How to get the best results from service providers

BRAND ACTIVITY

Jul 29th, 12:04

Global supply chain expert shares his insights with SA professionals

Service providers like consultants, technology firms, logistics specialists and contract manufacturers play a crucial role in how most companies’ extended supply chains operate today. But many firms struggle to manage these suppliers.

International supply chain pundit Kevin O’Marah stresses that the importance of getting this right is so great that a whole methodology has grown up over the past decade or so under the twin banners of “supplier performance management” and “supplier relationship management”. “Many large companies now have individuals or, in some cases, entire functions dedicated to improving the results they get from third-party providers,” he notes. “And it’s an area that has continued to grow despite - or perhaps because of - the severe economic pressures in many sectors during the past five years.”

The challenge, O’Marah contends, is for companies to manage their service providers in a way that delivers optimal value for money for their customers and enables their businesses to grow and prosper in a competitive marketplace. He shared his insights on this with South African business professionals at a series of presentations hosted by IMPERIAL Logistics, where he also discussed the findings of the latest research on the subject conducted by SCM World, the leading global community of senior supply chain professionals.

The groundbreaking SCM World field study involved more than 400 supply chain and other practitioners, O’Marah explains. It examined which service providers and capabilities have been most successful and why, and also looked at the best ways to manage and collaborate with service providers.

“A key finding is that those who use deeper forms of engagement and interaction effectively with their key service providers, such as a governance model for the relationship, report more successful business outcomes than those who only use the fundamentals of RFP-based sourcing, service-level agreements and key performance indicators,” O’Marah reports. “Our data indicates that this is particularly true in logistics and transportation, as well as warehousing and fulfilment - the two areas of supply chain capability most widely bought in from third party providers.”

He asserts that getting the best value from key service partners over the long term requires a strong alignment of business interests and a collaborative, rather than purely transactional, style of relationship. “Discussions with supply chain practitioners across a range of companies and industry sectors suggest that there are five broad areas of good practice for those seeking to deepen their engagement with service providers.”

Elaborating on these key areas, O’Marah explains that the first requirement for a successful supplier relationship is to set it up on the right footing at the outset. “Taking a collaborative approach from day one means aligning interests, processes and systems during the sourcing stage; getting suppliers’ input on service design and metrics; and awarding longer-term contracts that give providers the confidence to invest.”

Engaging in open and ongoing dialogue with service providers is O’Marah’s second recommendation. “Collaborative companies actively share both operational and strategic information (from demand forecasts to business strategies) with their key service partners to enable them to continuously refine and improve their performance. They also help them to understand and navigate the organisation’s cultural nuances and ways of working.”

His third piece of advice is to build personal relationships between account managers. “Establish honest communication and trust between an empowered ‘single point of contact’ at each company - a key account manager on the provider side and supplier/contract manager on the client side. This is essential for making the relationship work optimally,” he stresses.

Facilitating interaction and a “one team” mindset - through workshops, factory tours, strategic reviews, co-location of staff and shared objectives - is another way in which leading companies build effective engagement with their service providers, O’Marah explains.

The fifth and final area to look at, he adds, is mutually beneficial results. “Successful collaborators make ‘win-win’ a reality by understanding their providers’ business interests; sharing cost savings and other forms of value; and rewarding strong performance with relationship continuity as part of a balanced sourcing strategy.”

As Chief Content Officer and Co-Chair of the SCM World Executive Advisory Board, O’ Marah is regarded as a global thought leader in supply chain management. He also works with Stanford Business School as a research fellow, helping to shape the direction of supply chain teaching to the next generation of business leaders.

His visit to South Africa formed part of IMPERIAL Logistics’ “Fast Forward” skills development initiative.

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