By Diego De la Garza, Senior Project Manager, March 05, 2014, Source One Management Services, LLC, Mypurchasingcenter.com
My team and I recently completed a very interesting sourcing event for training services that encompassed two additional complexities to what we normally see in typical sourcing engagements. One of these complexities was that, instead of focusing on the selection of a single supplier for identified work, our efforts focused on the selection of multiple suppliers to provide the same service on future work, to help alleviate the workload on a sourcing department frequently tasked to identify training service providers for various departments within its organization. The second complexity was the implementation of an e-bidding mechanism to which the selected suppliers had to subscribe.
The selection of multiple suppliers for unidentified work is what we at Source One call a “Supplier Bench” or simply “Bench”, so named because the selected suppliers sit on a “bench” and are selected ad-hoc to provide and deliver their services based on specific work on a repeatable basis. This means that, as new projects and business needs arise, suppliers from the bench will have the opportunity to service that need. However, they may not be selected for every job and will be subject to an ongoing and never-ending competitive situation as the only way they will be engaged is when their capabilities and costs align with the business requirements.
A Supplier in a Bench should not be confused with “Preferred Supplier” status, for both strategic and operational reasons. “Preferred Suppliers” are typically part of strategic programs (known as Preferred Supplier List or PSL) and enjoy a privileged status in a company’s supplier base. Suppliers in preferred status are typically selected for a specific commodity area or service category, typically do not compete for business (i.e. do not need to place quotes for their services) in their commodity area, and are the first ones to be approached when business needs arise. Preferred suppliers are normally heavily scrutinized for selection and conditioned to maintain certain performance levels to retain status. More important, Preferred Suppliers commonly establish a symbiotic relationship with the client around cost and business strategy.
Conversely, suppliers in a bench do not have any privileges beyond an established relationship with the client that eases the workflow and the allocation of business.
Benefits of a Bench
A supplier bench provides numerous benefits for a buyer. The most obvious one is flexibility; the bench can be as diverse as desired, with a mix of suppliers that are regional or global, minority business or publicly traded, specialized or service composite, low-cost or first-class, etc. Second, because suppliers in a bench are established through Master Contracts, all suppliers are subject to confidentiality and service clauses that facilitate the solicitation of price and the exchange of information. Moreover, because suppliers know they are part of a bench, typically their bidding process is more transparent, service-oriented, and competitive as they are motivated to gain business from the client. Finally yet important, benches are not subject to exclusivity, and if a supplier is no longer deemed competitive, the bench can expand to include other suppliers or scale down to exclude underperforming suppliers at any time.
Benefits for the suppliers are also generous. First, it allows suppliers to display their capabilities and ongoing improvements on a regular basis, by refining their service levels on every opportunity they get to bid on a project or perform. It also allows them to balance their pricing and present additional incentives to the client as additional business is rendered, and most important, it provides them with direct exposure to many business units that may benefit from utilizing their service. If IT has a Supplier Bench for training, and HR can benefit from leveraging this bench as can Sales, suppliers can use their presence on a bench as the gateway into a cohesive and ongoing business relationship across multiple departments within a single organization.
The How, the Why, and the How-To
While utilizing a bench may sound inefficient and not very different from what independent sourcing events would entail, we find that a bench provides a lot of control in addition to the benefits listed above. But these benefits are only possible if there are sound mechanics in the selection and collection process. Suppliers in a bench must be diligently evaluated throughout the RFx, allowing the client to identify those suppliers with capabilities sufficient to not only meet the present business requirements but capable of exceeding them. Alternatively, suppliers should be evaluated based on their service portfolio’s ability to complement other suppliers’ in the course of more complex projects.
Selecting suppliers for a bench is not very different from running a typical sourcing engagement, but there are still some differences in the process when selecting multiple suppliers instead of a single. Pricing negotiations are not focused around specific pricing but rather around business incentives (such as rebates, volume discounts, credits, etc.). In addition, terms will be defined in Master Services Agreements instead of on specific contracts or Statements of Work. The main procedural difference is that suppliers in a bench will have to compete for business by bidding on every project available, and apply those incentives based on gained business at the end of every cycle (typically a year).
We have found that efficient management of a supplier bench is made easy through an e-sourcing mechanism that allows suppliers to place ongoing bids or quotes as client requirements or “jobs” arise. This mechanism is typically an “off-the-shelf” e-sourcing tool that automates the process. The business owner can upload the requirements onto the tool, which will then notify selected suppliers who are given a time period to review the requirements, determine their intent to participate on the bidding process (given their capabilities and resource capacity at the time), ask questions, and place an itemized quote back through the tool. The tool also facilitates the consolidation of bids, the alignment of price points and, ultimately, the ability to award the business to the selected supplier, based on either price competitiveness, capabilities, or a mix of both. A suitable e-sourcing tool for bench management is one that facilitates communication between the client and suppliers, serves as a data repository, supports analytics (and therefore the ability to provide feedback to suppliers), and minimizes business disruption for both parties, with everything been done under an objective and leveled playing field.
As sourcing becomes further engrained in their organization’s culture and becomes actively involved with the strategic needs of every department within it, its workload can increase exponentially. By implementing benches in instances where the same suppliers are frequently polled for similar projects across departments, sourcing can cut down some of the strain on their resources while simultaneously delivering value to its organizational stakeholders and supplier base.
Diego De la Garza is a Senior Project Manager for Source One Management Services, LLC, responsible for developing strategies to reduce costs and improve services for clients, as well as assisting with the sourcing processes and developing in-depth analyses for the projects in which he is engaged. He also serves as an ambassador for the strategic sourcing industry throughout Latin America.