One of the most important lessons the Japanese industry taught the world in the 1970s and 1980s was the impact of supplier performance on the customer’s own performance vis-à-vis its own customers.
What has proven to be true for the Japanese industry is equally true for Canadian municipalities.
Since the timelines and reliability of necessary supplies will affect the municipality’s own performance, the proper monitoring of supplier performance plays a critical role in maximizing the efficacy of the delivery of municipal services.
The management of the supply base is one of the critical roles of a municipality as well as a private sector’s procurement department.
There are certainly models that can be referenced as to how to take the quality of supply and support into account in public contracting.
The overall approach has been extensively developed in the private sector. Many private sector companies spend a great deal of time and money measuring different types of data to help evaluate the supply process.
Within the private sector environment, buyers are free to negotiate the best price. Negotiating enhanced levels of service is often one of the main aspects. Even where a contract is awarded purely on a competitive bid, where similar offers are made to a customer, often the tiebreaker will be the comparative performance of alternative suppliers.
In addition, a supplier’s performance is likely to be factored into a comparison of price offers.
Performance monitoring is not always a matter of complaints of supplier shortcomings.
If orders are not being properly placed (e.g., if necessary information is not being provided), that fact can be brought up by the supplier during regular meetings.
There are a wide range of customer mistakes that can compromise the ability of the supplier to perform at an optimal level.
These include vague delivery instructions, failure to provide proper product specifications, providing incorrect information, orders being placed by an unauthorized person, etc. The wise buyer or purchasing manager will be open to input from the supplier.
Despite the limited resources available at many municipalities, a supplier’s performance evaluation offers so many benefits that every effort should be made to put such a regime in place.
As the adage runs, when work is watched it gets done. In principle, a comprehensive system of supplier evaluation is worth the time invested because a considerable portion of staff is usually invested in dealing with precisely the type of “brush fire” that a good system of evaluation will mitigate.
Moreover, as a general rule, substandard supply cannot be remedied by a price adjustment. Different types of poor service may be relevant to the assessment of a particular source of supply. Serious concerns include evidence of dishonest dealings, normally considered a sufficient reason for disqualification for further contracts, and a poor track record of frequent contractual disputes, particularly where these disputes lead to making claims under bonds or other performance security.
Other considerations are less striking, but not necessarily less relevant. Once these considerations have been identified, information concerning them must be collected, compiled and applied in a systematic manner.
Unless the organization is awash with cash, it is generally advisable to focus the effort only on long-term contractual relationships where there is a realistic prospect of correction, particularly those that involve a substantial amount of money.
It may almost be worthwhile to develop some method of rewarding top-level suppliers. For instance, an RFP or tender could provide that a supplier with a proven track record of quality supply will be allowed a price premium up to a given percentage.
This incentive may encourage suppliers to devote resources to maintaining a good relationship with their public-sector customers.
Price is only one of many important concerns in a supply relationship. I believe it is perfectly possible to factor stable relationships in the supply of goods and services.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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