5 Tips to Successful Supplier Governance
As leaders and project managers, dealing with suppliers is often a part of our job. However, we often need more time to focus on supplier relationships and account management. But we know it is important. Supplier spending and delivery quality are key parameters for many of our projects today. So how can we ensure that we are managing the Suppliers, and they are not managing us?
Using my simple one-page document for inspiration, I take you through the key components of a governance model and the supplier relationship management behind it that can allow you to take control of your vendors.
Why Supplier Governance Matters
Whether you're working on a project as a supplier or a customer, governance can help you improve -
Expectation management between both parties
Document specifications and requirements
Confirm and agree on ways of working
Strategic planning based on order forecasting and service offerings
Assessment and resolution of issues
Shared goals to benefit the Long-term relationship
Want to download the document for reference? Do that here.
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If a video would help, here is my 7 min summary of the benefit and process.
When both the Supplier and the customer have a transparent process, all related communications become easier to manage. And creating a document for quarterly or annual review allows for clarity that memos and emails often don't provide.
Below I provide my 1-page Governance model for inspiration. Governance models need context. Depending on the Supplier, product, and relationship, the model may be a multiple-page document or one infographic-style summary (as my example shows here).
The process behind this document is based on sharing information and a joint conversation. A Governance model is meant to facilitate discussion, agreement, and action. It does not replace a memo. Just as managers know they need to meet with their teams to build consensus, supplier relationship management requires presence. Building a relationship is about making a connection. That might be face-to-face or virtually, but discussion and a shared understanding are core to the account management concept.
Know where they stand in the relationship. Suppliers know where they stand now, even if they have another way of working. Governance models can be instituted as long as there is a mutual agreement.
Supplier Relationship Principals
1. Create a shared method or process
Building a shared process year over year allows for a common language to develop, which helps create a more structured relationship.
2. Agree on how work and outputs are valued
Using scoring and other objective tools lays the ground for fairness and consistency. Using comments to document the reasons why valuations where given helps to provide balance to the relationship - both parties can have and share their view on the relationship
3. Share the bigger goals, not just the work at hand
Often the day-to-day work with Suppliers focuses on execution. Relationship Management and Governance give both parties time to discuss the goal beyond the current work. Allowing both parties to share the bigger picture can give opportunities for mutual innovation, better planning, and a deeper understanding of each other's business models.
By following the above principles as part of your Governance and relationship management, you can reap benefits for years to come.
The results are significant — both in terms of results and increased trust. Examples of where relationship and business models were aligned a Harvard Business Review study found that:
Both parties showed double-digit cost savings that yielded higher profits, and
Trust also increased, rising 22% by 2019. Relationship health continued to climb and by 2021, had risen by 35%.
HBR 2022 - Ways to Build Trust with your Suppliers
A one-page Supplier Governance Model
This example document has 5 main sections. Let's review each.
Clarify the Supplier Relationship “house rules”
Start by making clear who is submitting and accepting the document and actions to be taken. This can be as simple as naming the parties involved in the document and providing the dates submitted and accepted.
As a client, I prefer to own this document as it is my way to manage the relationship. While the Supplier’s organization may request an annual customer satisfaction survey, this document contains deeper and broader content. However, if you are Supplier and your Customer does not provide such a document, why not suggest it and draft the first version for discussion? This can be another a value-add to your client service levels.
Next define the Single Point of Contact (or, SPOC) for the supplier, this may be a team or a central responsibility party within your organization. This is a good practice to keep the many side discussions between various departments centralized for overall account management at the company. There may be several SPOC’s depending on the product line or service type, which can still limit the ‘cross talk’ between the organizations.
Make sure your rules on SPOC communications are clear and established to avoid confusion. But also make sure the access and details for the SPOC are known by the Supplier. In turn, ask your Supplier for an Account Manager or Service SPOC to create a counter part for your Company contact.
Share your Corporate Goals and Needs
Take a moment to share the bigger picture to allow your Supplier to understand how they fit into your organizations objectives. This allows for broader things by both parties, which can lead to a deeper appreciation for the organization, and the ability to think beyond the tasks of today into where innovation can unlock new value for both parties.
Also, share the ways of working: how you contract, order, and process requests on your side. This can help create transparency when dealing with issue resolution.
When sharing your expectations of the Supplier, try to even the field amount like Suppliers by creating consistent requirements where possible. Use data or KPI’s to show how you value what you value.
Let the Supplier have their Say
Good relationships require a two sided conversation. So give space for your Supplier to share their business model, products, strategic goals and ways of working. This will help give the Customer better insights into how things get done and how to avoid miscommunication.
Add Clear direction with a Supplier Score Card
This simple scorecard puts the Client in the driver's seat and gives clear feedback and direction for improvement for the Supplier. You can weigh the overall score or make it a simple equation. The absolute numbers are important, but so is the ranking for similar Suppliers. Note Supplier ranking should be used within your organization and not for sharing with other Suppliers. However, it is helpful to assess similar Suppliers simultaneously and rank them to understand who is providing the most value and which Supplier needs to increase their scores to continue to work with you. This insight can help management within your company treat Suppliers fairly and more objectively.
Agree to the Joint Improvement Plan
Key to the review of the issues is agreement on what happens next. An improvement plan should be the outcome of the scorecard assessment and the governance discussion. Including a timeline and action, ownership can ensure the issues are tracked and resolved. If issues are found, a follow-up meeting should be planned to ensure issues are addressed and any joint issues that require alignment are successfully implemented.
Governance models and relationship management does not have to be complex or difficult. Keeping things simple and tracking just a few KPIs can help both companies focus on the most important parts of their relationship.
What do you think? Have you been successful with a Governance Model? If so, please share your experience in the comments below. Thank you.
