Are you working with suppliers on your project? Chances are you probably have – or if your current project doesn’t require external contractors/suppliers, then one in your future probably will. These days, it’s common to have suppliers partnering with you on a project because companies choose to outsource work to those who are specialists.
However, a lot of project failures begin an end with customer relationships breaking down between you and the supplier. I remember one (huge) project we were going to work on and we had a supplier in mind. They were lovely people as well as being specialists. We were at the point of signing their contract and then… the deal fell through. I can’t go into the specifics of why, but suffice to say that as a project team that gave us a big problem. Our preferred supplier was no longer available, and we needed a replacement fast.
In hindsight, that was a great project for learning about contracting.
Building collaborative contractual arrangements
When you set out to nail your suppliers to the ground, and get the most out of them for the least possible price, you are setting yourself up to fail. Not only is not ethical business practice, it puts your project at higher risk because you are creating a ‘them vs us’ or ‘winner vs loser’ situation. Be a nice client.
Taking a collaborative, partnership approach is something that will be common to many of you, including those on agile teams. I’ve worked in partnership with suppliers over several projects and many years. It’s always best for team harmony and productivity, and project success, for the supplier to be fully involved, supportive and partnering with us as part of the core project team.
Let’s say you want that for your project, but you still need the formal boundaries that come with having a third-party relationship with another company. Here are some contracting techniques that you could consider as the building blocks of your relationship.
1. Multi-tiered structure
Be more flexible. Document different elements of the project in different documents. You can have a master service agreement and then add on extra elements as the project progresses. Then you can amend the schedule of services to meet your current needs. Use a statement of work if you need more formal ways of defining scope elements etc.
Having a more flexible way to procure services makes it easier to make changes and gives you more options with how you work together.
2. Focus on value, not progress
The contracts I have been involved with have all hinged on having fixed milestones based on delivery or phase gates around when certain moments come to pass on the project. That’s OK, but you can also look at staggering contract payments based on the delivery of value instead of particular artefacts. That’s something I would look at for future contracts. If you are focused on value-driven deliverables, there is more incentive for you both to be agile and flexible to achieve the goals.
3. Price by increment
Another suggestion is to have flexible pricing based on smaller aspects of the project e.g. user stories, instead of one big payment for the whole thing. Fixed time and materials contracts are not something we use very often because they tend not to work out for either us or the supplier. If you know exactly what you are buying, and they know exactly what they are delivering, perhaps that will be OK. But for the kind of work we do, it’s more helpful to have a fixed price plus add ons for extra things. It gives us more control over how money is spent and lets us change our mind (with agreement from everyone) later in the project if necessary, without putting a financial burden on the supplier!
4. Cancellation options
Consider adding in cancellation optiosn that let you both escape the contract early. But build in enough notice for you both to make a graceful exit. One contract we gave notice on had a 3 month notice period. Given that it was a legacy system, in use for years, and with multiple integrations, it was difficult to extract ourselves in such a short period of time!
Another way to look at this, especially with agile work in mind, is that you should be free to exit a contract if you have got enough out of it. For example, let’s say you contract with a supplier to do a bunch of work, but you get to a point where you’ve achieved adequate business value from only half of the original scope. You don’t need to go any further, so you should be able to exit at that point. If the project contract has been written effectively, hopefully the supplier will not be at a loss either – you’ll want this to be a collaborative discussion. A cancellation fee could offset some of the inconvenience to the supplier, while still ‘getting back’ money for you.
5. Fund the team, not the deliverable
Another flexible way to build a solution that meets your needs in an agile team is to embed the supplier’s expert resources directly in the team. You basically buy in the skills you need, for the time you need them. They work alongside you, on whatever scope elements or user stories are at the top of the priority list. Then you are reserving the right to change scope or make flexible direction shifts, while still working with expert supplier resources.
This option works if you need what’s in people’s heads, or a spare pair of hands – but it’s less useful to you if your project is using what the supplier makes themselves.
There are other ways to look at collaborative contracting and the Agile Practice Guide has more information on alternative ways to have formal, but flexible, relationships with third parties.
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I’ve worked on projects where all the resources are in house, but it’s more common (at least in my experience, to have some external supplies needed on a project. Whether that’s external legal advice or buying a software product, many project managers have to work with suppliers.
But what should you ask them before you start work?
This video gives you 3 key questions you should talk to your vendors about before the project starts. They give you a way to have a conversation about working practices and expectations before you start really building one of the most important relationships you’ll have on this project.
Watch the video below and then share what you typically ask suppliers in the comments below.
For more information about working with suppliers, and a bonus 2 extra questions to ask, check out this article.
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What’s the difference between a stakeholder and a supplier?
