their buying behavior is contributing to the reduction and re-use of waste.
• Make a conscious effort to understand relationship style and whether it is helping or hindering the motivation of the supplier to perform well for you as a customer.  ADR’s supplier relationship style quiz is used during our training courses, and is good place to start assessing the most suitable style.

Cloud computing brings opportunities to improve both supplier competitiveness and the dynamics of existing supplier relationships.  This should prompt IT contract managers to re-evaluate their desired relationship outcomes with current IT suppliers.  A subsequent change of expectation, performance measures or relationship style could alter the agenda and style of the next supplier performance review meeting.  Most importantly, it could reenergize the relationship and bring all parties together to explore how it could yield greater value.

During the start of the year, corporate teams often approach ADR to plan their training program for the year. Our initial discussions are typically around the objectives, in terms of what the organization hopes to achieve after the learning has been applied.

This can sometimes leave learners asking “why are we here?”. They don’t understand why they have been extracted from a busy work schedule to attend an event they see as separate from their daily work.

Organizations organise training for a variety of reasons, most often:

1. They are training to communicate something to people (a new process or policy).
2. They want people to do things differently, and get improved outcomes as a result.
3. They have a training budget that needs to be spent.

These reasons may all stem from good intentions, but the learner must be personally engaged in order to change their thinking, practices and behaviour.

The American adult education expert Malcolm Knowles explored the theory of effective adult learning in the late 20th century, and developed it further in the 2015 book “The Adult Learner: The definitive classic in adult education and human resource development”. His concepts remain core to corporate functional training. They can be summarised as follows:

• Learners must be able to understand their learning needs
  • “why do I need to learn this?”
• Learners must be able to help design their learning to suit their own styles
  • “let me direct my own learning”
• Learners must learn through experience
  • “I learn from sharing stories with people who had similar experiences”
• Learners must be ready to learn
  • “this is suitable to my skill level”
• Learners must see the relevance of the learning to their daily work
  • “this will help me do my job better”
• Learners must be motivated to learn
  • “this is fun and will do good things for me”

Training managers can help learners to not only understand why they are attending training, but also be motivated to apply the learning for powerful results. For example:

• Help students to identify their own learning needs, using a tool such as ADR’s Development Needs Analysis. It is useful to discuss the outcomes with a line manager, reviewing strengths and personal goals.
• Foster a supportive learning environment. For example, in the training invitation, tell learners that training is a place for open ideas exchange, not a passive “lecture” environment.
• Help the learners use their full capacity to benefit themselves, as well as the organization. To bring this to life, you could use post-course evaluations forms to ask learners how can they use the learning in the work place and beyond, for example through better influencing and mediation skills at home.

The field of learning and development has many options for learning types and content to excite and enthuse learners. But the key decision making criteria for the training manager should be how the learning inspires the adult learner to learn for their own growth and satisfaction.