One of the most challenging tasks facing supply chain managers is the selection of a supplier in the category of marketing execution services- such as rebate and promotion fulfillment.
A fairly common scenario goes like this: supply chain interviews the internal user community, develops an RFP template, identifies a stable of fulfillment suppliers, distributes the RFP, fields questions, provides answers, receives responses, “scores” the submissions, selects a supplier, and goes on to the next task.
So what’s the problem?
For one thing, the committee making the decision usually breaks up before the transition process even begins. Which leaves the user group with their first challenge; did the RFP research vendors’ capabilities, transaction and transition competencies thoroughly enough? If not, the problems may begin immediately.
2) Capability Validation
Another frequent occurrence is that suppliers answer RFP questions in a manner that will be perceived as having the best chance of winning the business – whether those responses are completely accurate or not. Once the business has been awarded, it’s too late for the client to find out that the discipline or experience didn’t really exist as stated or implied. Knowing how a capability works is different from actually having that capability in place.
3) Change in Requirements
Supply chain can usually determine what their company’s historical need for fulfillment services has been – but what happens if the marketing mix changes? Will the new supplier be equipped to handle a capability which represents only one percent of what they do? Many suppliers are completely competent in very few disciplines; it is not only important to know what services your company needs now, but also what they may need in the future.
4) Service Personnel
The difference between a good relationship with a vendor and a great relationship may be totally contingent upon the personnel assigned to your account. Clients almost never get an opportunity to interview the Account Management personnel before the business is awarded. The client user community should have an exceptional voice in who they have to interact with on a regular basis whether that is an Account Manager or Account Executive. For the day-to-day operations, it really doesn’t matter how impressive the senior management team was during “the pitch” if users can’t get along with their daily contact.
5) Course Correction
The business has been awarded, the transition is complete and the client user group discovers that a very big mistake has been made. This is not the right supplier for them. Now what? Usually nothing – they are forced to live with the new vendor. Rarely are there enough protections built in to protect the client in the event of a failing relationship - and there should be.
6) Selecting on Price
If price is weighted too heavily on the assignment scale, the client is often depriving themselves of the most technologically advanced capabilities from the start. Innovations that they may in fact need in the future, but that come with a price. Technology may drive the price up, but allow for greater efficiencies. The price per unit may be lower but the total annual cost significantly greater.
7) Hourly Rates and Run Rates
Which is a better deal- $15.00 per hour or $20.00 per hour? That depends. If the $15.00 per hour vendor can only produce/mail/ship ten units an hour, and the $20.00 per hour vendor can double that run rate, the client loses- and it happens all the time.
8) Industry Nuances
In the rebate fulfillment industry, it is a little known fact that some suppliers could offer to perform rebate fulfillment services for free if the vendor is allowed to retain the benefit of uncashed rebate checks (known as slippage). What’s worse is that the vendor can actually control how much slippage there is. Talk about a potential conflict of interest.
9) Industry Expertise
Exactly how much industry specific information is supply chain expected to master? Too much. In fulfillment alone there are three major disciplines with very unique and distinct affiliated capabilities – promotion fulfillment, trade fulfillment and direct marketing fulfillment. Within each of them are varying degrees of IT capabilities, call center services, automated packaging, WMS systems, lettershop services, customer care, outsourced labor pools, etc. Mastering all of the nuances even within a specific discipline well enough to award a multi million dollar contract is nearly impossible. Buying services isn't like buying commodities.
10) Taking Advantage
Some suppliers have mastered the art of finding that one, tiny omission in the RFP that will later give them an opportunity to raise the price after the contract has been awarded; and there is very little the client can do about it.
The best investment supply chain management can make is to retain an industry expert in the category they are researching to help guide them in the process and avoid catastrophic consequences.