That’s a deliberately ambiguous question. It could be better asked and answered in a myriad ways.
Most organisations will know something about their major suppliers; which ones are critical, which ones you spend the most money with, which ones are reviewed frequently and whether there are perhaps ones haven’t been looked at in a long time.
Some key supplier questions are important enough that it’s vital you have a good handle on them.
And questions around your supplier base have been brought into sharp focus by the recent collapse of Carillion. It’s only right that questions will be asked following the collapse of such a large organisation, especially one with so many government contracts. Moreover, there is likely to be a knock-on effect, as other businesses that are owed money, or whom rely on them for businesses begin to suffer the consequences.
But away from the enquiry, what are the questions you should be asking yourself? What lessons can be learned about how to manage your supplier relationships from this?
Managing your supply base actively requires a robust approach. To succeed, the approach needs to be simple and able to be shared and adopted across the company, not just kept as a procurement “task”.
You need to identify tiers of suppliers and prioritise relationships with them accordingly. A supplier with whom you spend a lot of money might well be prioritised as important, but they could actually be less vital than a small supplier in certain scenarios.
If the large supplier is in a supply market crowded with alternatives, and the small supplier is very niche; supplying a cheap but crucial part, in a market with few alternatives the smaller supplier, could well be the most important.
Implementing a Supplier Relationship Management (SRM) program does not have to be a big, unwieldy, overly-complicated piece of work. It should be tailored to the requirements of your business but it is vital that there is an explicit approach to managing your supplier base in this way, in order to both minimise nasty surprises and maximise opportunity.
How does Supplier Relationship Management create opportunities?
Historically SRM has been an area ignored by most; the assumption has often been only large multinationals turning over hundreds of millions of pounds per year can derive benefit from it.
That’s not the case at all. It is important to find a size-appropriate solution that uses the appropriate amount of resources in proportion to the likely benefits.
Where programs do exist, they often sit solely in procurement and only cover how often certain suppliers should be met and whether or not there should be an annual review. These box ticking exercises end up with zero output and can give procurement a bad reputation for putting up barriers and delivering little.
An exercise like that is only scratching the surface and largely missing the point – a good SRM program needs to tie seamlessly into the corporate vision and involve anyone who interacts with a supplier.
Over a series of blogs I will outline the fundamental building blocks of a good SRM approach and how you could use this approach to not only better manage suppliers to get the value you are already contracted for, but to explore how you can use the model to gain additional value from the existing suppliers. Keep an eye on the blog to read more of my instalments or get in touch with our cost reduction consultants today to find out more about SRM.
Article by: David Rickard