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 :
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A “Stand alone” process
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Static/disjointed-Specific scorecards
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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.
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.
