In our penultimate blog looking at business management in the people function we’ll be taking a look at supplier (or vendor) management. If you missed the previous blogs we talked about the overall principle, including a look at finance. We’ve also looked at strategy & planning, projects and risk management and thanks for all your comments to date! Choosing a supplier or negotiating a contract will not be covered here, instead we’ll focus on what needs to be in place after the contract has been signed.
So, why focus on supplier management?
As a function we tend to use a number of providers to deliver services. This can include things such as payroll, benefits and pensions admin. Through to training providers, recruitment agencies and executive coaches. In fact it can be a very long list of outsourced or supplier delivered services if you actually take time to count them all. It wouldn’t be unusual for a large organisation to have many hundreds of suppliers for the people team. Likewise even a small business can have a number of key providers.
You may wonder why the people team have so many suppliers, or that may be a question that’s been asked of you ? Well, its not surprising considering:
- the wide scope of a people teams remit i.e. recruitment, talent, payroll, succession planning, development, mobility, business partnering, operations etc.
- the complexity within certain areas i.e. payroll and mobility, especially if you operate across multiple locations.
- the specialist knowledge often required, so for example employment law, coaching and pensions etc.
- the volume of work, so using suppliers to supplement the people team headcount. Sometimes it’s the balance of cost and headcount within the people team.
In fact the CIPD’s business acumen section of their professional map now recognises the value of supplier management. So theres clearly recognition that suppliers are a key part of delivering people services.
Fine, but why focus on managing them?
A question often asked is ‘isn’t that what purchasing are meant to do’? Well, it does depend on how the organisation manages purchasing. For instance you may have a dedicated purchasing team who may or may not manage the supplier once appointed. In some cases its the role of a line manager to engage and manage suppliers. However, no matter how it’s managed we would always suggest that the people team play an active role in managing their suppliers. At InFocus we have seen too many examples of poor supplier management, leading to issues such as:
- a payroll failure, just before Christmas! The supplier had to evacuate their office and their business continuity plan didn’t take that situation into account.
- an unexpected and un-budgeted price hike. The price increase wasn’t being tracked, even though the detail was in the contract.
- a data breach. An internal change of process wasn’t communicated to the supplier.
- poor service. Employees and line managers not able to get answers to even basic questions within agreed service levels.
These are problems because firstly it can create a poor view of the people team i.e. bad service. Secondly, it can take more work and/or cost to fix the problem. However, more importantly it could lead to legal and/or regulatory action against the organisation, leading to costs, sanctions and reputational damage.
So, how should we manage our suppliers?
Firstly decide how. So, you can either hire a dedicated supplier manager, leverage your business manager or give the accountability to the teams who use suppliers. Surely this just adds cost? No, don’t underestimate the payback from having a supplier manager, just having their expertise in place could cover the cost of the role many times over. One option would be to have a supplier manager (or external consultant) for a fixed period to get the processes and training in place, the accountability then moves to each of the team managers on-going. You should aim to put the following in place, no matter which option you chose:
- collate a list of all suppliers and assign a RAG (red, amber, green) status based on:
- whether an actual contract is in place, its amazing how many times there isn’t an a documented contract…..
- contract expiry date – this will help with your strategy & planning activity
- whether monitoring or tracking of service levels takes place
- value of contract
- who in the team owns the relationship, if anyone
- assign a supplier priority – we’ve often used things like bronze, silver and gold. Your gold suppliers for example are business critical.
- agree the accountability split between purchasing and the supplier manager, this will save time and confusion.
- prioritise working on the red status suppliers (and then work through to amber ones) focusing on:
- agreeing who is accountable in the team;
- if there isn’t a contract, getting one agreed;
- arranging an initial meeting between supplier, supplier manager and the accountable person to agree ways of working and to prioritise fixing any significant gaps;
- setting up regular (i.e. quarterly) review meetings to focus on things such as actions, service levels, escalations and providing two way business updates.
Do we do this for every single supplier?
Your priority & RAG status supplier list should determine which suppliers to focus on first. This will help determine the risk i.e. an outsourced payroll supplier would be a higher priority than an individual executive coach.
A good rule of thumb would be to assume that any outsourced services i.e. the supplier undertakes the activity fully on your behalf, should be a priority. They tend to carry greater risk in terms of financial, service and reputation should something go wrong and therefore need closer management or perhaps partnership.
When choosing to outsource any service, agreeing the supplier management principles as part of the initial contract will be critical and most suppliers would expect to see supplier management from their customer.
Further insight into Business Management
Next weeks final blog on business management within the people function we will be focusing on analytics!
If you’d like to find out how InFocus HR can help you with your supplier or wider business management approach then click here for more information.