New Zealand has a particular set of challenges when it comes to sourcing supplies.
Even its nearest neighbour, Australia, is still more than a three-hour flight away. This geographic isolation is a good thing when it comes to beating off a global pandemic, but it can make it challenging to attract suppliers south. “Companies have got to make an effort to come down here,” says Paul Howard, Chief Commercial Officer at New Zealand Defence Force, himself a Brit.
However, once there - whether native or visitor - the experience is of a nation that is highly interconnected. “There are only around four million people down here,” says Howard, “so there’s not six degrees of separation, it’s more like two. Whomever you talk to more than likely knows someone you know, so business relationships are very important, much more so than in other parts of the world.”
This, he says, necessitates a sensitivity not universally experienced, both when disappointing a vendor or awarding a deal, because securing a contract with the Defence Force can open doors for wins elsewhere.
Strategic objectives
The defence wing of the government comprises the Royal New Zealand Navy, New Zealand Army and Royal New Zealand Air Force, and is headed by the Chief of Defence Force. It spends around NZ$850m dollars a year on third parties, with around 900 live contracts and 20,000 suppliers on its books. The nation is one of the members of The Five Eyes intelligence community together with Australia, Canada, the UK and US.
The country’s armed forces have three key objectives, to defend the nation against low-level threats; to contribute to regional security; and to play a part in global security efforts.
Most recently, it was prepped and ready to support New Zealand’s response to Covid-19 in case of resistance to the lockdown, but widespread compliance meant it focused most of its efforts on overseeing quarantine facilities.
Like many organisations, it had to carry out urgent sourcing of personal protective equipment but by late July it hadn’t been required to do any emergency procurement exercises. It was, however, in regular contact with suppliers to keep them apprised of developments, an approach that received very positive feedback from providers. "A lot turns on good relationships here,” says Howard. “One of our guiding principles, embedded in our plans for 2025, is ‘partnering for greater effect’ - you partner with people to get a better overall military effect. Without logistics, you’re nothing. You only need to look at war studies and the adage that an army ‘marches on its stomach’ to know that if supply lines are cut, the enemy is more likely to win.”
Fortunately - because it realised it had no back-ups in place - the force has so far seen no issues with supply lines. “One thing the pandemic ruthlessly exposed to us was the lack of contingency plans for key suppliers. We need to know what the alternatives are in this situation or others and make our plans accordingly but we didn’t have anything. Thankfully nothing significant went wrong.”
Changes underway
A commercial improvement programme got underway in 2017 with the ultimate aim of leading a world-class commercial function for NZDF. “It’s very aspirational,” says Howard, “in my view ‘world-class’ is about continual improvement so you never really get there and it’s particularly difficult in the public sector because there’s never the money or resources to do it. It doesn’t stop us working towards it though.”
The team received executive sign-off to begin an SRM programme in June 2019, following a State of Flux ‘Voice of the Supplier’ study to benchmark its baseline. Howard, who joined the organisation almost five years ago, says the general sense was that the organisation was performing well in supplier management, but in actual fact there was a lot of room for improvement.
He says while some good early work had been done to improve interactions with suppliers, the building blocks weren’t laid in the correct order. “One of our biggest disadvantages is that we hadn’t done the segmentation first. We selected strategic partners based on gut feel. We pretty much nailed it, but it was more by luck than judgment.”
Those identified as key were awarded a “strategic relationship charter” – a set of principles that covers, among other things, a company’s entitlement to make a fair profit and the exploitation of future opportunities.