Should buyers worry about how long it takes to pay suppliers?

Image via WikipediaAre your 'internal processes' affecting your relationship with your suppliers? Do you know what happens when your suppliers attempt to get paid for their goods & services?

The vendor relationship does not exist only in contractual interactions with the team. Nor does it end when you negotiate a contract for as, if and when requested goods & services. A very simple and KEY area that can make/break a relationship is PAYMENT TERMS. If your firm doesn't pay on time, or worse, makes it complicated for a vendor to get paid, you will end up paying for it later...

Here's a case example: a meat processing equipment distributor in Ontario had a contract with a national chain of supermarkets, to supply selected equipment to chain stores within the province of Ontario. The specifications and pricing were set, and individual stores would select from the list as required. Orders were placed/delivered in Ontario, but the purchase order & payment would come from a centralized department in the East Coast. The 'draw-down' process worked like this:
- meat manager would select equipment from the list
- store manager would approve
- the store would give a 'heads up' to the distributor as they wanted the equipment by a certain date
- order would be sent to centralized purchasing to issue a purchase order so the system could issue a cheque
(note sometimes, the purchase order would not arrive until weeks later which created its own complications)
- equipment delivered to store, delivery slip signed by receiver
- original delivery slip was attached to invoice and sent by mail (as instructed by finance)
- once the invoice arrived 4 days later in accounts payable, it was put into a pile for processing
- copies were made, coding stamped and documents sent back to the store manager in Ontario for approval (4 days via mail)
- once approval was signed/mailed back, accounts payable would enter the invoice in the system for payment within 30 days of the date of entry into their system (note we've lost at least 2 weeks already)

The vendor thought they'd try to speed up the process by having the store manager stamp/sign the delivery slip at delivery time - it took a bit more effort to track down the store manager, but at least the approval was on the slip before mailing an invoice. They thought it would save the extra back/forth mailing of the documents, and cut 2 weeks off the process...

It didn't help - the accounts department put coding on the delivery slip and wanted the store manager to approve THAT too (even though the code for the equipment was always the same - all of this was standardized in the contract negotiations).

This is an industry that would scan barcodes to tally up someone's grocery purchases, manage its ordering and inventory via EDI, yet needed original documents and Canada Post for approval of delivery & coding of items that were pre-selected by a centralized department, at a pre-negotiated price.

Guess how the price negotiations went the next round...

Better Value Procurements: Project Closure

Guest post today by Rusty Joerin of Woodsgift Enterprises

A project can be anything from a commodity purchase to a long term supply of goods and services or construction project.

Closure is important; it is the foundation upon which future projects are built.
For your suppliers that did not get the contract from your last request, closure may come in the form of the de-briefing interview. I always do these verbally and preferably in person. I won’t reveal the contract price but I will state where that vendor ranked overall amongst the other respondents. I will share my interpretation of the strengths and weaknesses of their offer or proposal. I will not reveal confidential information. I want that vendor to bid on future projects and to know that their effort is valuable to my clients and have confidence that they were and will be treated fairly and with respect.

The buying organization will also want to square the circle of procurement. I suggest that a process to collect and retain for reference a written appraisal be implemented in every organization for every significant project. A check list could include: quality of product and service, depth of supplier’s knowledge and resources, and most importantly how problem situations were handled by both parties.

The responsibility for collecting and retrieving this information is often a part of the procurement function. The ability to access this information by those who need to know is as critical as its confidentiality may be. It is important that this information not leave the organization in the head of a retiring employee. The written record becomes the resource for institutional learning.

The bottom line: did the project and the process to procure it advance the organization’s strategic goals and how, or if not, why not? What improvement can be made for the next project?

When planning your next project look first to prior experience with similar projects.

Rusty James Joerin, SCMP is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply for those organizations with purchasing specialists on staff.
Information about his experience and qualifications may be found at:www.woodsgift.com

Related articles

• Better Value Procurements: Analyzing Vendor Proposals (psbdelegation.com)

Fairness in the Process - Now or Later?

In the aftermath of the Gomery report, many organizations have started using a "fairness" role with their large complex or politically sensitive procurements. The primary objective of involving fairness resources is to provide objective evidence that the process has been run in a fair, open and transparent manner. Having the role start with the process keeps the process ontrack and saves time later, versus the standard waiting for complaints and having someone audit the process 'after the fact'. I've done both roles a number of times, partly to deal with the perception of bias towards incumbents; alleviate union concerns of outsourcing, ongoing vendor relations issues, etc. Thanks to close contact with National Education Consulting Inc & the Legal Edge publication means keeping up-to-date with the latest/greatest court decisions.

Even in cases where RFPs are better developed (in terms of how evaluations would occur) with an incumbent in place, it might be useful to request a fairness advisor/monitor/auditor play a role. Generally, the procurement department itself doesn't hire the fairness role (as it is reporting on their conduct/process!) Personally, I believe a fairness role needs to be appointed by an assurance department or a higher authority. There are even 'little things' that should be considered in the course of 'fairness' such as having all the evaluators sign a disclosure agreement (much like how the vendors are to provide within their proposals). I sat in on an evaluation process where the chair did NOT request this, and the evaluators went through a dozen grant application proposals and it wasn't until they faced the last proposal, one evaluator disclosed his son worked for the firm and would recuse himself from that evaluation - which was good to do, HOWEVER, he was involved in the scoring/discussions on all the competitive proposals up until that point! That is still a conflict of interest, even if he wasn't going to play any role in the scoring of that last proposal, he influenced the other scores. The organization changed their practices for future evaluations, and dealt with the issue by awarding to 'all' grant applications received - eliminating the risk of breach of process. I've been in other processes where the evaluations had to be 'tossed' and a second evaluation had to occur.

