A fact of 2018 is that while meeting suppliers is not particularly difficult, finding the right ones and managing them well is. Heightened volatility in a market that has become increasingly global and increasingly complex means that businesses are more reliant upon their suppliers than ever before. For many Chief Procurement Officers (CPOs) and their teams, particularly those that are more mature, the greatest opportunities to drive near-term value occur within the supplier management process. This article highlights best practices in supplier management by taking a 360° view of the relationships that enterprises should have with their suppliers.
90° – Supplier Identification
The new buyer-supplier paradigm aims to create relationships that begin on equal ground and seeks to advance the interests of both parties. Best practices in this area include:
- Viewing suppliers as a source of value and advantage. The business world is moving too fast and there is too much useful information dispersed across an entire supply chain for an enterprise to try and go it alone. Collaboration with suppliers is key to attaining the next level of business value.
- Using spend analysis as the foundation for sourcing decisions. The concept of making informed buying decisions has been around since the dawn of business. Sourcing teams that have visibility and control over their supplier spend have a better opportunity to drive value across the key procurement metrics that can impact the larger enterprise.
- Mandating the usage of eSourcing. Sourcing teams that are not using eSourcing technology are not performing a strategic process and are, in all probability, getting substandard results. Processes that intentionally bypass automation in 2018 are destined for disposal as are the process owners.
180° – Supplier Information Management
Strong supplier information management practices help to eliminate the tactical and mundane aspects of a supplier relationship thereby promoting greater strategic collaboration among trading partners. Best practices in this area include:
- Making a supplier’s ability to be “on-boarded and enabled” part of the sourcing decision. Rather than struggle with resistance from suppliers during the enablement process, communicate the technical and information management requirements to all suppliers during the bidding process so that they are fully aware of what will be required of them post contract.
- Centralizing (and standardizing) the collection and management of all key supplier information. Develop a “source of truth” for supplier information that is standardized and accessible across the enterprise.
- Capturing and integrating third-party information on your key suppliers and co-locating it with other important supplier information.
270° – Supply Risk Management
It is important to note that the goal of a supply risk management program is not the elimination of supply risk (which is essentially impossible), but rather, the proper identification of it so that it can be considered, managed, and at times, accepted. Best practices in this area include:
- Assigning a cross-functional team to lead the supply risk program. By establishing a broad and vested interest and awareness in supply risk, enterprises are better able to expect the unexpected and bring the right resources to bear if an incident arises.
- Developing a robust supply risk identification and assessment process. Teams should develop a comprehensive definition of supply risk that includes all relevant types of risk like financial, operational, reputation, regulatory, business continuity, political, etc.
- Developing and testing business continuity and crisis management processes. From time to time, teams should run different supply risk scenarios to test their programs including all preparation, response, and recovery activities.
- Remembering that supply risk is a moving target. Teams cannot “set it and forget it;” they must continually reevaluate their supply risks and their plans to reduce and manage them.
360° – Supplier Performance Management
A clear view of supplier performance can help procurement departments find the best supplier partners for future contracts and investment in innovation projects. In turn, performance feedback that helps suppliers improve their business can serve as a powerful incentive for a supplier to invest in the relationship. Best practices in this area include:
- Establishing clear communication with suppliers and stakeholders around the evaluation process, criteria, and timing. This basic program management strategy is core to overall success.
- Developing standard supplier surveys and scorecards that track performance and enable benchmarking across the supply base. Leveraging knowledge and best practices enables enterprises to develop better and clearer performance standards.
- Setting alert triggers and implementing strong “course correction” measures as needed. For supplier performance, the sooner that problems are identified, the sooner they can be addressed.
Conclusion
Best-in-Class procurement departments understand that suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain. How procurement departments approach their 360° supplier relationships and the results derived from them will have an increasing impact on enterprise operations and overall performance in the months and years ahead.
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