Educating the Supplier

A frequent cause of conflicts between the buyer and supplier is because the two companies simply aren’t compatible or there is a disconnect between between the companies. A Buyer does pre-qualification of suppliers to understand more about the supplier and their capabilities. A step that is frequently missing is the buyer educating the supplier on what doing business with the buyer will be like. That includes sharing with them your hot buttons and explaining to the supplier what you can do or can’t do with respect to other groups such as accounts payable, royalty payment administration. It may also include disclosing some of the internal processes that you must follow that will impact them or that they may need to follow or interface with.

Many years ago when I managed construction procurement for a computer company we hired a number of architect / engineering firms to design the facilities and manage the construction. Those firms were usually local to the area as we wanted them to be knowledgeable of the ins and outs of doing construction in that location. Every potential client to these firms is different. Some clients would give the firm complete control over the design. Companies like developers might strictly focus on cost and not care about operating costs as those would be passed on to the tenants. Our company was different from those because we had our own architects and engineers for every discipline on staff. We had program managers that were also engineers to manage the design and construction of the building and to interface with the internal client. So in interviews I would explain to the design firm that we knew what we wanted as we had built a large number of buildings in the past. We had a staff that would be actively involved in the design from all aspects. The CEO of the company who we referred to as the Chief Architect had clear preferences in terms of the types of designs and materials he liked and our architects would clearly manage to those preferences. We had engineers that had specific preferences for building systems and materials. We also had developed clear design standards that we wanted our buildings designed and constructed to. We also negotiated fixed fee contracts because we didn’t want them to get less of a fee if they helps save us money and we also didn’t want them to over-design or over-specify the design so they could make a larger fee. I also would explain to them our approach to managing construction was different from other companies. Instead of relying on the firm, we would have a manager on site, hire independent firms for inspection and testing of certain things and our Project Manager would manage and control the activity. The goal of all that activity was to try to avoid compatibility problems.

At the end of the discussion it would usually be very clear whether that approach and type of relationship would work for them or would be a problem. If you take the time to do that you will quickly see suppliers that may have a problem with it that could create conflict and not consider them. For the supplier that you do select telling them what they can expect up front helps eliminate complaints and conflict during the program. They were told in advance what they can and should expect.

As I was writing this blog I could an excellent example of a disconnect in progress. My wife was talking with a supplier where both parties were obviously upset. Her supplier was unhappy because they hadn’t been paid. My wife was upset because the company that she works for does not accrue purchase orders for payment. If a payment against an order to be completed in one quarter isn’t paid, that funding is lost. That means the payment would need to be paid out of the next quarter’s budget, reducing the amount of the budget. The disconnect and problem arose because the company’s practice requires separate tax invoices.The supplier submitted an invoice that included the taxes. Since they require separate invoices and since the invoice amount with taxes was in excess of the Purchase Order amount, the invoice wasn’t paid. The problems could have been eliminated if the buyer educated the supplier on its invoicing requirements and made sure that the suppliers people who generate the invoices knew the requirements. It was on the P.O. but sometimes that's not enough.