The adoption of a new supplier, or the replacement of one supplier with another, represents a significant change where the product or service supplied is important to the buying organisation or where the supply contract represents significant expenditure. To minimise operational and financial impact of this switch, a number of key issues should be put into consideration.
• Negotiation and preparation of product or service specifications, service level agreements and supply contracts, so that there is clear understanding of the expectations of both parties and how the relationship between them will be managed (in terms of communication and collaboration, quality and performance management, dispute resolution and so on).
• The contract should include a negotiated transition plan, detailing the risks and responsibilities of both parties in the changeover process, including the identification and ironing out of unforeseen problems or issues. There should also be provision for acceptance testing (measuring the quality and service provided against requirements specifications) prior to adoption of the contract, perhaps during a trial period or pilot programme.
• Readiness of stakeholders, systems and infrastructure for the implementation of the new contract. Buying and supplying organisations must have plans, controls, systems and resources in place to handle the logistics, inventory, quality and other operational implications of the contract. Staff in both organisations needs to be aware of the new relationship and their responsibilities within it. Customers may need to be made aware of any implications for quality or delivery.
• Different changeover approaches may be used. A trial Period or pilot programme, for example, allows buyer and supplier organisations to test their readiness, identify issues and iron out problems prior to acceptance or full implementation. Direct or phased implementation may be used, depending on whether there are discrete sub-sets of the service that can be phased in incrementally. Some variation of parallel running may be used, where the outgoing supplier’s activity is progressively reduced or ‘ramped down’ while the incoming supplier’s is ‘ramped up’. A ramp- up/ramp-down phase gives all parties a chance to adjust with minimal disruption (and the chance to measure die’ new supplier’s performance against the old).
• Contract management and review, to ensure that; co-operative working relationships are built with the new supplier; shortfalls on agreed specifications or service levels are followed up; any changes to contract terms are systematically documented and managed; and continuous improvements are built into supplier performance over time. (This will be particularly important for outsourced services, in. order to retain control over the activity.)
In any change of supplier, there is a risk that the current supplier may attempt to disrupt the transfer of business to new suppliers for a new contract period, or may simply lose motivation to provide the required service levels. A range of contractual provisions may be used to minimise this risk, covering: the outgoing supplier’s co-operation in the transition period; handover of work in progress, assets and documents; and the sharing of any data and reports required to facilitate transition or minimise disruption to routine operations.
Incentives may be used, in the form of loyalty or performance-related bonuses or positive supplier rating, to motivate the supplier to provide quality service right to the end of the existing contract. Where necessary, however, sanctions may be applied to enforce the terms of the contract and service level agreement for the full duration of the contract.