Is this more bureaucracy? Red tape to an already onerous process? How do you think the fairness can be 'above reproach'?

Comments/discussion appreciated

Surprise, surprise we've issued an RFP!

I was working with an IT Team for an RFP where one of the stakeholders (formerly a consultant) stated that in his former company, "if they found out about an RFP when it hit the street, they wouldn't bother responding". The vendors didn't feel they had enough time to understand the buyer's needs AND to build a comprehensive response to the RFP (traditionally they don't get enough time to do so). As well, they figure their people needed to build a relationship with the buying organization to 'truly' understand their needs.

The buyer's view was in order to be fair, no discussions should be occuring in advance of the posting. To keep a level-playing field, everyone must receive the information at the same time, and that means when the RFP is posted. Back-door discussions with vendors would taint the process, and could create mis-perceptions of bias.

But what is fair? Complete & utter secrecy until the RFP is public, or giving vendors a chance to prepare for an upcoming competition?

I don't want to start agreeing with vendors who try to 'get in the back door', scoping for info their competition doesn't have, but I do believe vendor relationships are strained (at best) if they are surprised by an RFP. It's bad enough most organizations spend months building a business case for buying a service, then 4 weeks drafting a solicitation document to end up giving the vendor community the minimum amount of time to respond "because they are in a rush". If you cannot give the vendors enough time to respond (they should get the equivalent amount of time it took you to build your solicitation), then at least give a public heads-up so they are prepared for the timing of the RFP.

Why? Take a look at this example of a relationship gone wrong, "Disagreements unravel popular music festival" the RFP was a complete surprise to the incumbent vendor; template language was obviously used if the vendor saw his 'intellectual rights' were to be handed over; and end-result: no-one responded and the media is talking about it. Finger pointing doesn't solve the issues.

So, no, don't disclose your criteria, nor solicitation details, nor meet with 'potential' vendors, but please consider giving a heads up when you need to do a competitive process - it'll make your process more successful.

Related articles

• RFP Tips: Being Clear on Closing (psbdelegation.com)
• RFP Closing Days (psbdelegation.com)
• RFP Templates (psbdelegation.com)

Breaking Down Compliance w Procurement Policy Directives

Image via Wikipedia

Last week I posted a link to the Ontario Broader Public Sector Procurement Directive/Accountability Act. With an implementation date of April 1, 2011, smaller, independent public organizations are finding themselves having to implement corporate-sized procurement rules ‘off the side of their desks’.

How do you approach implementing something this complex without a corporate procurement department? Break it down into smaller components:

1) Understand the rules – make sure you are aware of what you can/cannot do, what your dollar thresholds are. Single page “cheat sheets” are helpful reminders to staff as to what path to take when they determine a need for a good or service.

2) Explain your process – both internally and externally. It is easier to be transparent, when everyone understands what you are procuring, how you will be doing it, what will be evaluated, and when.

3) Disclose your evaluation criteria – one of the keys to the trade agreements is disclosing the high level criteria for evaluation, and the weightings. Some organizations go further to disclose it on ALL procurements to be clear to all potential vendors (and to eliminate the internal confusion of ‘when do I need to disclose this?”)

4) Ensure all potential vendors have the same information – another key trademark to transparency and fairness. Make sure that any information that an incumbent may have is available to other bidders in order to level the playing field. As well, disclosing whether there is/is not an incumbent gives the vendor community the ability to decide whether it is worth their time to respond.

5) Keep an audit trail – in the name of transparency, and to withstand an audit of the process – keep documenting every step of the process, maintain a complete file from specification building through to contract award. This includes drafts (leading to a decision), email communications, faxes, proposals, evaluation books, signed declarations, letters/notifications of award. It may seem bureaucratic, but it makes life much easier at the end of a process to have a complete file in one place. Maintaining notes during the evaluation also helps for debriefing unsuccessful vendors without having to go back and re-read their proposal and evaluation score sheets.

6) Posting time – The minimum solicitation posting time of 15days is read by the vendor community as “you already have made your choice & are just doing a process to meet policy requirements”. Consider how much time it took you to build your specifications/statement of work and process? If the good/service is highly complex and your project document was built over a number of months – better quality responses will take longer than 15 days.

7) Be consistent – Ensure your processes follow the same path each time. There’s nothing worse than changing the rules, and then changing the way you do things at every turn.

8) Form of agreement w RFP – posting a copy of your resulting contract with your solicitation will greatly reduce the negotiation time as it will form part of your process. Depending upon the wording of your solicitation document (most Canadian public sector templates are based upon the non-negotiated RFP), vendors, by responding with a proposal, have accepted the terms and conditions of your contract attached.

9) Contract management tools – policy changes will affect your existing suppliers as well as smaller companies that haven’t bid on large contracts in past. Providing a sample invoice, contract documentation checklist, and monitoring reports will assist both your internal contract management efforts and compliance on the part of your vendors/contractors.

10) Debriefing - consider this a means to educate and build a stronger vendor community. The more vendors understand your process & how you evaluate proposals, the better the proposals & competition. PLUS, ask for feedback from the vendors as to how well you communicated your requirements; what additional information would they have wanted/needed. Improving the procurement process for future in addition to improving vendor proposals is a win/win for everyone.