In my last blog, I discussed how to transform procurement into a performance-based center of innovation. While that’s definitely a priority in the current climate, I think it’s far from the only opportunity CPOs have to drive down costs.
In fact, some procurement organizations I know of are saving up to five per cent more in total spend than their peers. They’re achieving this through supplier relationship management (SRM).
So what do I mean by that? Let’s look at what happens today. Typically, procurement teams lock savings into agreements lasting a number of years. If no problems or issues arise, there’ll be little subsequent interaction with suppliers. That will only come towards the end of the contract, when renegotiation or the solicitation process starts.
But the problem I see with that approach is that it’s out of sync with the real-world marketplace. Technology regulations, agency objectives, sourcing priorities or cost pressures don’t stop evolving once a contract has been signed. This is why I think it’s so important to keep in close contact with suppliers.
Of course, I’m not advocating a different approach to how contacts are awarded. Procurement teams have to remain completely equitable in how they treat potential suppliers. But once they’re on board, a much more proactive approach is needed.
That, in essence, is what I believe SRM is all about. It starts with segmenting suppliers into tiers based on factors like size of spend, risk levels, etc. Then procurement teams focus more of their time on the top tier of suppliers that are most important in terms of strategic significance and/or level of spend.
Procurement teams will need to manage these top tier suppliers very differently from other suppliers. For instance, I’d recommend appointing a supplier relationship manager for each one. That person will collaborate with key suppliers to confirm common goals and establish a process to share information on a regular basis.
Some of the steps I’d suggest to achieve that include developing relationship scorecards with each target supplier. These will help procurement monitor the health of the relationship and secure agreement on the specific milestones and measures that matter.
I’d also recommend regular review meetings between (at a minimum) the relationship manager, CPO, key customers within the organization and supplier. The discussions provide the opportunity to assess performance, reflect changes in the organization’s needs and introduce fresh thinking from the marketplace.
SRM is all about active management, and I’ve seen the benefits it can provide. That’s why, every time I start work with a procurement team, I’ll challenge them to put some of the pressure to drive innovation and savings back onto their top suppliers.
After all, the suppliers are the ones with a real cross-customer perspective. So, for me, it makes absolute sense for procurement to reap the benefits of their key suppliers’ insights, innovation and energy.
How are you proactively engaging with awarded suppliers to deliver more value to your organization?
Please reach out to me to discuss, and follow me on Twitter @bardga. If you didn’t catch my previous post, then click here to read Unlocking procurement’s potential: why a new approach to people, process and technology gets results.
See this post on LinkedIn: Supplier Relationship Management