I was asked this question recently and I thought it was quite simple to answer. It turns out, as I started to formulate my response, that it is a lot harder to pin down than I anticipated.
Partly, I think, that’s due to the “flexible” nature of project management jargon. What’s a stakeholder for me might not be so defined by the methodology you use, or the common terminology used by your PMO.
I think the difference is easier to explain if we look at what each of them is. The comparisons, similarities and differences then become more transparent.
What is a Stakeholder?
For me, a stakeholder is anyone who has an interest in the project.
Primary stakeholders are those who do the process. They agree what will and won’t be in scope of the project. They know how much they are prepared to invest, both in terms of time and money. This group is going to shape the project and includes your project sponsor and the people who sit on your Project Board.
Secondary stakeholders have less of a vote in the way the project is run and the outputs it will achieve. They may shape and define the result, and you’ll listen to them as they are affected. The project might be quite challenging for them, and you’ll want to involve them, but they aren’t key decision makers. This group would come to meetings, maybe take part in a workstream and do smaller tasks.
Interested stakeholders are curious. They might feel like they want a say but they have no managerial interest in how the process is performed, they are not a supplier, and they are not involved in delivering the project or process. These are people you meet at the water cooler or coffee machine. They have a view, but you may or may not want to listen to it. It would depend on their level of influence over the opinion of people you do rate on the project.
Stakeholders can be internal or external. Internal suppliers work within your organiation, so your peers, managers, colleagues. They are people on the payroll of your business.
External stakeholders are the opposite: they are people outside your organisation, and that includes suppliers.
What is a Supplier?
When most people think of suppliers we think of organisations from whom we buy goods and services for our project. This would include:
Hiring equipment e.g. cement mixers, venue hire, kit of a any kind
Providing a service e.g. contract developers, subject matter experts brought into the project for a particular purpose such as specialist lawyers, trainers. Contract staff members joining the project team would fall into this category, even if they were on staff for the duration of the project and work as if they are a member of the in-house team.
Providing goods e.g. vendors from whom we purchase equipment or products for the project like computer chips, raw materials, steel etc.
These organisations or individuals are normally external. You can’t source the goods or services in-house so you go externally to procure them.
The other thing they have in common is that we typically pay for them.
However, suppliers could be internal, if your internal labour market is set up that way. IT, for example, could be a supplier of development resource to your Sales project, and they could charge you for the time and effort of the team involved. In this respect they would be a supplier and would act like one. You’d probably have a formal statement of work, estimates drawn up and so on.
I’ve only worked in one organisation like this but it is perhaps more common than you think, especially in the biggest organisations and the public sector. Personally I’m not convinced of the value of this kind of internal economy, but I mention it because there might be times where a supplier (in terms of your project) is actually someone who sits down the corridor from you and works for the same entity.
Managing Suppliers as Stakeholders
I think we can conclude that suppliers are a subset of your stakeholder group. They should be managed and engaged as any other stakeholder group. That means including them in your stakeholder analysis.
It’s important when working with people who are strategically important to the success of your product e.g. package software provider, to think about their involvement in the project and to do what you can to set them up for success. In other words, you could involve them in project communications. They might need slightly different versions of your communications because you might not be able to share company confidential information with them, but broadly you should treat them as per your stakeholder analysis suggests.
To conclude, suppliers have a distinct role to play but they appear in my stakeholder management plan. I would put suppliers as a sub-group of my stakeholders. I would classify them as external primary stakeholders. In other words, they have a core role to play and are influential in both shaping and delivering the project, but they aren’t employees.
How would you state the difference between a supplier and a stakeholder? Perhaps you can do it in fewer words than me! Let me know in the comments section below.
If I want to buy something, I end up browsing Amazon first. I might end up purchasing from somewhere else, but I tend to use Amazon as my shop window.
You can’t do that with project procurement. I can’t search for ‘buy ERP system’ or hunt around in Amazon for a data center hosting package that meets the needs of my software firm.
So where do you go to look for suppliers?
First let’s talk about why a Google search isn’t your best bet. Some companies don’t have the budget to rank continually in the top search engine results. Some companies wouldn’t necessarily want or need to. Searching online is always a good starting point but shouldn’t be your only way of sourcing potential suppliers.
Here are 5 other places that you can look.
1. Your Current Pool of Suppliers
You already work with suppliers – I’m sure of it.
Can any of these offer the products or services that you want for your new project? You don’t have to go back to the start and source a brand new supplier for every project if you have one contracted already who can do the job.
Using a current supplier is normally faster than having to go through a lengthy procurement cycle. They know you and your business so there’s less time getting them up to speed on your requirements.
However, if you aren’t happy with the service you are getting from them, then obviously think twice before giving them more work.
