Procurement savings through managing Suppliers
"What gets measured gets managed"
So how does Procurement achieve savings through managing Suppliers and why is this important? Let us consider this from the prospective of cost and risk. An unmanaged supplier will clearly be aware of a Customer’s lethargy and perform accordingly.
Using a scenario where I am a Supplier to two customers A and B, who am I likely to perform for? Customer A, who manages me diligently, through a suite of KPI’s, an effective well prepared SLA, frequent review meetings, detailed minutes with SMART actionsor Customer B who I meet twice a year, where I bring in the coffee and doughnuts and we discuss business…. There is only one answer to this.
Through effective Supplier Performance Management, (SPM) using the methods detailed above, Customer A will ensure Supplier Performance and that Contract Terms and Conditions are delivered. This will yield efficiency savings and complete adherence of contractual obligations, e.g. Cost Down, Value Analysis benefits etc. In terms of Risk, effective SPM will ensure Supplier Performance in the areas of Delivery, On Time In Full, (OTIF), Quality, e.g. number of rejects, driving towards zero defects, packaging performance etc. driving efficiency improvements and performance and avoiding all excessive Corrective Action activity.
The added value performance delivered to Customer A, is potentially quite resource demanding which without doubt will be paid for by Customer B, who will experience a lesser performance from the Supplier, quite simply because they can!
Effective Supplier Performance Management will ensure that you receive the expected level of Supplier Performance, generate savings and mitigate risk and is a necessity for all progressive organisations.
In some instances however, with the critical few strategic suppliers that can make a huge difference to our actual business performance for the long term, we need to engage in Supplier Relationship Management (SRM).
Leveraging Supplier Relationships to gain Market Competitive Advantage
Today’s Organisations compete through the effectiveness of their supply chain rather than through profitability and their sales offer. In fact, in many areas in the environment of Demand Chain Management that we live in it is very often the Procurement Team and its supporting Core Supply Base that is shaping the future Sales offer and Marketing activity.
In a traditional Supplier relationship, we effectively do things TO the supplier, we send them Purchase Orders, they supply goods and services and we measure THEIR performance, see below.
We are only as good as the Suppliers that we work with and the strength of our mutually created offer. We live in a world where customers want products and services, bespoken / customised to their exact, specific requirements and delivered tomorrow!
The winning Companies understand and embrace this and work together with their Supply Chain to deliver it!
Through sharing our Mission and Long Term Strategic direction with our Core Suppliers, the critical few that matter, we can work together to take cost out, create that new product, take market share, enjoying attractive margins and profit.
The ability to leverage our relationships with the critical few, ‘Core’ suppliers is the key to Organisation success. In an industry, the Procurement Team that establishes the best relationships with the market leading suppliers that serve it is the one that will succeed and deliver market leading Competitive Advantage to both its organisation and its customers.
This article was written by Gary Tinsley FCIPS, BA (Hons), DTLLS, Co Founder of SR Strategic Sourcing Ltd.
For further details and information on Managing your Supplier base and how this can help your organisation please contact us or click through to the following pages