Many supply management organizations take prospective supplier facility visits for granted — if they make any at all.
Steven Kirz, managing director at Pace Harmon, a San Francisco-based business management consultancy, says organizations can pay for making the supplier visit a lost art, as they miss out on an opportunity to evaluate a supplier’s physical plant, processes — and performance. That lack of knowledge can hurt an organization in final contract negotiations.
In this Q&A, Kirz discusses why organizations should make supplier visits, how to prepare for them, and how to leverage what they learn on-site.
Question: Why should procurement organizations visit potential suppliers’ facilities prior to selecting a supplier? Are these on-site due-diligence visits common?
Answer: Organizations should engage in on-site due-diligence supplier visits for many reasons. These visits are no longer as common as they used to be, as organizations originally used them to validate the capabilities of outsourcing suppliers with an emphasis on confirming basic abilities, security protocols, physical-plant infrastructure and the like. However, they are as important as ever, and organizations that opt out of supplier visits before signing a contract are likely missing out on key benefits. There are three main reasons to visit a supplier delivery center as part of the procurement process.
First, the purpose of the visit is not limited to validating infrastructure or security — it should focus on the quality, expertise and compatibility of the people delivering the proposed services. When timed properly and prepared for correctly, the organization can create the opportunity to meet the proposed leaders of its supplier delivery teams as well as those who would be delivering services. This should be a critical differentiator in the selection process, as a competitive procurement process should have already produced a level playing field among short-listed suppliers regarding contract requirements, pricing, service level agreements (SLAs), and price. Due-diligence trips allow organizations to evaluate the quality of the team members who will be assigned to a program.
Second, the organization can evaluate the tools that the proposed supplier team will be using to deliver the program, as well as how adept the supplier team is in using the tools. And third, the organization has a chance to discuss the supplier’s approach to transition and ongoing support after the transition, as well as to clarify questions or misunderstandings that the team has about the organization customer’s environment. This is also an ideal time to proactively improve the transition and ongoing support approach.
Q: Who should participate in the on-site visit from the procurement organization and supplier sides?
A: Organizations often get this part wrong — many mistakenly send executives to complete due-diligence site visits. The problem with this approach is that when executives attend site visits, they usually meet with executives from the supplier’s company. Unfortunately, this doesn’t generate the intended result, as executives are often too far removed from the actual work performed and may have trouble differentiating one supplier from another regarding the quality of teams, tools and approach. Instead, organizations should send the managers who will be working most closely with the suppliers on a day-to-day basis. Also, the organization should insist in advance that the suppliers’ salespeople or executives refrain from delivering presentations or demonstrations during the meetings. Only the proposed supplier team leads and support teams should be engaged in the discussions.
Q: What preparations should be made ahead of time to ensure a successful visit?
A: To lay the groundwork for a successful site visit, the organization should request to specifically meet only with the proposed team leads and as much of the actual delivery team as possible. No executives should be a part of the meetings, and the contract should already be in a commoditized state, including requirements, statements of work (SOW), SLAs and pricing. With this approach, the organization can exercise leverage in securing the most qualified proposed team, as the supplier has not yet been selected and will feel more compelled to tap its top talent for the project.
Q: What does a visit or tour of a facility look like? What are the activities an organization should expect to participate in?
A: A site visit typically starts with a welcome ceremony and introductory meetings, leading into a tour of the physical plant. The tour of the plant includes visiting delivery centers, power and backup power facilities, telecom facilities, and delivery areas. The visit should include meeting your supplier team in the proposed space where your project would be supported, as well as an explanation of how the supplier would set up and manage the project. This should entail a demonstration of how the team would use the proposed tools and its understanding of the organization’s business and needs based on its RFP. The site visit can typically be accomplished in a day, including a lunch and dinner where organization managers can meet with the supplier teams to get a better sense of dynamics and build rapport.
Q: What’s the best approach to gaining relevant information on a supplier’s capabilities when touring the facility? What are the most important things that an organization should look for and ask about? Is there a list of best-practice criteria that should be evaluated?
A: The relevant info is all about the people, tools and approach. To gather these insights, the organization’s site visit should be with the proposed delivery team, which can demonstrate how it supports a client’s program. The most important things to determine are to what degree the supplier team understands your business and how it will support you. This includes asking detailed questions about the technologies it will implement for the program.
It is also helpful to learn whether the supplier team leads have previously worked together on other projects, and how well they know each other. The best supplier teams have usually worked together in the past, with successful collaboration results. Gauge the interest and excitement in working for you and get a sense of where the team leads are in their careers — and how working on your project will help accelerate their careers. After the tour, it’s a good idea to request an hour with 4-5 supplier team members, without any other managers, and request candid opinions about the supplier’s work culture, how employees are treated and how the team members feel about their careers. These conversations are often telling about the quality of the supplier workplace and the long-term reliability of the business.
Q: What benefits should an organization expect to get out of a visit of a supplier’s facilities?
A: Organizations should gain a clear understanding of which supplier has proposed the strongest team, tools and approach. Before embarking on the trip, keep an open mind about all prospective suppliers because they should be the “same” on paper once contract terms and requirements have been discussed. Unfortunately, fewer people are going on these trips, but they’re as important as ever. The quality of the supplier’s resources and application of tools are typically the key differentiators for supplier selection, and the site visit is critical for revealing these elements.
Q: How can organizations make the best use of the information gathered at on-site due-diligence visits? Can these visits help with final contract negotiations?
A: Managers should communicate the findings of the trip to all RFP stakeholders and score those findings objectively, in the same way everything else was scored for the RFP process. Given that contracts are almost complete at this point, site visits can help improve negotiations. For example, if there are large outstanding issues in contracts, a supplier will be anxious to resolve the issues even before a prospective client arrives at the facility. In anticipation of the visit, a supplier will want to close out any issues, and some even try to resolve issues during the visit.
Another way to make the most of the information gathered at site visits is to continue engaging in site visits once the supplier contract is signed. We find that organizations that find the most success in outsourcing relationships are the ones that have a close relationship with supplier personnel and travel to facilities regularly. Sending managers to meet with their supplier leaders and teams allows them to develop a sustained rapport and level of trust. This dynamic improves overall governance and delivery results for the organization.