Building a redundant supply chain requires planning for vendor transition. While we can’t prepare for every minute possibility, a bare bones transition plan that gets you from one vendor to another quickly will help you sleep better at night. We can learn a lot from IT, which is so often outsourced that a vendor transition is almost always necessary at some point in the technology lifecycle. What key points can eliminate some risks arising from vendor management and transition in a volatile supply chain environment?
Why a vendor transition plan matters to your business
If you’re asking, “Why do I need a vendor transition plan?” take a quick look back at 2020. The COVID-19 crisis forced companies to quickly develop new relationships — and discard old ones — when survival was at stake. Most supply chain teams lacked a vendor transition plan to help with this process, and the result was a scramble that heightened risk.
Many CIOs have already dealt with this issue. The tumultuous, troubleshooting norms of the IT world require the agility supply chains were forced to adopt during the pandemic. For technologists, building a new digital project is an incredibly complex undertaking that almost certainly guarantees a crisis at some point in the product lifecycle. The data shows up to 50% of companies will face the need to terminate an IT contract at some point during the lifespan of a product. This necessitates the need for vendor transition planning to avoid a crisis that could completely disrupt IT-dependent businesses.
Procurement teams take note: Your supply chain is likely as complex as the digital architecture that runs your business. This complexity is a solid argument for a vendor roadmap that tracks the potential of loss, termination, or replacement of materials and/or suppliers.
Avoid risks by planning ahead
To effectively mitigate risk, plan for the exit at the start of the relationship — outlining vendor transition before signing a contract. How many vendors have been in your supply chain for so long they lack termination and survivability clauses?
All relationships can atrophy. Businesses change. They might be acquired or otherwise disrupted, and that comes with the potential for ripples in your supply chain. Plan ahead to avoid unnecessary chaos.
First, establish a dedicated vendor management team with role accountability and well-defined expectations. Part of the job is establishing, managing, and maintaining contracts that benefit your company first. What are your termination, survivability, and exclusivity clauses, and how will they protect your organization if a vendor relationship sours?
Transition plans should consider when potential switches could occur. What scenarios create the need for terminating a vendor relationship? Do you have multi-vendor award contracts with alternative suppliers already defined? The pandemic revealed a lot of weaknesses that we now have a chance to address—don’t pass up the opportunity to protect your company and prepare for the next challenge.
Create a vendor transition plan checklist
A transition plan documents the hand-off of specific duties between vendors and customer. In the supply chain, this means establishing the steps necessary to switch suppliers with minimal disruption. Here are several steps to consider:
- Start by establishing the strategy behind the switch. Is it to cut costs, increase margins, or shore up supply-chain reliability?
- Create a risk roadmap outlining possible reasons for transition and what steps you would take to mitigate risk.
- Plan the transition period by outlining criteria for screening new vendors.
- Reevaluate the contracting process, and pay special attention to termination and survivability clauses.
- Develop a communication plan for transitioning the new vendor.
Critical to this process is an assessment of risk from all perspectives:
- Operational. How will the transition affect business operations?
- Reputational. Will customers be affected by a transition?
- Legal. What contractual terms will transition affect?
- Compliance. Are all regulatory rules in place with the new vendor?
- Financial. Are there early termination penalties, potential legal fees, or other costs?
Vendor transition is part of the supply chain governance process. But it doesn’t have to cause chaos and disruption. At Windsor Group Sourcing Advisory, we are experts in vendor transition and supply-chain governance. We can help mitigate your risks in a volatile world. Contact us.