One of the greatest challenges that the majority of organizations face in both the public and private sectors in terms of driving best value decision-making is supply base erosion.
Almost irreparably damaged due to the ill-advised application of strategies associated with broadly rationalizing the supply base and low cost country sourcing to name only two, the majority of supplier development, engagement and utilization programs are little more than exercises in futility.
White Paper “Leveraging Government Credit Strength as a Means of Implementing Effective Supplier Engagement Policy” January 2010
With the release of my second book this month, I have been doing an increasing number of interviews on a variety of shows discussing branding in the emerging world of social media and social networking.
One of the questions that I am asked with increasing frequency is how does one, be it an individual or company, distinguish their services and/or products in what is rapidly becoming a sea of information overload. Or to refer to the title of one of Dr. John Ullmen’s books “Which Bird Gets Heard? How to Have Impact Even in a Flock,” how can you as a company stand out from the proverbial crowd.
Part of my responsibility to the readers of this blog is to filter through the incredible amount of information with which we are bombarded each and every day. This includes combing through countless press releases, webinar invitations and other such announcements to try and identify information that offers real-world relevancy as it relates to emerging practices and solutions within the supply chain world.
This doesn’t mean the simple regurgitation of information that is readily available out there in a variety of formats. This is one of the reasons why the traditional press release has lost a great deal of its luster.
What it does mean is to look for the distinguishing aspects of a particular development or offering that provides a new and even unique perspective that in turn can be used to make 360 degree decisions. In other words challenging where necessary, accepted thinking through a broadening lens of increased understanding.
Of course, this represents the need to look beyond the comfort zone of just getting through with increasingly limited resources and greater service demands. A mindset that is especially true during challenging economic times. In short, there are the day-to-day imperatives that take precedence over the investigation of new, and perhaps even better ways of managing an organization’s supply chain.
When I was President of a publicly traded company, I can readily recall receiving innumerable letters, e-mails and the like presenting ways to do things better, faster and cheaper. Perhaps some of them could actually do what they said, but given the demands of the position during what was one of the most tumultuous periods in recent business memory (yes, the dot com bust), competing priorities occupied a great deal of my time and energy. The irony of course is that had the circumstances been different in more than one instance I would have likely both entertained, and even aggressively pursued a number of the “solutions” being presented.
This of course brings us to today’s post and more specifically the soon to be released white paper ““Leveraging Government Credit Strength as a Means of Implementing Effective Supplier Engagement Policy.”
One of the biggest challenges that buying organizations face is the stability of their supply base. As a result of rationalization programs and less than effective supplier engagement and development initiatives, a reasonably large number of companies find that they are dealing with a steadily declining number of suppliers. In other words, especially in the public sector, the Pareto Principle or 80/20 rule as it is more commonly known tends to reflect this unbalanced ratio of business distribution throughout the supply base.
During good economic times this is not a problem. However, when the cyclical nature of the market kicks in and the economy tightens the collective belt, the absence of diversity ultimately manifests itself in a number of unwanted ways. This includes the increased risk of longtime suppliers going out of business.
The reason this happens is that the stronger the relationship with the supplier, and the resulting steady stream of revenue that is directed towards a trusted and reliable partner in many instances weakens the vendor as they are less prone to diversify their revenue base. In short, they become victims to their largest client.
I can remember a discussion I had with a senior executive from a major ERP vendor who indicated that it was unlikely his company would pursue a large government contract as it was being presented, as it would potentially put them at risk. My initial reaction was how can winning a large government contract put a supplier at risk?
Patiently, he explained that besides the heavy costs of responding to the bid request, if successful the company would have to allocate a tremendous amount of resources to managing and fulfilling the contract requirements. So even though there were a great many millions of dollars that would flow into the organization, the level of resource commitment would mean that they would not be able to pursue other opportunities. In essence, winning would actually take them out of the game and increase their dependence on a single client.
Of course, and as illustrated by the Royal LePage property management contract with the Federal Government of Canada, having had a long-term contract meant that they forfeited both business opportunities and market share. So when the contract came up for bid, LePage was put into a “must win” situation or likely face having to make serious layoffs.
While not the same as the long-term contract coming up for renewal scenario described above, the economic decline has meant that many of the suppliers who have become accustomed to a steady revenue stream from one or at most two main customers are now seeing their earnings cut by as much as 80%. A fact that was reflected in a June call-in show on the Commonwealth of Virginia’s eVA program review.
One owner indicated that his company was now turning their attention to pursuing government contracts because their clients in the private sector were no longer ordering at the rate they had been prior to the economic crisis (which doesn’t appear to be coming to an end anytime soon – especially given key indicators such as the unexpected decline of new house purchases). As a result, and for the first time in a long time, they were now looking to replace at least part of the lost revenue by winning government contracts.
This means that both buyers and suppliers are dealing with a difficult situation. From the supplier-side, they have to find a way to keep the lights on and are thus looking to generate revenue from markets from which they have been largely absent for some time.
From the buyer-side, and in addition to addressing the increasing risk associated with a diminished supply base, they need to find ways to entice many of the suppliers who had moved on to other opportunities when the bulk of the business went to the preferred vendors.
All-in-all, not a good situation for anyone.
The question is simply this, what is the answer.
This is where our newest white paper should prove to be invaluable. While it focuses on Elcom Corporation, whose supplier engagement and retention solution has played a key part in the Government of Scotland’s ongoing procurement success, it is the elements that extend beyond the technology that deliver the greatest and quite frankly most innovative approaches to a jointly-managed engagement methodology.
I will of course leave it up to you to decide how this can apply to your particular circumstances. In the meantime, look for the white paper release notification within the next few days. You can also check out the Elcom Profile Page here in the Procurement Insights Blog.
Procurement Insights 
Posted on January 15, 2010
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