“Benefits of implementing an enterprise supplier management program have been estimated in the range of 1% increase in revenues and 3% reduction in cost and is predicted to overtake strategic sourcing as the primary value generating procurement activity.”
(Hackett Group 2014)
The 7 Components of supplier management
At HICX we champion the cause of evolved supplier management. This movement builds on successes of strategic sourcing and category management and moves organisations forward to think differently about their suppliers and the value a new relationship paradigm can bring.
The future for procurement is a new strategy of margin enhancement by working with suppliers to create competitive advantage.
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- Supplier management is like herding cats
- Study shows which region is best at supplier management
1. Discovery and Qualification
New suppliers can be drawn from operations, R&D, logistics, sales and marketing, supply chain, right through to an executive assistant booking a service. The discovery and qualification of new suppliers varies considerably by purpose but the requirement of implementing a robust process that is fit for purpose remains.
If you would like to know how best to set up a new supplier discovery and qualification process, click here to contact us.
2. On-boarding and Master Data
Data are the lifeblood of systems so it is only correct that a clear strategy be developed to ensure it is consistent, complete, accurate, timely and valid.
At the point of on-boarding a new supplier a range of data are collected which have wide ranging uses. There are also myriad variations of data requirements dependent on location, category, supplier type, business unit, etc.
Transferring the onus of entering and maintaining supplier data to the supplier themselves while maintaining validation and approval internally is the best way to ensure master data quality.
There are five key factors which impact company’s ability to ‘master’ their data. If any one of these are weak, problems may arise.
- Recognising poor data drives higher cost and risk
- Creating data standards, process and controls
- Assessing data quality
- Capacity to correct data gaps & practices
- Measure improvement
If you are lacking a supplier master data strategy or are unsure whether your data quality is a limiting factor, click here to contact us.
- All Aboard! Six steps to supplier onboarding.
- PAS 7000:2014 new standard for supplier qualification just released by BSI.
3. Classification and Segmentation
To effectively segment suppliers there are a number of considerations, GCS use a segmentation methodology which captures the following supplier attributes:
- 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
- Where they interact – ease of replacement and footprint within the company
Once all these attributes, along with spend, are entered according to predefined terms, the model will plot suppliers by tiers and identify which suppliers are truly strategic, collaborative, opportunist and transactional. This forms the basis of any engagement strategy.
If you need help segmenting your supply base, click here to contact us.
4. Engagement and Consolidation
GCS recommend a supplier interaction model that comprises 9 types which group suppliers into three clusters determined by the current performance and strategic potential.
The application of an interaction classification will influence the strategy taken for each supplier in the program. Scorecards are then applied based on tier, interaction type and category. The teams can then develop a relationship plan and opportunity plan.
Prior to engaging the supplier a relationship value map should be constructed. The purpose of this map is to reflect 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.
If you need help with your supplier engagement strategy, click here to contact us.
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5. Risk and Compliance
The practical application of risk management is achieved through both quantitative and qualitative evaluation utilising score carding, surveys, exception reporting and alerts. Base-lining at the program’s inception is an important data point from which to analyse progression or deterioration.
The risk profile of a supplier can 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)
If you need to develop your supplier risk process, click here to contact us.
Compliance monitoring can be achieved through the introduction of processes to capture changing information and key 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. For more complex arrangements a supplier audit may be necessary to gather and analyse the relevant information.
If you do not have a supplier risk and compliance methodology, click here to contact us.
6. Performance and Development
“Where performance is measured, performance improves. Where performance is measured and reported, the rate of improvement accelerates” T. Monson.
Transparency of measures, open dialogue, and regular checkpoints are central to the process of performance and development. 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.
Building supplier capabilities is a top priority for most companies. However, many of them have not yet figured out how to do so effectively. The odds improve at companies where senior leaders are more involved and a clear roadmap and approach are in place.
Innovation pipeline, joint value plans, supplier development pathways, and benefits realised are all aspects that should be monitored and reported both internally and externally.
If you are not monitoring and reporting on supplier performance, click here to contact us.
7. Supplier Innovation
Managing the process of innovation is very different from having a mechanism to engage and develop. While no two companies are alike, there are two main models for capturing innovation.
The first is the more classical approach of personal engagement and agreement to develop internally. This route requires an ability to create an environment in which research and creativity can flourish. To pursue this organisations need an ability to plan, challenge and evaluate previously created ideas. They need the ability to implement selected innovations, and they need structure, space and time to support the creative process.
The second approach is one of leveraging collective intelligence externally. The ability to pose a problem to the wider supply base. In this model suppliers that may not be perceived as strategic, or possessing a given capability, are offered the platform to engage based on merit of input. Not all companies are ready for such a step and there are many factors to be considered before embarking on such an initiative.
If you are looking to boost innovation but do not have a formalised internal or external approach, click here to contact us.