Maximizing Value by Improving Supplier Management Practices

No matter how long-standing some of your supplier contracts may be, it’s always a good time to re-evaluate them to ensure you’re getting your money’s worth. Auditing supplier contracts for service fees and hidden charges is an important step to take regardless of trust levels.

A webinar sponsored by Long Beach Clean Cities and presented by Government Fleet, MEMA, and Mercury Associates recently delved into how to use key performance indicators (KPIs) to improve supplier management and other ways to maximize the value of supplier relationships.

Titled “Maximizing Value for Money Through Improved Supplier Management Practices,” moderator Dan Berlenbach, CPFP, fleet manager for the City of Long Beach and president of MEMA, guided a presentation by Janis Christensen, CAFM, managing director of Mercury Associates, and Maria Neve, manager of Mercury Associates, that provided key tips to fleet managers looking for actionable steps to take when it comes to making sure their dollars are well spent.

Basics of Supplier Management

Neve started by talking about management through KPIs and continuous improvement. Written contracts and terms and conditions are the Bible that should govern all interactions with your supplier.

“At the end of the day, it's going to help you avoid the finger pointing and the ‘he said, she said’ if and when there is a dispute,” she said.

Service level agreements (SLA) are important because they set expectations for both sides of the equation. KPIs are also vital as they help you know what needs to be measured and managed.

If you're using separate fleet management inventory/information systems (FMIS), those records must match in order to properly compare vehicle inventory, parts, etc. Reporting capabilities are also necessary; you can't get away with not having the ability to pull reports as needed. The ability and necessity of reviewing and validating reports and invoices is priceless.

“Stakeholders besides the fleet manager should be reviewing and validating those reports and invoices…it shouldn't always fall on one person,” she explained.

“Stakeholders besides the fleet manager should be reviewing and validating those reports and invoices…it shouldn't always fall on one person,” she explained.

Why SLAs?

The simple answer is so everyone knows exactly what they are responsible for. They can be general in terms of a topic like customer service, or they could be for specific items; the timeframe in which to be notified if there are transactions on a fuel card that are out of the norm that you have already pre-established, for example.

They can also be used for things like asset ordering and delivery, upfit modifications, maintenance, and repair management. They are also common for accident management in regards to reporting crashes and repairs. SLAs can even exist for reporting intervals. How often are you supposed to receive a report?

Measuring KPIs

KPIs are used to monitor and measure effectiveness, as well as track progress to goals. Fleet composition is incredibly important in this aspect, as metrics and KPIs are going to vary. The audience is important to take into consideration as well. Is it the day-to-day stakeholders that have responsibility for the fleet? Or is it executive management that needs to make strategic recommendations and/or decisions based upon the information you're presenting?

Neve pointed out a few common questions that are a good place to start:

• What are the problems, and what action needs to be taken to solve them?
• Has corrective action been taken before? If so, what was the result?
• Is it a supplier issue or an internal issue?

She also listed some of the most common KPIs for fleets:

• Asset utilization
• Vehicle invoice accuracy
• Vehicle downtime
• Call center speed to answer
• On-time preventive maintenance
• Roadside response time
• Work order hours for completion
• Comebacks
• FMIS uptime

Also important to keep in mind are two aspects of vendor performance: the impact of the product or service on fleet costs, and the service delivery itself.

The Importance of Benchmarking

Benchmarks are reference points to compare one's performance metrics against others. Some examples include customer satisfaction, costs, and quality, and your comparisons can be against internal or external organizations.

Benchmarking against other organizations can be difficult, as it relies on acquiring apples-to-apples performance metrics.

Taking Control of Invoices

Christensen stated an issue managers might encounter is suppliers not invoicing for a number of months. Part of maintaining control over invoices is requesting they are provided within a certain time period.

You can’t measure what you don’t know. Not just fleet managers, but also those in your procurement, purchasing, and accounts payable departments must know. Obtaining an updated fee schedule will be necessary to make sure you’re not being overcharged.

“One of the problem areas we most often find is there's no fee schedule. It's really important for contract maintenance. This is what’s going to be used to check and validate against the invoice,” she said.

Are periodic increases permitted? What happens when fees that are not in the fee schedule arise? Are you going to require a change in in your contract? What discounts or rebates are due, and when?

For a few examples of taking control of invoices, be sure to watch the on-demand presentation at government-fleet.com/elearning starting at the 19:53 mark.

The Right to Audit

Make sure you have a right to audit clause in your contract, particularly for outsourced services or functions. Trust, but verify when necessary.

“Really what you're trying to do is ensure the supplier and maybe the third party who is working for the supplier are acting properly in terms of ethics, business standards, and their contractual relationship,” explained Christensen.

There are four different types of audits:

• Financial transactions
• Compliance with contract terms and conditions, laws, regulations, policies, and procedures
• Operational performance or management
• Information technology controls, backup, recovery, physical security, and compliance with standard electronic data processing practices

The Three Ps

Establish a regular schedule, whether that be annual, semiannual, or quarterly and stick to it. You should provide your supplier a list of key topics and or metrics that need to be covered. Using the “Three P” format – purpose, process, payoff – will ensure meetings are productive.

This includes the purpose of the meeting and what it aims to do; the process of what specific things have to take place in order to achieve the purpose; and the pay off in the benefits both parties secure if the meeting meets the purpose and how it helps each organization move forward.

“This is all about building strategic partnerships. Trust is the foundation. If you lose trust, you lose everything,” said Neve.

Define your strategy, determine the spend, and research the supplier market. Be clear on the scope of services that have to be covered, know your contacts with your suppliers, and develop a defined escalation procedure for issues.

Points to Look Out For

Make sure you're looking at actual data, not marketing data. The supplier shouldn’t be the only source of info. There should be third party validation. If your supplier insists it's the only one that can provide you with that info, question it. If your data sources are vague or undefined, that's an issue. Make sure you've got a distinct definition of the data and source.

If the review from the supplier doesn't contain any proof of compliance with your SLAs, that's a problem. Your SLA should govern interactions and decision making between you and the supplier. If your supplier does not come back with action items that say what areas can be approved on, then at the end of the day, that's not relevant for you.

The process should be proactive, not reactive. Make sure you're looking to the future and not spending a significant amount of time rehashing old issues. They should be providing you actual physical savings either in time, money, personnel, overhead, etc.

What are the Outcomes?

Make sure you and your supplier agree on performance levels and needed improvements so you can modify your processes as necessary. Review and update your priorities regularly. While you might have had issues with item A six months ago, now item B is a significant priority moving forward. Be sure you’re able to pivot to focus on what needs to be solved immediately. Always have an agreed upon list of action items at the end of your business review meeting.

In simplest terms, are your suppliers doing what they said they would do at the end of the day?