Vendor Management: focusing relationships on Strategic & Preferred Suppliers

Sourcing and demand management are best levers for spend baseline reduction, but on the long run Vendor Management is critical for 1-3% savings year on year.

First of all let me clarify Vendor/Supplier Management and remind you what it’s not :

  • A “Stand alone” process
  • Static/disjointed-Specific scorecards
  • Supplier performance reviews (unidirectional instead of 360)

and what Supplier Management is:

  • Open dialog with the vendor/supplier embedded throughout the procurement contract lifecycle
  • A 360 relationship review incorporating all aspects of Supplier:
    • Information: Master data, Market trends, Finance, Operation, Offering, Innovation, People…
    • Contract Performance: governance, SLAs and outcomes, end-user satisfaction % , continuous improvement impacts…
    • Risk: Brand, Sourcing, Sustainability, corporate responsibility
  • Incremental value creation  through win-win initiatives (using technology as an enabler for example)

Managing all its vendor/supplier base is just irrealistic, so first thing is simply to identify which ones to concentrate on. The graph below shall explain by itself the approach and the 4 clusters you may want to consider.

Vendor Management clusters

Then you can structure the appropriate approach for the top 2 clusters, which basically include all or abstract of the following:

  • Strategic Suppliers / vendors
    • Executive sponsors at both buyer and supplier organization
    • 3 level governance with monthly, quarterly and annual meetings
    • Scorecards evaluating both supplier and customer performance and compliance against objectives and agreed processes
    • Joint « One-Team » working on site at customer ( when it works it becomes difficult to know who is the supplier and who is the customer)
    • Individual performance goals on both sides include metrics evaluating outcomes and performance
    • Outcome or Value based commercial model
    • Continuous improvement and pre-agreed reduction of running fees
  • Preferred Suppliers
    • Sponsors at senior level in organization; may or may not be executives
    • Quarterly or bi-annual meetings
    • Robust scorecards evaluating supplier performance against objectives
    • Cost management control

Being more precise on the approach, you can also leverage the table below to define your strategy.

Supplier Relationship Management 4X6 table

 

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