Supplier Diversity – Contract Management Issues and Tips

Last week, as part of our series on supplier diversity, we looked at the core supplier selection stage of the process and how it is easy to unconsciously make it difficult for diverse suppliers to win work.

So today, let’s assume we got through this, and with user-friendly, genuinely open and accessible processes, we have ended up with a decent population of diverse, high-performing, dynamic and innovative suppliers. Job done? Maybe not.

Even once we’re in the contract and supplier management phase, there are points that we need to keep in mind when we’re dealing with different types of supplier. I’m particularly thinking here of being aware of their size – frankly, at this stage, I’m not too concerned whether they’re minority or veteran owned.

When I did some work for government in this area a few years back, one complaint I often heard from smaller (SME) suppliers was that contract management processes were too onerous, particularly given their size and therefore resource levels.  Requests for monthly account management meetings in some distant part of the country might not be too big a deal for BT or IBM, but for a small software company based 200 miles away, that might mean taking a key person out of action in a way that the business just can’t afford.

Equally, we should ensure that requests for data, whether in term s of contract management metrics or ad hoc requests, are reasonable. Of course contracts need to be managed properly, but the burden on suppliers should be proportionate. Really, these are good practice points rather than anything specific when dealing with diverse suppliers; but the issues are magnified when we are dealing with smaller firms in particular.

Another set of issues arises in the area of finances and payments. Paying in line with agreed terms is, of course, something professional procurement people and organisations should be doing naturally. But if we don’t, small suppliers are likely to suffer more, as they usually have less of a financial buffer. And I’m  sure none of our readers would issue unreasonable demands for discounts, or extend payment terms unilaterally, but it does happen and again, this is likely to be harder on small suppliers than on the big firms.

Even putting additional business the way of small suppliers needs to be handled carefully. The data shows that many firms go out of business during a period of over-rapid expansion rather than from lack of work. Working capital is a key issue for all suppliers, but it’s worth keeping an eye on this with smaller suppliers in particular if we want to grow our business with them.

Going back to the reasons why we may want to work with diverse suppliers, the desire to find and use innovation from the supply base is high on the list. So developing strong relationships and including diverse suppliers in SRM (supplier relationship management) programmes can have mutual benefits – helping the buyer for sure, but collaborative working can help the supplier develop their own approaches and business. However, bear in mind the point we made above around scare resources in smaller firms.

Summing up then, once they are in the delivery phase, diverse and smaller suppliers don’t deserve to be excused poor performance. But be conscious of the different pressures that they may face, and be aware of what your contract management process looks like to a smaller or inexperienced firm, or one that hasn’t worked with you before.

First Voice

  1. Justin Lambert:

    I acknowledge that SMEs have as a rule smaller less dedicated teams, carry lower levels of insurance, may not have mature business policies and procedures, and may be put off by overly complex tendering and contracting processes but by making small, manageable changes to tender and contracting rules (not to the detriment of the process or outcome) and carrying out some basic supply market analysis against your spend profile and categories, there is a high probability you can meet the needs of the business to Source goods and services at the highest geographical level and still think local benefit and actively include more SMEs.
    I fully support and agree with Peter’s comments especially around financial risk, although there is no legislation that stops any company having long payment terms what should be clear is that any term must be agreed up front and as part of the tender and subsequent contract negotiations and of course as per the “DIRECTIVE 2011/7/EU on combating late payment in commercial transactions” period for payment fixed in the contract does not exceed 60 calendar days, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor. It should therefore remain possible for parties to agree on payment periods longer than 60 calendar days provided such extension if not grossly unfair to the creditor.

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