When something is considered a ‘nice to have’ rather than an ‘essential to have’ part of business it often takes a backseat. This has certainly been true for formal Supplier Relationship Management processes.
But in times of increased supply chain uncertainty, it’s something that should definitely be at the forefront of your mind.
The three- and five-year plans of 2018 and 2019 may have included contingencies for a wide range of factors including evolving technologies, component shortages, natural disasters, fluctuating fuel costs, wage trends, skill gaps or shortages and increasing online sales trends but it is unlikely that they held space for either a global pandemic or war breaking out on the edges of Europe.
Terms like supply chain and commodity pricing, once the preserve of business are now fully embedded in the psyches of both the media and the general public. Fears of food and fuel shortages have meant that discussions about supply chain happen at every dinner table.
The importance of supplier relationships has never been so clear. Who will work to get your deliveries in the more difficult of circumstances? Who will prioritise your business needs in a constrained world? Money and spend are huge factors but so too are the relationships built up over years.
Most of our clients have long term partnerships with suppliers and in these cases it makes sense to have a supplier strategy that maximises value wherever possible, but also works to minimise risk and exposure.
In an article for Tech Target, Alan Earls describes supplier relationship management as the practice of “examining a company’s vendors and strategising how to improve the company’s interactions with them. Practitioners and analysts agree that a strong supplier relationship management (SRM) program is vital for virtually every company.”
With all the advances on EDI, RFQ’s, e-auctions, inventory reduction, cash conversion and innovative savings, supplier relationships really boil down to two key elements: trust and communication.
Good and appropriate supplier relationships do not just happen. A customer needs to be clear, consistent, and set fair goals (and that doesn’t mean there can’t be very challenging stretch goals!), while a supplier needs to have to the space to listen to the customer and strive to meet and exceed the goals set. It’s a two-way relationship.
This is true of your own internal processes too. Varying functions can have entirely different goals and objectives, and for the sake of the organisation as well as supplier relationships, alignment of these goals, wherever feasible, will help ensure a more solid ‘one voice’ relationship with the supplier.
Key Focus Areas to enhance Supplier Relationship Management
It is important to document which suppliers are most strategically important, the reasons for that and associated risks to the business. Contracts, a clear set of expectations and key performance indicators (KPI’s) are fundamental requirements for any strategic business partnership.
R&D, Commodity Management, Quality and Operations frequently have their own ways of working with their supplier counterparts. Varying requirements (and messaging) from each area can cause issues, so it is important to collate it all into one supplier strategy and ensure all are on board with messaging.
Goals & Objectives across the organisation
This is an important opportunity to align the goals of all team members who work with suppliers. Implementing 360 feedback through the review process should help reinforce awareness of overall corporate goals as well as the requirements and pressures of colleagues. Excellent operational support is key, but of little use if there is no meaningful engagement on cost savings and optimisation, readiness for future designs, ability to meet sustainability or ethical sourcing goals. Conversely picking a supplier who will help you with designs but not deliver to your required lead time and flexibility standards will also be detrimental for the organisation.
The value of supplier KPI’s cannot be overstated. Areas typically evaluated include delivery & flexibility performance, quality, cost competitiveness, and technology / R&D capabilities.
We recently worked with two clients to implement scorecards and it was interesting to see the various departments align on what the key metrics (and weighting of same) should be. That was a shared learning experience and increased awareness of what actually matters in other departments. Sharing the scorecard with the suppliers also adds to this learning and helps suppliers focus on the important areas.
A Simplified Scorecard Sample
Scorecards can vary depending on the customer’s requirements. Here is one sample of what can be contained in a simplified scorecard. This scorecard also has weightings for each category & subcategory, and explanations as to how the scoring is calculated.
It has been proven time and time again, that setting reasonable expectations and putting correct measures in place, improves performance and relationships. It also helps to inform the wider internal organisation which allows for a considered discussion on supplier strategy and more inclusive decision making. The unprecedented events of the last few years, heavily underline the need to implement SRM, now widely accepted as a business must-have. This will, in turn, enhance collaboration and help monitor the latest industry trends, for the benefit of all.