I have written about supplier on-boarding and some views on how well placed procurement are to handle innovation. Time to tackle the main theme of supplier management. If you are currently working in procurement time is short so let me cut to the chase, I apologise for some bad news but you are not the suppliers only customer.
Shocking as this statement is to make, I have seen many, many, organisations operate in complete denial of this reality. Each one creates a blanket set of metrics, KPI’s, reviews, action plans, etc., and expects full obeisance from each supplier. Should a supplier dare to be so bold as to not toe the line, the relationships can be damaged and commerciality negatively impacted.
The challenge of achieving uniformity is likened to that of herding cats. Nevertheless, it can be done by applying the following principles.
Suppliers should be segmented by what they provide – specific offering and potential of offering, who they impact – impact on customers and impact on the company, how they interact – linkage with key processes and sharing of information and knowledge, and where they interact – ease of replacement and footprint within the company.
Once all these attributes, along with spend, are understood, suppliers can be tiered by those who are truly strategic verses those who are collaborative, opportunist and transactional.
With segmentation comes interaction strategy i.e. how will eat ‘cat’ be treated. The application of an interaction classification will influence the strategy taken for each supplier in the program. This will also influence the frequency of interaction and review. Strategic suppliers will correctly receive the ‘highest’ amount of review, whereas both collaborative and opportunist suppliers are ‘medium’ with transactional suppliers ‘low’. This shows us which ‘cats’ we really need.
At this point relationship teams are assigned to suppliers with agreement of roles and responsibilities. Scorecards are then applied based on tier, interaction type and category. These teams develop relationship and opportunity plans.
Engage, engage, and engage.
How to engage depends largely on the relative value each party places on the relationship. A relationship value map reflects the value the buyer has to the supplier and vice versa. It may be this is imbalanced (one perceives the other as strategic but is perceived as transactional in return) and will therefore reflect an adjustment in approach.
The culmination of work so far is to ensure meetings are held with the right suppliers and lead to the optimal result. This can only be realised through engagement and the buy-in of each supplier. Success is highly dependent on supplier competencies which include operational, technical, relational, and developmental.
Pick your battles.
Of course, not all suppliers will be strategic and have joint value propositions. For those in lower tiers the need is to operate a methodology to simply manage risk and performance. The practical application of this will be largely achieved through quantitative and qualitative evaluation utilising score carding and surveys. Base lining at a program’s inception is an important data point from which to analyse progression or deterioration.
The risk profile of a supplier will be determined according to key areas including:
- Materiality of outsourced goods/services to buying organisation (dependency)
- Operational service failure risk (continuity)
- Contractual risk (liability)
- Financial risk (viability)
- Capacity risk (scalability)
- Relationship quality risk (longevity)
Monitoring will be achieved through the introduction of processes to support supplier review points. Surveys will form an important aspect of gathering richness of information including quality, delivery, innovation, management capability, CSR, EH&S, and quality of relationship.
Invest where it matters.
Supplier development is a two way agreement and requires a strategic objective that is mutually accepted. The discussion of intellectual property, resource allocation and ability to share (or not) with other parties is necessarily part of the joint value proposition.
For non-strategic suppliers, a development program will focus on the evolution of suppliers in anticipation of future strategic opportunities. The level of supplier interaction will be far lower than those selected for the main program.
‘Values’ established at the program outset need to be monitored and feedback gathered to ensure program benefits are realised. Innovation pipeline, joint value plans, supplier development, benefits realised, are all aspects that should be monitored and reported both internally and also externally.
Having increased transparency between buyer and supplier organisations is an important aspect of evolved supplier management as both parties work together to create mutual benefits that in turn effect strategic advantage for the partnership.
If you build it, they will come.
Where you have a lack of clarity about the future, suppliers will too. They too have scarcity of resources and so will deploy them for the best return, to secure the greatest return on investment.
Conversely, a clear vision of the mutual benefits, and an open dialogue with regular checkpoints will have your errant cats lining up for attention. Being the customer of choice is not just the preserve of the big and the best. It can be achieved at all levels of the supply chain with the right approach and execution.
Grant Watling is a Principal Consultant and Global Consulting service line leader at HICX Solutions. HICX Global Consulting has the mission to help clients make the most of their SRM investments in the shortest possible time and specialise in providing advice on all aspects of supplier management.