Procurement leaders need to move supplier relationship beyond adversarial and purely cost focused to an integrated relationships that can instil co-creation of new values and sustainable competitive advantage. As the world economy becomes increasingly competitive and uncertain, it is imperative for the leaders to manage supplier relationship that can withstand volatility, scarcity, and rapidly evolving customer behavior. In this article, we outline the 6 highly effective actions to create value through supplier relationship management.
Tactic 1: Segment suppliers by market condition and internal metrics
Suppliers segmentation and prioritization is traditionally done based on spending and perceived criticality of a product or service. This segmentation approach overlook the external attributes such as market dynamics, limitations, and realities, which can impose supply risks with material impact on business continuity and value delivery. As supplier relationship managers segment their suppliers, they need to consider the balance of power between buyers and suppliers together with the customer and product constraints. Suppliers collaboration should be focus on suppliers with high demand and product contraints.
Tactic 2: Measure supplier performance that drives operational improvement
It is crucial to develop a common supplier performance management framework and set of value drivers that guide the team in aligning their performance management. Then a set of standard procedures and templates needs to be established for governing consistency and quality. It is very important to develop a measurement method that covers the diversity of supply and operations.
Tactic 3: Manage supplier relationships across the board
Collaborative supplier relationship management require leaders to work across their organization to provide consistency for suppliers and enhance internal capabilities. By default, category managers should hold accountability for supplier relationships, providing consistent ownership throughout the supplier relationship life cycle. If there are available resources, a dedicated analytics team can be set up to support supplier performance management.
Tactic 4: Focus on innovation as the engine for value creation
As leaders shift their mindset beyond cost reduction, they need to formalize a process on how value and innovation are created and delivered. Some organizations develop mechanisms that guide supplier relationship management activity to work with strategic suppliers for generating disruptive innovations and create unique competitive edge. In terms of sourcing, an approach to drive innovation is moving away from low-level specification and hard requirements to longer term, value driven, result oriented arrangements.
Tactic 5: Cultivate a culture of collaboration
Due to the traditional supplier relationship management approach that is usually adversarial oriented, embracing a collaborative relationship management often requires a significant change of mindset. Leaders should invest in trainings that are focus on the behavioral aspects of collaboration, such as influencing, teaming, project management, and analysis capabilities. This will also require a highly qualified and skilled procurement executives.
Tactic 6: Build supporting processes and tools gradually
Leaders should also build enablers such as processes and tools to supplier relationship management. These initiatives take time, therefore it is practical to start small and build incrementally as needed and as the initiative gained acceptance. The most fundamental tools to get started with supplier relationship management are supplier segmentation mapping and supplier performance dashboard.
Suppliers segmentation and prioritization is traditionally done based on spending and perceived criticality of a product or service. This segmentation approach overlook the external attributes such as market dynamics, limitations, and realities, which can impose supply risks with material impact on business continuity and value delivery. As supplier relationship managers segment their suppliers, they need to consider the balance of power between buyers and suppliers together with the customer and product constraints. Suppliers collaboration should be focus on suppliers with high demand and product contraints.
Tactic 2: Measure supplier performance that drives operational improvement
It is crucial to develop a common supplier performance management framework and set of value drivers that guide the team in aligning their performance management. Then a set of standard procedures and templates needs to be established for governing consistency and quality. It is very important to develop a measurement method that covers the diversity of supply and operations.
Tactic 3: Manage supplier relationships across the board
Collaborative supplier relationship management require leaders to work across their organization to provide consistency for suppliers and enhance internal capabilities. By default, category managers should hold accountability for supplier relationships, providing consistent ownership throughout the supplier relationship life cycle. If there are available resources, a dedicated analytics team can be set up to support supplier performance management.
Tactic 4: Focus on innovation as the engine for value creation
As leaders shift their mindset beyond cost reduction, they need to formalize a process on how value and innovation are created and delivered. Some organizations develop mechanisms that guide supplier relationship management activity to work with strategic suppliers for generating disruptive innovations and create unique competitive edge. In terms of sourcing, an approach to drive innovation is moving away from low-level specification and hard requirements to longer term, value driven, result oriented arrangements.
Tactic 5: Cultivate a culture of collaboration
Due to the traditional supplier relationship management approach that is usually adversarial oriented, embracing a collaborative relationship management often requires a significant change of mindset. Leaders should invest in trainings that are focus on the behavioral aspects of collaboration, such as influencing, teaming, project management, and analysis capabilities. This will also require a highly qualified and skilled procurement executives.
Tactic 6: Build supporting processes and tools gradually
Leaders should also build enablers such as processes and tools to supplier relationship management. These initiatives take time, therefore it is practical to start small and build incrementally as needed and as the initiative gained acceptance. The most fundamental tools to get started with supplier relationship management are supplier segmentation mapping and supplier performance dashboard.
