Common themes of strategic supplier management
Many organizations find themselves with large numbers of suppliers where there has been an absence of appropriate management or commoditization this is especially true where the procurement function is fragmented throughout an organization and the controls of which suppliers should be used are loose or absent.
Strategic supplier management is an important tool in getting to grips with this situation with it’s use delivering not only cost savings on products but also efficiencies for the procurement department.
One of the first steps of strategic supplier management is an assessment of the products it procures and the suppliers that it procures from. This requires data and one of the first problems’ you may come across is the lack of purchase order data for all transactions – this is often as a result of poor processes and fragmented purchasing. In most cases its best to get spend and supplier data from your finance team. You’ll want to take this data over a year or so depending on your business to give you adequate understanding of trends or buying cycles.
Once armed with your list of suppliers and spend you’ll need to group them – consider placing them into commodities (types of products) this might be over a number of levels e.g Raw material – Metals – Steel in order to give you appropriate granularity for decision making purposes.
Once’ you’ve grouped your suppliers you’ll have a view of spend by commodity – you’ll probably find significant numbers of suppliers in some categories – there may be appropriate rationale for this – but you’ll need to question this to ensure your not fragmenting your supplier base unnecessarily.
An important variable you’ll need to include in your analysis is the type of product and it’s availability – for example inexpensive COTS products (Commerically available off the shelf) may present a plethora of suppliers and provide a number of options – more complex high value parts may have a small number of providers where more attributes that price and lead-time come into play.
You may also want to include supplier performance data in your assessment – at this stage focus simply on QCD (Quality, Cost and Delivery) performance.
Once you’ve got your suppliers you’ll need a plan – your supplier strategy will probably fall into 1 of 3 options
1/ Exit – this strategy means you’ll stop using the supplier – this could be done immediately or over a period of time
2/ Maintain – This means that you’ll maintain your business with this supplier- you won’t look to exit – neither will you look to vastly increase the level of business you give them either
3/ Develop – These suppliers are often strategically important (partners) who require a close working relationship – the supplier may show the appetite and capacity for more business or supply complex and vital products bringing crucial value to your organization.
An optimum supplier base is a crucial step in business success – it isn’t a one off exercise but a continual process requiring appropriate resources to avoid failure – supplier rationalization is one part – but perhaps more important is the need to have the right supplier – that mix of price, lead-time and value that can not only provide products but enhance what you can offer to your own customer.