2. Trade Fairs
There is a world of trade and industry exhibitions that let you meet suppliers in real life before signing a deal with them. This is a good option if you have done some online or desk research and you want to move to the next level before finalising an offer.
Plus, entrance to many shows and exhibitions is free.
They can be hugely timewasting if you don’t have a list of target companies to go and see, so do your research before you arrive and head for the trade stalls where you think you’ll get the most value.
3. Industry Press
Look for who is advertising in your industry press (online or a print magazine). Look for who is putting flyers in the magazines that come from your professional bodies. These are potential vendors, and they are actively targeting customers in your area.
I’ve not come across an industry yet that doesn’t have awards, so reading up about the winners of these awards can also give you an insight into who are the movers and shakers in your target industry. Awards normally include neat case studies of what the company has achieved so you can see how they work with others and do what they do.
4. People Your Suppliers Use
If you have trusted suppliers, ask them who they use to fulfil their needs in a similar space and see if there are any connections there that would also work for you.
Often, the same companies come up time and time again because they are tried and tested. Your current vendors may well be willing to recommend people who are not competitors to themselves but who would complement the services they offer.
5. Word of mouth
Alongside asking your vendors, ask other people for recommendations. Ask your clients. Ask your colleagues. Ask your network on LinkedIn or here at ProjectManagement.com in the forums. People love to share stories.
Also, discreetly, ask for information on vendors whom they would avoid. This can be harder to find out but it is infinitely more valuable, as long as you trust the source.
These 5 sources of potential vendors will hopefully give you a list to choose from. You can then take that list and turn it into a shortlist for you to do a deep dive. Start your procurement activity from here – and you are no longer wondering who to invite to tender for your project work.
I hear a lot of negative stuff about outsourcing. How it’s hard work, and not cost-effective, especially if you are in the charity sector or another sector with tax breaks. That’s because of tax rules (at least, over here) that say while you can’t charge VAT on services such as healthcare, you have to pay suppliers VAT. Moving services inhouse and not relying on outsourcing partners can chop a 20% bill (or whatever your tax bracket is) off services.
But you can make it work. If commercially it’s right for you and you’ve made that leap, you still need to put some effort into making sure that the partnership is a positive experience on both sides.
Here are 5 tips for making outsourcing work for you.
1. Negotiate The Right Payment Terms
Link your desired outcomes to how you are going to pay your outsourcing partner. In other words, think about how your payments can be structured along business benefit lines. For example, if you hit x% of target the payout above the basic rate is $y.
Think about ways that you can incentivise your outsourcing partner to have goals that are totally aligned to yours through their payment structure.
2. Manage Them Closely
You can’t put an outsourcing agreement in place then walk away.
Or, you could, but you shouldn’t expect great results if you do that.
Make sure that you manage specialist contractors in the same way that you would your own team. Use governance and oversight to keep an eye on what they are doing on your behalf. Track their progress regularly.
If you do go ahead with outsourcing remember that you can’t (or shouldn’t) outsource responsibility for tasks or processes. Especially on a project: you’ll still remain the person ultimately responsible for the outputs and outcomes. If something goes wrong, it’s your project that will suffer, so keep a close eye on the work that is going on.
This isn’t about micromanaging; more about making sure that you’re goals are met. You wouldn’t expect to give someone else a task and hefty salary and then never check up on them, would you? So don’t do it with third parties either.
3. Choose Your Partners Carefully
If you can find partners who have a similar work ethos and company culture to yours it will make the process of partnership far easier.
Ideally, look for people who will help you achieve your business goals in ways that support your own efforts. Your tendering process should help you identify companies that are a good fit, so make sure your questions and tender documentation address the important questions in this area.
4. Don’t Outsource For The Sake of It
So all your industry peers are busy outsourcing? Outsourcing is cheap? That doesn’t make it the right solution for you. You could still find more value or a better outcome by upskilling your existing team, hiring someone to work in-house, changing your delivery model or doing something else.
Outsourcing isn’t always the answer!
5. Know When To Break It Off
Don’t be afraid to switch out your partners if they aren’t giving you the service or return you expect. What might have worked for you both 12 months ago may no longer be the model that you want to use.
It is always better to leave agreements like this on good terms. Talk to your partner about your intentions and how you intend to manage the work going forward. Ask how they can help you do the transition and put together join plans to move smoothly into your new operating model. Don’t burn bridges if you can help it: the professional world is a small place and you are very likely to cross paths with either the company or the individuals you worked with in it at some point in the future.
Having and maintaining a good working relationship for the life of the outsourcing agreement is something that will make exit that much easier. Even if you have no intention of parting ways right now, think about how you would in the future. The strong ties you build now will help you when (if) the time comes to move on.