Here at HICX we are championing the importance and value of evolved supplier management.
Evolved supplier management focuses on moving beyond mere strategic sourcing and category management, and instead encouraging organisations to think differently about how they work with their suppliers.
In this blog we take a look at the key components of supplier management, starting with…
1. Discovery and Qualification
New suppliers can originate from any number of different sources, be it operations, R&D, logistics, sales, marketing or the supply chain.
However, while the discovery and qualification of new suppliers can vary greatly depending on the role they will fulfil and the area of the business they will be working with, this doesn’t lessen the need to have a robust supplier management and onboarding process in place that is fit for purpose.
2. Onboarding and Master Data
We say this a lot, because it’s true – (good) data is the lifeblood of systems. Therefore, it makes perfect sense for your organisation to focus on capturing consistent, complete, accurate, valid and high-quality supplier data at all times.
When it comes to onboarding a new supplier, a range of data is collected which can have many different uses within your organisation, including the likes of location information, category, supplier type, business unit and so on.
Shifting the responsibility of entering supplier data to suppliers themselves (while maintaining the function of validation and approval internally) is the best way to ensure the quality of the master data and make sure you have the most accurate information.
There are five important factors that can impact an organisation’s ability to record the highest quality information. If any of these factors are not up to scratch or taken into account fully however, it could lead to problems in the future.
- Poor quality data can lead to greater costs and risks
- Establish data standards, processes and controls
- Assess the quality of the data
- Provide the capacity to fill data gaps
- Measure improvements
3. Classification and Segmentation
To effectively segment your suppliers there are different considerations you need to take into account. For example, you could use a process that captures the following supplier data:
- What they provide – specific offering and potential of offering
- Who they impact – their impact on customers and on the company
- How they interact – with key processes and the sharing of information
- Where they interact – the ease of replacing them and their footprint
When all this information (combined with spend) has been recorded and aligned with predefined terms, you can sort your suppliers by tiers and see which ones are strategic, collaborative and transactional. This forms the foundation for any engagement strategy.
Before you fully engage in a relationship with any given supplier, you should put together a ‘value map’.
Having such a map allows you to judge what value a supplier has to you, as well as how you are perceived by the supplier. If this relationship is seen as being ‘imbalanced’ due to a difference in perception, then it may well indicate that there needs to be an adjustment in your approach.
5. Risk and Compliance
Risk management can be achieved through both quantitative and qualitative evaluation using a range of different methods, such as score cards, surveys and reporting. Establishing a baseline from the programme’s outset is important, as it provides you with a means of measuring progress.
A supplier’s risk profile can be established by taking into account the following:
- Importance of outsourced goods or services to your organisation (dependency)
- The risk of an operational failure (continuity)
- Contractual risk (liability)
- The financial risks (viability)
- Growth capacity (scalability)
- The business relationship itself (longevity)
Surveys can help you monitor the compliance of your suppliers and gather important insights, such as information about quality, delivery, CSR and the quality of the relationship, to name but a few areas. To gather even more complex risk information, you might want to arrange for a supplier audit to take place.
6. Performance and Development
Increased transparency between your organisation and your suppliers is a crucial aspect of evolved supplier management when it comes to creating a mutually-beneficial relationship that offers each party a strategic advantage.
While increasing supplier capabilities is important for most organisations, many haven’t worked out a way of doing so.
However, organisations which have a senior leadership team that is invested and which also have a clear roadmap in place are in a much better position to establish stronger and more valuable relationships with their suppliers.
7. Supplier Innovation
Broadly speaking, there are two main methodologies for managing supplier innovation.
The first approach involves personal engagement and the ability to establish an environment in which creativity can flourish. This approach requires organisations to challenge and evaluate old ideas and ways of doing things, and instead replace them with new processes.
The second approach involves the use of collective intelligence and the ability to engage the wider supply base.
Under this methodology, suppliers that might not be seen as strategic, or having a strong capability, are given a platform to engage based on their merit of input. However not all companies are ready to take such an approach and there are factors to consider before implementing such a methodology.