Supplier performance management starts after contract signature

In Myth #1 and Myth #2, we challenged the long-held belief that procurement value is primarily driven by negotiations, addressing both the misconception that savings come mainly from supplier negotiations and the assumption that negotiations are inherently zero-sum, where one side’s gain must come at the expense of the other.

Now, in Myth #3, we address the assumption that supplier management begins after contract signature, showing it actually starts much earlier, when demand, outcomes, and expectations are defined.

One of the biggest myths in procurement is the idea that supplier management begins after the contract is signed. In fact, it’s exactly what most procurement training reinforces. We’re taught to think of procurement as a linear sequence: define requirements, run a bid, negotiate terms, sign the contract, and only then start managing the supplier. The problem is that this mindset is completely backwards.

By the time a contract is signed, many of the most important supplier management decisions have already been made. Procurement can only manage what was defined, measured, incentivized, and contractually enforced in the first place. If those elements were poorly defined, or never defined at all, no amount of post-award supplier management can fix the problem.

World-class procurement is not a relay race with a series of baton handoffs. It is a continuum, with supplier management beginning at the very start of the procurement process.

At the root of the issue is how most organizations define demand. They focus on what they want to buy rather than what they want to achieve. End users are typically incredibly good at describing products, services, features, tasks, and deliverables. What they often fail to define are the outcomes that truly matter.

As a result, suppliers frequently deliver exactly what was asked for, while the business remains dissatisfied with the outcome.

Consider a large school district in Northern California that contracted to implement a new payroll system. The agreement exceeded fifty pages and was worth approximately $3 million. Every activity, deliverable, responsibility, and timeline appeared to be carefully documented.

Nothing seemed to be missing. After the contract was signed, responsibility shifted to supplier management. There was just one problem. The contract never clearly defined the most critical outcome: the right people needed to be paid the right amount at the right time.

Because that outcome was never explicitly established, the supplier performed exactly as contracted, yet employees were paid incorrectly, paid late, or, in some cases, not paid at all. A class-action lawsuit followed. Procurement was expected to step in, manage the supplier, and resolve the issue, but there was little that could be done. The supplier had fulfilled the contract as written. Supplier management didn’t fail after contract signature. It failed during requirements definition.

A similar situation occurred when a northern U.S. state replaced traditional traffic signals with energy-efficient LED systems. The project was deemed a success because the supplier delivered exactly what had been specified. Unfortunately, one critical performance outcome had been overlooked: heat generation.

Unlike traditional bulbs, LED signals produce minimal heat. During winter storms, snow accumulated on the lights and blocked visibility. The state had to assign personnel to manually clear the signals. Again, the supplier was not at fault. They delivered precisely what was requested. And once again, no level of supplier management could correct the issue. The real problem was that key performance outcomes had never been considered before the contract was signed.

This is why supplier management must begin much earlier. During requirements development, procurement must guide stakeholders away from focusing solely on what they want to buy, and toward what they need to achieve. Desired outcomes must be clearly defined. KPIs must be established. Critical terms must be explicit. Remedies must be enforceable. In some cases, payment should be tied to performance outcomes, not just delivery milestones. These activities are often labeled as “contracting.” In reality, they are supplier management.

Procurement professionals routinely spend 70% to 90% of their time dealing with escalations, disputes, and supplier issues. Many of these problems are not created after contract signature, they are embedded months earlier in poorly defined requirements and incomplete agreements.

Key Takeaway: The best supplier management programs don’t begin after the contract is signed. They begin long before a supplier is selected when the demand itself is being designed.

In our next blog, we’ll be debunking Myth #4: policy compliance is the primary driver of better business outcomes.