Driving value and innovation from your suppliers
Words: Gordon Tughan-Jones
It’s difficult to look at the newsfeed of your favourite business-focused social network for five minutes without being hit by multiple articles, reminding you that when it comes to supplier management, everyone else is doing it and is driving value and innovation.
But the reality on the ground in most organisations does not live up to this idealised best in class image. The day job of dealing with contract renewals comes first, and effective supplier management gets deprioritised. Value is being leaked from existing contracts, making it hard to know if you’re getting what you paid for. Beyond this, the holy grail of effective strategic supplier partnering and jointly celebrated innovative collaboration is not likely to have been considered.
However, by applying a few key success factors, remaining pragmatic about what to focus on and being realistic about what you aim to achieve in the short term, what may seem to be a task for tomorrow can instead become an effective and highly visible capability for which procurement can be recognised today. Here’s how.
Key pragmatic success factors to drive value
1. Start small, think big
When Supplier Relationship Management and Performance Management are implemented, it can often end up as a large-scale reporting exercise focused only on compliance and risk, rather than one also focused on driving value.
A better way to develop your capability in this area is to start on a small and manageable number of strategic suppliers and focus particularly on developing those relationships. This doesn’t need expensive software – it’s about real implementation on-the-ground and getting your hands dirty with (carefully selected) business stakeholders.
By initially investing extra effort in this pilot to ensure its success and by fully involving the business stakeholders in that success (so that they can evangelise the cause during the wider roll-out, rather than it coming from procurement), you create an initiative of which other stakeholders in the business want to be a part.
After starting small and driving this success, growing the scope of the capability and enabling it with technology is then much easier, with a much stronger business case available for fully resourcing the capability.
2. Contractually enable what you want to happen
The simple truth is, ‘If you don’t contract it, it probably won’t happen.’
We know we want our suppliers to attend innovation workshops and come up with measurable initiatives with plans to realise them. We know we want the supplier to provide certain KPI data for our reporting that is easy to validate, and we know we want service credits to be collected in a straightforward and low-maintenance way.
And yet these expectations aren’t defined in the contract, or attempts are made to agree them at the end of the sourcing process with a high-level statement, once the supplier has been down-selected and leverage has been lost.
While you don’t want to drive up prices through heavy-handed burdensome administration, most elements of how you want to manage a contract and a supplier relationship can and should be included in a contract template within the RFP. Appropriate wording can easily be selected based on the segmentation of that supplier and contract. And templates should be included where possible to standardise processes across the business and enable anyone to pick up a document and understand it.
By putting this in place early, and ensuring your contracts match your strategy for how you will manage each contract/supplier segment, you will lay the groundwork for the future expansion.
3. Don’t try to report on everything
Good central reporting is done at a level of abstraction that can be easily understood and should always be actionable. This is a key lesson to apply to management of your supply base when tracking compliance and performance of your business throughout the supplier lifecycle.
It’s also much better to start with a simple tool that provides this tracking overview, along with a RAG status, absolute values where they exist, comments and attachments that allow you to drill down. This allows you to see current compliance and performance, as well as the change over time, all filterable by segment. A handful of reports will then show you what has not been done, where issues exist that require action and which suppliers have so far been rolled into your new to-be approach. Any external activities, such as risk assessments, may be done by third-party tools and the output uploaded, but they don’t necessarily need to be integrated.
Too many companies start with technology or try to find one integrated system that will do everything. But the reality is that it’s not until you’ve been doing this properly for six months that you will truly know what you want from the tool. It’s important not to make the mistake of investing time in technology too quickly. It may be vital for lightening the load of the process but, if you start with pilot suppliers, you don’t need to jump in on this just yet.
4. Get buy-in from the wider business in advance
In order to be successful, management of your supply base must be a joint enterprise with other key stakeholders in your business.
First and foremost, business users who already manage supplier relationships need to be engaged to ensure that their work builds upon what is already there. Find champions to run your pilots with enthusiasm to truly get the wider business on board. Trying to impose change from the outside by fiat alone is not enough.
Secondly, ensure that execution of new responsibilities under supplier management is included in the performance KPIs of the appropriate stakeholders in the business – a number of our clients have made part of the bonus dependent on these activities. But this does mean you must get buy-in in advance from key senior business leaders and an awareness of when the performance year starts so that new KPIs can be set accordingly.
Finally, look to involve Risk Management in your planning. They are normally supportive of supplier management, as it enables a more granular understanding and management of risk within the business. If positioned correctly, the collaboration can also be a feather in their caps, and they may be able to provide some initial resource support.
5. Don’t do what you can’t resource
Finally, there is no getting away from it – in order to manage suppliers effectively and deliver incremental value for the business, someone needs to do the work.
This can be thought of both in terms of the initial set-up work and the ongoing work to manage suppliers (the latter being broadly split into business users who own the relationships, a typically off-shore team that helps with KPI report collation, and an owner in procurement who sets the rules and is accountable). Don’t fall into the trap of designing something that you then can’t resource.
The past is littered with SRM operating models for which resources weren’t approved or were rescinded, leaving the workload to Procurement (where it is then necessarily deprioritised versus the day job). Even an eventual success in this scenario optically looks like a failure. Don’t make the mistake of designing and trying to implement a capability for which you don’t have the resource to then successfully deliver. To reemphasise point #1: start small, go from there, and earn your resource. Real success on the ground is more important than scope and scale or complex reporting.