Supplier Relationship Management is essential if you are to ensure that your suppliers are creating value in your business.
It is an unlocked opportunity for most businesses who typically focus on a transactional/operational relationship, instead of focusing on how to develop collaborative relationships.
Suppliers in a manufacturing business can account for up to 50% of your Cost of Sales, and therefore should be seen as a great asset, which can help you gain a competitive advantage. Think of their impact on your business, both in terms of performance, but also to your bottom line. What would a 5% spend reduction mean for you? What would better delivery and quality performance mean to your business and your customers?
Supplier performance can be greatly improved if you are managing them correctly and going beyond the operational scorecard management. Assuming you do use operational performance-based scorecards!!
But if your suppliers are performing poorly, either through poor delivery performance or poor quality then you might want to consider how you manage the relationship.
Collaboration might be the answer. This blog details collaboration, but your own processes might be having an impact too, and this may need to be viewed separately.
Developing true collaborative relationships is not just talking nicely to each other, and saying "wouldn't it be nice if..", or "could you come and do this for me free of charge".
It is about creating a mutually beneficial environment for you both to flourish.
This requires working within a framework where you have carefully considered your supplier selection process, identifying the needs of your business, both legally and commercially. This provides the baseline, and provides some short-medium term commitment.
It is also focusing in on which are the right suppliers to work collaboratively with. A supplier who you spend £5k per year with can be the most important supplier in your business if they are a sole source of a critical product or service to you. Spend level does not = strategic importance.
Not every supplier will be strategically important, and it is impossible to manage every supplier in a truly collaborative manner. Assessing the right ones for collaboration is critical, if you wish to get the most from the process.
Having created the baseline through a solid supplier selection process and underpinned it with the right legal and commercial framework, then you can focus on collaboration.
How do you become the supplier’s best customer? And that does not always equate to spending more money with them.
It’s about ease of doing business too. It’s about working together on a joint plan, with clear actions and ownership to bring about the change required. Yes, each of these needs to be tied into a KPI, so the impact of its success can be measured. But the actions need to have a balance between operational and strategic objectives.
Do they support you on your cost reduction programmes? Are they proactive in delivering true cost reduction to your business?
True cost reduction is delivering productivity improvements on a bottleneck process, and not where there is spare capacity; or delivering true bottom line benefit. Remember the price can go up, but if you use less and the sum of it equals less spend, then you gain!
A future blog will detail the approach to true cost reduction and how you should manage those programmes through a clear plan, developed using insightful data!
But do you know your suppliers’ weaknesses? Do you know their true capability? And for the controversial bit, ISO9001 accreditation is not a true definition of quality. It only says you follow and adhere to the processes you have in place. It does not say if your processes are any good or fit for purpose.
And trust me, I have worked in some major organisations where they are accredited, and yet the business was in a mess due to the poor process in place!
So, you need to dig deeper into their processes and identify weaknesses, with a view to agreeing an improvement plan. At the end of the day that is better for them too. Why wouldn’t they do it?
None of the above is easy, it takes the right toolkits, knowledge, resource and expertise to implement it. And above all, it requires persistence, patience and humility to deliver.
But do it right and you turn your suppliers into your competitive advantage.
If you need to improve supplier performance, or want to know how to truly collaborate with your suppliers then we can help.
Being Supplier Relationship Management Specialist we have the tools, knowledge, expertise and resource to deliver this for you today.
Contact us on 0330 311 2601 or email firstname.lastname@example.org and we'd be happy to discuss your needs and challenges to ensure we provide the right tailored service to ensure you get the maximum ROI.