The Top 10 Best Practices to Reap More Value from Your Supplier Relationships

Over the last few months I have listened to many businesses discuss their quest to obtain more value from their supplier relationships. The traditional methods are tapped out while leaders such as General Motors have evolved to longer term contracts for new products to cut costs and gain access to advanced technologies.

Below is a top ten list to help you reap more value from your supplier relationships.

1. Segment Your Supply Base - In the 1980s Peter Kraljic introduced his 2x2 matrix so the supply base could be viewed by total impact to revenue and spend versus risk and sourcing complexity. The matrix is still in use today with the best companies routinely segmenting spend in accordance with the matrix. This baseline creates a simple view of your entire supply base, including those suppliers that are putting your business at risk.
2. Remember Not Every Supplier Is Created Equal – Even in 2015 a majority of businesses treat all their suppliers the same. The basic business processes of supplier onboarding, compliance and regulatory monitoring, performance measurement, risk management and supplier visibility are the main requirements that every supplier must understand. All of these requirements must be part of a standard supplier methodology within your business. However, once each supplier is aligned with your methodology, you must then start looking at the differences in your supply base - and this can be quickly understood with the Kraljic model. Some suppliers will be at the center of a supplier innovation and development program; other suppliers may be part of a resourcing effort because they pose a risk to the business.
3. Utilize Technology – Technology solutions have advanced greatly in the last five years. Most are cloud based, and are quick to implement and adopt. Some solutions are behind the firewall and sometimes are like maneuvering a ship in pond… impossible. Technologies bring greater visibility and usually leaner business processes, making your supply base easier to manage. Technologies your procurement business should not be without include: Spend Analysis, Sourcing, Sourcing Optimization, Contract Lifecycle Management, Supplier Performance & Risk Management, Supplier Relationship Management and Procure to Pay.
4. Understand The Supplier Value Required In Your Business – What is the value your business needs from your suppliers? Many define it as more savings: green initiatives; innovative packaging, materials or production; shipping and handling, performance; better inventory monitoring and movement; fulfillment; design and manufacturability; new market access; or some other set of parameters to fulfill the business needs. Each value opportunity must be understood, communicated, aligned, measure and monitored with your supply base or the value will not be uncovered
5. Define The Rules Of Engagement – Many companies like to tell their suppliers what is required. Unfortunately they don’t have mechanisms for shared communications, do not listen to their suppliers and in many cases have not aligned with their suppliers across organizations for optimal outcomes.
6. Drive The Behavior You Want – If you tell your suppliers what you need but you don’t help them get there, you won’t reap the outcome. Help your suppliers by driving them to meet your needs. Set the expectations, measure and monitor performance, discuss the outcomes and look for ways to enhance their value for mutual success. Your supplier is only as good as your continued expectations.
7. The Scorecard Is The Entry Point –Make sure the suppliers understand the scorecard, the scoring system and your requirements. Once suppliers consistently hit all the right requirements you can look for more strategic or partnership roles for the supplier within your business.
8. Suppliers Can Move Up The Value Ladder – Make sure you actually do move suppliers up into more strategic relationships with your business. It is one thing to measure, monitor and use the scorecard as your entry point, but if you do nothing with it the supplier assumes his business is status quo. The supplier may just continue to meet objectives as you need but channel more business to a competitor because he is recognized as more strategic. This could have an adverse impact on your business at a future date.
9. Supplier Development Is Critical – Suppliers are as good as you need them to be. However they can better benefit your organization when they understand your requirements – both short and long term. This means developing the supplier to your organization’s needs and providing them with requirements visibility. It might mean communicating your short term production needs, for example, delivering 1,000 widgets for a few months and then a quick ramp to 100,000 widgets per week. You and others in your organization will need to work closely with your supplier to increase his yield, reduce product and process inconsistencies, add more shifts, look for product and manufacturing improvements, etc.
10. Suppliers Are Businesses Too - Just as you have a business to manage, so does your supplier. Work closely with your suppliers towards the common goals will make both businesses reap the rewards faster. Both businesses have signed up for success so make sure it is acknowledged and the relationship is working towards that success – not side-tracked in minutia that doesn’t impact either business performance.

I have mentioned the top ten I have heard but I would love to hear from you regarding your innovation and best practices to drive more value from your supplier relationships.  Specifically how do you and your suppliers reap benefits and the benefits reaped?  Reach me at:  m.northrizza@bravosolution.com