Is your leadership style impacting supplier performance?

Is your leadership style impacting supplier performance?

Chances are that you suspect your contract isn’t performing as well as it could. There must be something you can do to get more out of your suppliers, right?

Did you know that improving your leadership skills could improve supplier relationships and contract performance?

Read on to learn more about the different styles of leadership and how they impact supplier performance and the relationship.

Leadership styles and their impact on performance

There is a whole raft of literature and training available about how you should lead your staff. So let’s explore if we can apply some of that thinking to the management of suppliers.

The figure below is based on the Multifactor Leadership Questionnaire (MLQ) framework, developed by B. Bass and B. Avolio. It includes four different leadership styles, how they impact the relationship between client and supplier and how that affects supplier performance.

 

 Figure 1: Leadership styles and their impact on supplier relationship and performance

Laissez-faire

This maturity stage is best described as “no leadership”. Contract managers engaging in this leadership style avoid getting involved, are absent when needed and avoid making decisions.

Suppliers frequently take advantage of situations where the client is passive. This allows suppliers to reduce their overall cost and maximise their profits. As you may expect, the overall performance of these contracts is very low and the relationships dysfunctional.

“When the cat is away, the mice will play”, this is as true for an absent manager of staff as it is for an absent contract manager.

Management by exception

These organisations clearly specify in their contracts acceptable levels of performance. If not achieved, contracts include punitive measures and contract managers spend a lot of time fighting fires, ensuring compliance and pointing out mistakes. Contract managers typically only get involved when things have become serious or chronic. They have a firm belief in “if it isn’t broken, don’t fix it”.

Suppliers will adapt to this style by performing at the minimum level required to avoid punishment. As the client just gets involved when things go wrong, relationships are often adversarial. Imagine sitting down with your staff every time things go wrong but not providing any positive feedback!

Contingent Reward

At this maturity stage, contracts include “carrots” to reward the achievement of goals and contract managers openly state and clarify what performance is expected. It is clear to all parties involved who is responsible for achieving goals and contract managers provide positive and constructive feedback regularly.

Suppliers want to do a good job and want to demonstrate to the client that they are adding real value. This leadership style allows them to do so and provides an upside for good performance. Suppliers will provide the level of performance that is specified in the contract, through Key Performance Indicators or Service Levels, and do just enough to receive their reward. Relationships are working relationships, similar to those you may have with a colleague from a different department.

Transformational leadership

Suppliers managed by transformational contract managers go beyond what is required in the contract. Think of the best boss you’ve ever had and how they managed you. Their leadership is conducted in a way that encourages innovation, keeps up morale, and motivation and exceeds performance expectations. Relationships are a true partnership with all partners bringing to the table what they possibly could.

Organisations that excel in the leadership of their suppliers instil pride in anyone associated with contracts, create trusting relationships, communicate a strong sense of purpose, talk optimistically about the goals of contracts, seek the suppliers’ input into solving issues and spend time teaching and coaching suppliers.

Next Article

2017 Procurement Study

Carrot or Stick?

Keys to boosting supplier performance revealed

Our 2017 research study highlights clearly a number of practical insights that will help your organisation drive much stronger performance from your suppliers.

The report hightlights:

  • What performance buyers typically get from their suppliers
  • What suppliers recommend buyers should do to improve the suppliers performance
  • What interventions actually work to lead suppliers to better performance
  • Differences between managing contracts in the public and private sector
  • Three things you can do today to improve supplier performance

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