Guidelines for Buyer-Supplier Relationships
The Global Sourcing Association
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Guidelines for Buyer-Supplier Relationships

Following our inaugural Enhancing Buyer-Supplier Relationships SIG, the NOA has produced a set of guidelines summarising the conclusions drawn during the session.

Innovation

1) Before contracting for innovation, buyers should properly assess their goals and whether innovation will really benefit them.

Driving endless cost-efficiency through the contract will inevitably stifle the potential for innovation. Assess your priorities early on, and decide which out of lower costs and innovative processes is ultimately more valuable to you and your stakeholders.

2) If innovation is a priority, both parties must settle on an agreed definition of “innovation” prior to signing any contract.

Innovation can be an ambiguous term – misunderstandings at the start make for problems later on.

3) Once a definition has been agreed (and if innovation is a priority), incentives for achieving innovation on the provider-side should be contracted for.

4) Many organisations on both sides of outsourcing have achieved success by setting aside a specific “innovation pot” that is specified in the contract.

This can be allocated through service credits, as you will see later on.

The conclusion on the day was that innovation is a dangerously vague term that needs a firm definition when the contract comes into play. Once this is agreed, processes can be put in place to increase the chance of achieving innovation that is recognised by both service provider and client. People were also seen as of paramount importance –having the right people involved is the key to innovation, more so than the technology used or contract terms.

Discovery

1) Consider employing a third-party to conduct due diligence prior to a contract being signed by buyer and service provider.

This should result in an unbiased assessment, from an advisor who has plenty of time to dedicate to identifying potential problems. That said, it’s important for both sides to play a role in bringing the third-party in to avoid any potential bias – buyer and service provider should ideally come together to pay for the service, and remain in communication with the third-party.

2) Buyers of outsourcing must commit sufficient time to conducting their own due diligence thoroughly.

3) Those responsible for running the contract and services long term on both sides must be involved in the contracting process from the get-go; not just sales and procurement teams, as there’s often significant disconnect between these separate functions.

The conclusion on the day was that using a third-party to conduct due diligence definitely has its benefits, but there was still a healthy amount of scepticism regarding the value of this choice. Can anyone really understand the needs and issues of the companies involved better than themselves?

Governance

1) Consider using away-days and other team-building activities to bring both sides together, and make governance easier and simpler long-term.

On the day, those that have held away-days and other similar team-building activities couldn’t speak highly enough of them – they can serve to deliver a very open outsourcing relationship, that might’ve previously been seen as impossible. That said, there’s a fine line between buyer-supplier friendship, and unwarranted favours and allowances. Relationships need to remain professional, in the off-chance that things go south.

2) Regular governance meetings are a must - they should be regular, change in form as services change, and be attended by directors, the C-suite and stakeholders whenever possible.

Buyer-supplier SIG attendees agreed that regular governance meetings often serve to prevent scope creep.

The conclusion on the day was that the importance of governance cannot be overlooked, but often is – a quick poll of SIG participants suggested that service providers saw governance activities as a higher priority than the buyers in attendance (although it must be said that both valued governance very highly).

Contracting

1) An idea that is increasing in popularity is the implementation of a “Playbook” for every outsourcing contract– a one-page, non-legal document summarising the most important elements of the contract.

The Playbook summary would serve to capture the spirit of the contract and list the goals of the partnership. This would then be the first go-to resource in the face of any potential disputes, helping to find an amicable resolution prior to any penalties or lawyers getting involved.

2) A set of guiding principles can also be drawn up and used to introduce new team members, providers or advisors to the deal.

The conclusion on the day was that these resources would help to keep the softer side of any outsourcing relationship positive, and prevent the premature use of punitive measures.

Trust

1) Prior to the signing the contract, buyers should arrange visits to the service provider’s sites.

This allows buyers to meet their potential service teams face-to-face, and get a feel for the culture of the provider. A business’s culture often dictates the behaviour of its staff.

2) Service providers should not avoid admitting any mistakes made to the client early on; buyers should reward this honesty, and aim to be as honest as possible themselves.

By not leaping straight to punitive measures, buyers can nurture relationship trust, and gain a better understanding of the strengths and weaknesses of their operations long-term. In these situations, the carrot is usually preferable to the stick.

3) When punishments are enforced, buyers should always give service providers the chance to earn back lost service credits.

Buyers can even create a service credit pot to serve as the innovation fund.

The conclusion on the day was that honesty is very much a two-way street. Make a point of being honest yourselves, and your outsource partner will follow suit, more often than not. Participants saw openness and communication  as the two elements most essential to fostering trust.

The Global Sourcing Association
The Home of the Global Sourcing Standard