Managing the relationship between purchasing partners

Regardless of the type of approach of procurement outsourcing selected by the company, there are key factors or pitfalls in managing the relationship between purchasing partners.
Partnership can take different shapes : provider in the context of outsourcing, shared service center, shared or not, relocated or not.

“Good borders make good friends”

Benjamin Gomes Casseres

The management of the relationship between customer and service provider partners is generally decisive for the success of a procurement outsourcing operation.
The preconditions for the success of this relationship must be met in order to promote a climate of transparency And ofExchanges permanent on the conditions of operability of the relationship.
Indeed, there may remain a difference of views on the difficulties and priorities between the service provider wishing to protect its margins and the customer wishing to transfer risks.

Difficulties for the parties to the contract

Illustration of the main difficulties identified when managing the relationship between outsourced purchasing partners:

• Contractualization
• Negotiation with the provider
• Cost/quality optimization
• Price transparency
• Provider evaluation
• Ability of the provider to be flexible
• Service provider compensation/penalty policy
• Definition of new working conditions

The main difficulties identified by procurement outsourcing providers are (Forrester 2005):

• lack of a clear vision on the part of the client of the intrinsic objectives of the project;
• excessive transfer of risks to the provider;
• insufficient preparation, especially during the due diligence phase;
• complexity of managing breach of contract and compensation;
• lack of a system for managing the quality of the service and financial compensation;
• insufficient framing of the scope of the project and of the pricing modalities.

Points of vigilance in managing the relationship between contractual partners

Therefore, it is necessary to be particularly vigilant on several points:

• ensure the balance and sustainability of the economic model of the relationship for both parties;
• share common objectives on the subject of the relationship: efficiency and the search for cost synergies to be shared between the parties;
• manage the negotiation process in order to balance the relationship;
• formalize a flexible and scalable contract, allowing both parties to assert their point of view and find solutions concerning their operational or economic problems more simply.

The relationship must therefore be managed as a strategic partnership by both parties. It must embody a new culture of transformation based on collaboration, theOpen-mindedness, theinnovation And the proactivity :

• an impetus and a strategic vision given by the Directorates-General of both parties;
• a common desire to succeed on the part of both providers and to find together the optimal operating solutions for end-to-end processes;
• an understanding of the partner's objectives and business model, an open-mindedness;
• a desire to mobilize and develop new skills at the points of contact on both sides in a spirit of quality and a constructive spirit;
• proactivity on both sides;
• transparency on operational levels;
• respect for intellectual protection and mutual trust.

Strict and effective governance

While the relationship should be flexible and open and encourage dialogue, it should nevertheless be organized within a strict and effective governance framework.

This management framework should allow both parties to express themselves and to make decisions structuring the relationship and the conditions of operation of the object of the relationship.
It must also allow the client company to maintain control and control of the outsourced service with the provider. This includes:

• a project management structure before, during and after the transition; the hierarchical link;
• operational strategic committees whose composition is representative of the company's various decision-making centers;
• a service contract and performance indicators that are subject to regular reporting with also the use of external benchmarking techniques;
• a dispute resolution and arbitration process;
• a process of satisfaction surveys on both sides.

The governance framework is key to structuring the relationship.
However, the relationship is lived on a daily basis between the partners' teams.
People are therefore at the heart of the relationship system and they ensure its quality and sustainability. The procurement outsourcing project pilot and contract managers are key at the heart of the interfaces:

• at service providers or within shared service centers: creation of dedicated functions to guarantee the transversal customer view and compensate for the vertical organization by process;
• with customers: the people who provide project management and manage the relationship on a daily basis.

An essential change management

Beyond that, this new type of commitment is in fact an organizational change, which leads to significant change management.
It must be targeted at the professions, the employees of the entity whose activity is transferred and the host structure (service provider or shared structure) and the staff representative bodies.

Two points are particularly important:

• give career prospects to employees transferred to a new employer or a new entity;
• train the project management team in its new job and/or recruit new profiles if necessary.

Also, in order to properly formalize the contractual objective, it is necessary to have a precise vision of your need, present and future, which is often impossible.
The difficulty lies in formalizing, based on what is known, a quantified target while leaving the service provider (internal or external) sufficient leeway to demonstrate their professional know-how.

Contract vigilance

In the body of the contractual commitment, four paragraphs are particularly important:

• reversibility, which describes the process of transferring responsibility either to internal teams or to a new service provider, whether at the natural end of the contract or when this reversibility is triggered for reasons that must be explicit and activatable;
• the benchmark clause, which makes it possible to compare the prices of all or part of the services with market prices;
• the audit clause, which allows you to take a critical look at the services provided on a specific scope by a third party, in order to better understand why a level of service is not reached within this specific perimeter, when it can very well be achieved on average;
• the intellectual property clause, which defines the ownership of the developments carried out as part of the outsourcing service.

For their part, the annexes to the contract will precisely define the content of the service, the service levels, the scope of the services, the commitments to the result and the penalties in case of non-achievement or overtaking.

In the case of shared service centers developed internally, the service contract has no legal value, but it is essential to specify the operating methods and commitments of the stakeholders.
Thus, conflict resolution is simpler, since it takes place within the framework of internal governance.
While defining the prices of the units of services provided at the beginning of the contract, the customer must also communicate regularly on his perception of the service in an organized manner and in order to ensure mutual progress.

Better formalizing the processes between the businesses and the partner (whether internal or external), defining service levels and giving ourselves the means to measure them in order to better communicate them to users, establishing an internal structure capable of managing the partner on the one hand, but also able to structure communication between the two parties are among the keys to success in managing the relationship. between purchasing partners.