Supplier management unlocks additional value once strategic sourcing is complete. There are many routes to incremental benefits after the contract is signed:
- Savings through continuous adaptation of the statement of work
- Joint income growth by working with suppliers to identify better solutions for customers
- Higher customer satisfaction through root cause analysis and corrective action planning
- Continuous improvement through problem solving and setting stretch goals
- Innovation through supplier development to expand capability and capacity
- Sustainability improvement agenda in every aspect of supply
The main barrier to achieving these benefits is supplier management skills. Post-contract activity is typically the responsibility of functional professionals where supplier management is only a small part of their job.
Business professionals need support to grow their supplier management expertise.
They need to know what are the conditions that allow their suppliers to excel.
A recent supplier management benchmarking study conducted by ADR International investigated how best practice organizations achieved higher value from vendor relationships.
These four principles were demonstrated by world class practitioners of supplier management.
Principle 1: Sequence Category Management before Supplier Management
Before we start to tier / segment / classify suppliers, we must have a category strategy. The category strategy is a long-term vision of how interventions in groups of spend will support the triple bottom line of people, profit and planet. A category view assesses cost, market conditions and customer needs before deciding on the optimal sourcing, contracting and relationship strategies.
Principle 2: Make listening to suppliers – individually and collectively – a good habit
Listening with intent is a good habit for any business professional. Fostering this among Supplier Managers, Stakeholders and Procurement demonstrates to suppliers that we care about helping them meet their business goals.
Best in class supplier managers create opportunities to listen. Regular calls, dedicated time to brainstorm improvement, collecting feedback, discussing trends and surveying the supply base.
- is courteous, encourages contribution and problem solving
- ensures that the buy-side team adopts a common style towards a supplier
- helps us navigate the market to our advantage through supplier insight
Principle 3: Use the customer’s needs as the basis for behavior and reward for suppliers
Organizations that start strategy planning with the end customer’s needs focus on what is important. We demonstrate to the supplier what really matters through performance measures. If we have the mechanisms, we can reinforce this through our approach to reward and compensation.
Reward must match the behavioral style chosen for the relationship. Best practice supplier managers choose a relationship style (often in collaboration with suppliers) that matches their relationship objectives in terms of cost, quality, sustainability and customer value.
Principle 4: Guarantee success – because everyone likes to win
You know the difficulty with putting Procurement people and Sales people in the same room? They both like to win. This can also be a benefit, when it is a cross-company team. Allow, enable and encourage teams to win through small or major project initiatives. Those organizations that recognize that people like being on the winning team are the best at finding joint wins.
To drive value from supplier management, best practice organizations apply these principles daily. They succeed most when suppliers and stakeholders tell their peers the great outcomes they have experienced. Supplier management is best driven by great role modelling and positive behaviors rather than a systems-imposed solution.