By Jill Button, President & CEO ProcurePro Consulting
Why Does Supplier Governance Matter?
Supplier governance is no longer just a “nice-to-have”, it’s a business imperative. With rising economic uncertainty, shifting trade relationships, and persistent global supply chain disruptions, businesses must implement strong supplier governance frameworks to remain competitive.
Current Economic and Trade Factors Impacting Supplier Governance
- U.S. Trade Policies & Tariffs:
It seems every day there is a fresh assault of tariffs and retaliatory tariffs in the ongoing, “dumbest trade war in history”, according to the Wall Street Journal. While many have no ability to control political policy, you do have control over how you manage the impact to your business.
With the ongoing trade tensions and retaliation tariffs on Canadian imports, in particular, Canadian businesses must diversify supply partners, implement strong supplier governance and contingency plans for supplier relationships.
- Supply Chain Disruptions:
From COVID-19 aftershocks to geopolitical conflicts, unpredictable events continue to impact raw material availability and pricing. Already fragile supply chains must be fortified. Diversifying your supply relations with local and global providers while implementing strong governance must be a top priority for all affected businesses.
- Economic Pressures & Inflation:
Rising costs mean businesses must optimize procurement strategies to secure long-term supplier agreements that ensure stability and cost predictability. Invest in joint planning, innovation and balanced contractual terms.
Without a well-structured supplier governance framework, companies risk cost overruns, compliance issues, and supply chain instability.
Common Challenges & Risks in Supplier Governance
Lessons are learned from failure, rarely success. One such example occurred following the completion of the biggest contract negotiation in my career. A large Canadian company I was working for, rushed to implement a multi-year, billion-dollar outsourcing deal. Working at breakneck speed, artificial pressures had them transitioning to the new outsourcing partner in six months instead of the standard twelve months process. Without a strong governance model implemented, a $20M variance was discovered. Proper governance meetings were replaced by rushed hallway discussions, leading to issues were ignored, corrective actions were not implemented nor appropriately tracked. Finally, after six months, I was brought back in, along with the core negotiations team, to implement the appropriate governance framework that would take us over a year and hundreds of thousands of dollars to fix.
- Contract Implementation Failures
Many companies focus on negotiating the best possible contract but fail to implement proper oversight once the contract is signed. This is where supplier relationships break down.
- Poor Supplier Transitions
Switching suppliers without clear communication and structured onboarding can lead to:
- Service disruptions
- Missed contract deliverables
- Supplier confusion on expectations
- Lack of Governance Leads to Compliance Risks
Without structured oversight, suppliers may fail to meet:
- Contractual obligations
- Regulatory requirements
- Quality and service-level expectations
This can expose businesses to legal risks, penalties, and financial losses.
How to Build a Strong Supplier Governance Framework
- Conduct Supplier Debriefs
Why It Matters: while you may be excited to implement your new solution, even unsuccessful suppliers deserve a debrief. This ensures your positive reputation in the industry and supplier relationship for future opportunities and mitigates risk. Debriefs provides unsuccessful suppliers constructive feedback to enable them to identify opportunities to improve their offering.
Best Practices:
- Keep it high-level and objective (do not disclose confidential competitor details).
- Communicate why they were not the chosen supplier and how to improve (e.g., pricing too high, inability to meet requirements or lack of specific experience).
- Use a structured format to prevent emotional or defensive responses from unsuccessful bidders.
- Ensure a Smooth Supplier Transition
To avoid potentially costly mistakes, as I previously described, when transitioning to a new supplier or implementing a newly negotiated contract, ensure you have:
- A detailed transition plan with clear milestones.
- Regular joint governance meetings with key stakeholders.
- Set and track clear expectations on performance, reporting, and compliance.
- Establish a Governance Structure
Your governance model should align with the strategic importance of the supplier.
For commoditized services, light monitoring of KPIs (e.g., on-time delivery, invoice accuracy) may be enough.
For critical supplier relationships, implement a more formal, multi-level governance framework that includes:
- Regular business and performance reviews (monthly/quarterly).
- A structured escalation process for resolving issues, including Management and Executive governance levels.
- Joint strategic planning sessions for long-term collaboration and to uncover and capture innovation.
- Don’t Rush the Process
Cutting corners in governance can lead to costly failures. Ensure governance planning is prioritized as part of contract negotiations and implemented as part of onboarding and transition.
- Implement a “GO/NO-GO” Decision Checkpoint
Before fully transitioning, and at each critical milestone, assess:
- Have key governance meetings been scheduled?
- Do suppliers understand their contractual obligations?
- Have transition risks been mitigated?
If any governance gaps exist, pause the transition until resolved.
Industry Trends & Future Outlook
- AI & Automation in Supplier Governance
- Companies are using AI-driven contract management tools to track supplier performance in real time.
- Predictive analytics can flag potential supplier risks before they escalate.
- ESG & Ethical Sourcing Requirements
- Governments and large enterprises are demanding ESG including sustainable, ethical supply chains.
- Supplier governance frameworks should include ESG (Environmental, Social, and Governance) compliance monitoring.
- Nearshoring & Supplier Diversification
- Canadian businesses are reducing reliance on U.S. and international suppliers by prioritizing Canadian businesses including focusing on removing interprovincial barriers to streamline and prioritize “Made in Canada”.
- Supplier governance must be flexible enough to accommodate multi-region supplier relationships. Ensure flexibility and recognition of cultural and trade practices to create trust and respect.
Key Takeaways & Call to Action
- The top reason for supplier and contract failure is Governance. A lack of proper governance is where most supplier relationships fail costing businesses millions.
- Once a contract is signed, your work is NOT done, it is just the beginning. Good governance is essential.
- Supplier transitions both to a new relationship and from an incumbent, must be well-structured to prevent disruptions.
- Rigorous transition plans along with a GO/NO-GO framework, helps businesses avoid rushed implementations.
In today’s highly volatile business environment, governance is not optional, it is essential. By implementing a structured supplier governance framework, businesses can:
- Improve supplier performance
- Reduce compliance risks
- Ensure long-term cost savings
This article is based on insights from the book, How Not to Get Screwed by Your Suppliers and Save Millions. By Jill Button. Print and Kindle editions available on Amazon.
Contact me to schedule an introductory meeting to discuss Supplier Governance.
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