What are the key risks and challenges of switching to a new supplier after terminating a contract?

In terms of manufacturing, the obvious is immediate risk to supply and production lines. Particularly if you are limited to a specification and approved source then the cost of shortages multiplies. I would always encourage procurement to conduct a ‘risk of change’ analysis with a new source so the new supplier can provide an implementation project. Product neutral distributors can also reduce this risk and offer better pricing. The opportunity I see here is to find a partner who will not only make the transition easier, removing risk of change but demonstrate their ability to meet milestones and be fully prepared to take on what’s needed to protect the customer. Moving suppliers should be a planned decision, not a risky switch off.

Transition Period- There may be a period of transition between ending the old contract and fully integrating the new supplier. During this time, there could be disruptions to service or product delivery. Cost Implications- Switching suppliers may involve upfront costs such as contract termination fees, transition costs, or costs associated with implementing new systems or processes. Legal Obligations- Terminating a contract and entering into a new one involves legal considerations. There may be contractual obligations, such as non-compete clauses, intellectual property rights, or confidentiality agreements, that need to be carefully managed.

In my experience the best protection is to have no or limited guarantees or minimums to make it easy to move on from a supplier who no longer provides the level of service required in the contract. Termination for convenience is very convenient. Through your routine Supplier meetings your unhappiness with the Supplier failure to meet the contractual requirements will be no surprise to the Supplier and therefore the termination of the relationship should go smoothly or you will know upfront what your challenges will be. Relationship, relationship, relationship.

Be sure to share as much information and data from the previous relationship as possible. Transparency is key in any successful relationship but in these times it’s critical and necessary to avoid any further gaps.

If possible, please avoid to shut down completely with the previous provider. Also, don't take your decision purely based on pricing. There is some quality hidden costs that sometimes will cost you more than expected and potentially more than the previous provider.

Be sure to do some tests with the new supplier before transitioning completely. Have regular meetings with suppliers and discuss the positives and negatives for tests and discuss actions to reduce negatives. Very important to show the long-term potential of the relationship. Treat the supplier as a partner.

Transitioning to a new supplier involves quality uncertainties that may impact your operations. The new supplier's expertise, experience, and capacity may differ from the previous one, affecting alignment with your expectations. Changing processes and standards can introduce quality vulnerabilities. To address these concerns, diligent evaluation of the new supplier is essential. Scrutinizing their credentials, references, and performance records helps inform your decision. Setting clear, measurable quality standards is crucial, with regular monitoring and audits maintaining the desired quality.

It really depends on the type of contract and how dependent you are on your suppliers and the depth of partnerships. In the past, from a material supply perspective, to mitigate risk 60% of the refractory supply was awarded to one supplier while 40% was awarded to the other and this was evaluated every year based on their quality performance. Avoid this dilemma but never putting all your "eggs in one basket".

Delivery risks can be mitigated through quality tender technical evaluation, post award kickoff meeting communication and making adequate plans for likely delays during new supplier onboarding.

The best organisations know how to manage a professional exit. Customers are open on their intentions and rational for the change. Suppliers understand it is a small world and remain focused on doing their best

To thrive in this uncertain terrain, proactive communication is your compass. Clearly articulating your expectations and needs to the new supplier is crucial, and it should be an ongoing dialogue. Preparing for contingencies and establishing backup plans is the equivalent of packing essential supplies for this expedition. Keep a vigilant eye on the new supplier's delivery performance and have the agility to adapt. Your feedback and support serve as valuable tools in your kit, helping you chart a course towards a successful partnership.

To avoid delivery risks, conduct a risk assessment. Identify potential bottlenecks, logistical challenges, and any other factors that could impact the timely delivery of goods and services. Collaborative planning with the new supplier is very crucial as well, work closely with the new supplier to develop a detailed transition plan. Collaborate on forecasting, inventory management and order fulfilment process to enhance transparency and align expectations.

To minimize delivery risk when switching suppliers, conduct thorough due diligence on the new supplier’s reliability, production capacity, and track record. Clearly define expectations in the contract, establish communication channels, and monitor performance closely during the transition. Additionally, maintain a contingency plan in case of unforeseen issues.

In procurement, switching suppliers is not just a business decision; it is a matter of corporate social responsibility (CSR). Often, the impact on the supplier's workforce, especially without a reallocation plan post-contract cancellation, is overlooked. Such terminations raise serious CSR concerns. As leaders, we must empathetically navigate these relationship risks, recognizing the human implications of our choices. Our procurement decisions extend beyond operational concerns, deeply impacting lives and well-being. It's crucial to remember the human aspect in our professional choices.

Other miscellaneous considerations would include how intertwined the previous vendor was from an IP perspective and the implications of the switch on future products and on the innovation roadmap. In certain cases there may also be branding and PR implications if the use of components from a certain vendor was seen as enhancing quality, diversity or sustainability. And finally, if the previous supplier is also a customer, there may be sales implications worth taking into account.

I've seen many organisations knee-jerking and quickly using the termination clause of a contract because of poor performance, and even personal issues at time. This might be ok if stationery is being purchased, but for higher level procurements a Plan B has to already be in place before terminating a high level contract. Relationships really need to be considered here, the moment termination is made the relationship is broken, it can be quite embarrassing going back cap in hand asking favours when your Plan B is much less attractive that the Plan A you once had....

You may also have balance of trade issues with a supplier who may also be a customer. Make sure your sales and relationship management teams are aware of the potential changes prior to decreasing or eliminating any supplier spend.

First things first means to fully vet and run a “check” on the new supplier. Your compliance metrics should have a set of procedures and protocols to facilitate this. Do not hesitate to seek the opinion or insight of a Team mate or close colleague. If all is well, discuss with the supplier - link by link - and fully advise them of your needs, requirements, and expectations. If this is delivery related your end user or receiver should see no decrease in quality whatsoever. If anything, an all around improvement will be realized. As always regarding delivery , the overall satisfaction of your end user or receiver is paramount.