Supplier Management: Will your employees be your suppliers?

Photo by Stormseeker on Unsplash

One question every company would benefit from asking itself is whether its employees at some time in the future would want to become their supplier.   With the advent of the gig economy this scenario is more likely, as more and more jobs are likely to be contracted out. Who is better to contract new work to other than someone who previously had a track record performing for the company.   Clearly a case can be made to hire former employees who were top performers to work as contractors in the future.  But the question to ask would be - “How willing would these former employees be to come back to work at their old company as a contractor?”.  No one will say no to receiving a fat paycheck again, but working as a contractor implies you have to register as a supplier, submit a proposal, sign a contract, receive a purchase order, submit a field ticket for approval, and then submit an invoice to request payment in addition to doing the work which could be a service or making a widget.  In most large companies this process is complex and convoluted and no one really knows how to make these work effectively. In fact many who have previously worked in large corporations realize that it is so onerous to deal with the complexities that they might be better off as a small business owner to find smaller companies to work for.  Why is this so?

Firstly, in order to get a invited to bid for services or equipment a supplier would need to get registered with the company.   This process is more complex than it should be and more onerous than necessary.   A new supplier trying to do so, usually has to deal with someone overseas as a lot of the back office work has been offshored. They may have to use a system that they are not familiar with.   Companies A, B and C each have their own systems and probably have back offices in three different countries D, E and F, respectively.   Their processes are not aligned as each company likes to ask its own set of questions and check for compliance using its own set of parameters. The current process of vetting suppliers is antiquated and is clearly in need of reform.   What if all suppliers registered with Thomas Register who put them through a rigorous vetting process.  Clearly there is no one size fit all approach as different approaches would be more appropriate based on the size of the supplier’s business and the equipment or services they provide.  

A supplier who has registered with Thomas Register wouldn’t have to register separately with each of Company A, B and C.   They can initiate a connect with a new customer say through Thomas Register and if the company is looking for new suppliers and if the supplier meets the requisite criteria they should automatically be approved.  They shouldn’t have to go through safety and quality inspection with each of their customers, they shouldn’t have to complete anti-corruption due diligence or anti-money laundering due diligence with each customer.  They shouldn’t have to demonstrate their safety discipline or their quality of their manufacturing to every company they supply to.   The cost of getting into an approved supplier list is onerous for both small and large suppliers as they have to adopt to the ecosystems of each of their customers.  As an employee you go through the interview process and then a drug and background check and you are employed.  You may have to repeat the process when moving from one job to another.  But as a supplier the employee(s) who set up a small business would have do all the onerous tasks described earlier with each of their potential new customer(s).

Let’s say the supplier passed this hurdle and got on to a approved vendor list (AVL).   They still have to fight it out with the other established suppliers for any new business that the company is trying to award.  Incumbents are difficult to unseat and it is an uphill task to get even a small piece of work.  But the face that they are on an AVL should get the supplier an opportunity to participate.  But when they see the bid documents they will discover a whole bunch of other requirements they have to comply with.   Most often they have to be able to pay for an account in their customers bidding system.  Each of the software vendor(s) typically requires an annual registration fee.   One more system they will have to learn as each of their customers is likely to have a slightly different process and system.  Some companies use an in-house system, some use a customized version of a third party providers system, etc.  No two companies have the same type of system.   So in responding to a company's bid valuable time is wasted not on the response but in getting used to the system to submit the response. Also in the small print in the RFP are instructions on how the business will be transacted and more things that the supplier has to comply with.   The small print might have specific instruction on how the purchase will be transacted, what systems the vendor will need to integrate with, etc.   There might be requests to submit electronic field tickets and electronic invoices.  Email will not suffice.  For a small supplier and even larger ones all these become additional requirements and add on to the suppliers back office costs.   Each customer tends to have their own version of these requirements and its leads to tremendous confusion and inefficiencies in the back office staff at the supplier.   Let’s say the supplier clears all these hurdles and is selected for providing a service or product.

The nightmare doesn’t end here, for the next stage is the contracting phase.  Each large company has an hundred page template with legalese that no one really understands.  The same boiler plate contract gets thrown at every supplier irrespective of size and complexity of work.  It’s almost like going to a real estate closing where you are asked to initial every page and sign at the end.   The first time I bought a home,  I wasn’t sure whether I would have one when I left the closing as I was not sure what all I had signed up for.  A lot of small businesses can’t afford to hire a lawyer to negotiate the terms of the contract and just accept the standard terms.  Large companies with a fleet of lawyers make the contracting process very cumbersome and time consuming,  a lot of time is wasted negotiating indemnities and insurance.   For a small supplier an unreasonable insurance requirement could lead to erosion of their already tiny margins.  Contracting folks at the customer aren’t usually aware of the cost of insurance they are requesting and are usually negotiating from a position of power.  A former employee who has started his or own business might find that the cost of doing business with their former employer is prohibitive.

After a contract is signed, a contractor is anxious is to get to work.   It’s only when they read the small print on their contract that they realize that they need to pay for access to their customers Procure to Pay system for receiving purchase orders, submitting their field tickets for approvals and submitting their invoices for requesting payment.  It’s only when they start transacting business do they realize that their nightmares are just starting.   Even when the work is approved or after the product is delivered they realize they it takes for ever to get paid, because the project cost center or WBS has run out of money.  For a startup all this leads to a lot of cash flow nightmares and the need to take a payroll loan to keep its employees happy.

So would you consider working as a contractor for your current employer? If you have a minute to please complete this short anonymous survey on whether you would ever consider working as a contractor for your employer?  I will publish the results after I get sufficient responses. Click here if you want to complete the survey.