How Do You Understand, Qualify, Monitor, & Engage With Suppliers?
Your organisation has a base of suppliers it deals with today. Procurement works hard to maintain all the right information about each of them; monitor their performance; and maintain strong relationships. They are also always on the lookout for even better suppliers, and suppliers to fill new needs. That’s what’s required to consistently gain best value and most favourable prices. But is this really happening as well as your Procurement team would like today?
Why It’s Important – Business Impact
What to Look For – Key Indicators
- Your supplier base is a key asset: Good, reliable suppliers are a key asset for sustainable competitive advantage. Like any organisation, you need to be able to readily obtain a wide range of products and services in order to effectively do what you do for your customers. Organisations compete today, not just on their own internal capabilities and efficiencies, but on the strength and cost of their entire direct and indirect supply chain. You must have the best suppliers delivering the best value on your team in order to win.
- Suppliers can represent risk: Suppliers represent at least two types of risk to your organisation: 1) if a supplier does not deliver as expected, you may not be able to deliver as expected to your customer, and 2) if a supplier has a deficiency in the way they operate their business – e.g. lack of proper insurance, employee background checks, certifications or quality controls – you may well be liable for resulting problems that occur when they are performing on your behalf. You must always know where the risks are and how to mitigate them.
- Good relationships yield better value: You have customers you consider easier (or harder) and less expensive (or more expensive) to work with. It’s the same for your suppliers. If you communicate well with your suppliers, deal with them in a transparent and objective manner, and generally make your organisation “easy to do business with”, you will cost them less. All things being equal, if it costs your suppliers less to work with you than it does to work with your competitor, you’re likely to get the better price, and the better overall value.
- The number and range of suppliers: How many suppliers do you have in your vendor master file? How many are active? Has the number grown over the years as different people have bought similar things from different suppliers, or maybe due to mergers and acquisitions? Can you tell how many you have for various categories? For most categories, too many may mean missing out on volume discount opportunities. For critical categories, too few may mean a high exposure to risk.
- Supplier information: Do you have the level of information you need about current and potential suppliers? Is it kept up to date on a regular basis? Is it all in one place or scattered across the organisation? Is there clear ‘ownership’ of supplier data management? Do you have suppliers categorised in a way that supports effective spend analysis? Does everyone in your organisation know which suppliers are ‘preferred’ when they go to buy something? Do you have lots of irrelevant or duplicate records in your financial systems vendor master file bogging down analysis and reporting functions, and making the information you use for decision-making questionable?
- Supplier approval and performance monitoring: Do you have a thorough and consistent approach to evaluating basic supplier qualifications and risk factors before approving them? Do you capture information about how well suppliers perform? Are suppliers regularly reviewed to ensure they continue to meet qualification standards, and that they are performing as they should?
- Supplier communication: How well does your organisation communicate with suppliers? How hard is it for a company to register as a potential supplier? Are all the right suppliers aware when you do sourcing event? Do you make them call Accounts Payable to know the status of an invoice? Do they always know how your organisation views their performance?
If you think there’s room for improvement in your supplier management processes, download our white paper, How Finance and Procurement Can Join Forces to Drive Significant Savings,
where we discuss the value of a good procurement system and how you can improve your current processes by establishing/enhancing procurement policies, implementing a central supplier directory and standardising supplier qualification and performance monitoring.